All in the Family
August 2006There may have been an era when passing your business onto sons and daughters was like flipping a switch, but these days, fast-paced technological changes and unpredictable economies make succession planning a serious business. To ensure your company’s success in the hands of your children often requires well-drafted strategies and concrete long-term plans. Here’s a look at how four AWCI member contractors are handling the throes of change.
Bayside Interiors Inc.
Burke Nicholson (father), Norma (mother), Michael (son), Steven (stepson)
The changing of the guard is under way at Bayside Interiors, based in the San Francisco area, where owner Burke Nicholson, 70, recently stepped down to let his son Michael, 45, and stepson Steven, 41, take controlling interest. They will have a partner, Tim Hogan, who ran a company arm, Bayside Metal Systems, which was merged into Bayside Interiors earlier this year.
Planning the change has not been an overnight thing, says Burke, noting that it was important to be fair to their two daughters who aren’t involved in the business.
To prevent conflict developing among the four siblings, Burke and his wife Norma, who brought the company into the computer age and has played a key role in its human resources department, did extensive research on succession planning. What the husband-and-wife team learned was that many family businesses tank and family relationships suffer because succession planning is not seriously thought through.
Not wanting to make those mistakes, Burke and Norma decided to have the company’s value assessed when Michael and Steven took over the business. They then took out an insurance policy for their daughters, giving them an equal share of the company’s worth at the time that their sons acquired it.
Sound perfect? Not quite, because Bayside Interiors continues to grow—business volumes are $4 million a month under the helm of their sons who are on an upward path. (Burke did $1 million in business in Bayside’s first year in 1984). That continued growth could leave two unhappy daughters left watching what they missed out on. To compensate, Burke says he and Norma are making adjustments to their wills to ensure both daughters are treated fairly.
To get to an ownership level at Bayside, Michael did an assortment of building-related jobs, including sales for major gypsum manufacturers. He also got a college degree before taking a position at Bayside in 1990. "I took a pay cut to come to work here,” he says.
Steven had started working for the company about four years earlier, working his way up the ladder, starting in the field. He tackled taping for three years and became a framer-hanger before moving on to the operational side as an apprentice estimator in the early 1990s.
For both men, the best thing about the job is successfully bidding a project, completing it on time/budget, making money for the company and its employees and solidifying a relationship for repeat business, Michael says. The worst thing about the job? Chasing overdue debts that, on rare occasion, lead to filing a mechanic’s lien on a job.
As for passing the business on to their kids, both Steven and Michael won’t push their children into it. Steven says if either of his two kids wants to be a part of Bayside one day, he’d like to see them work for other companies in the industry for a few years first. "After that, if they are still interested in the industry, then they should approach us and we’ll work something out.”
"I believe that they have to find something they love to do, which is what they will excel at,” adds Steven. "It doesn’t matter if they are making $1 million a year or $10,000 a year. If they are happy in what they do, that is really what matters.”
Mader Construction Company Incorporated
Jim Biddle (father, retired), Kevin (son / president), Jim Jr. (son / financial officer)
When Kevin and Jim Jr. Biddle were growing up in suburban Buffalo, their big interest was chasing flyballs, not working up a sweat in the family business, Mader Construction Company Incorporated. "Once they got working in it, they felt the same as I did as a youngster: the desire to watch things being built and to be proud of it,” explains Jim Sr., who now watches from the sidelines as his sons run the company along with partners Hap Keller, Joe Knarr and Steve Smith.
Jim Sr. says the process of passing the company on to his sons took about five years, starting with meetings with the oldest, Jim Jr., about what role he’d ultimately like to play. Once both sons had sorted out what they wanted to do—Kevin as president and Jim Jr. as CEO and financial officer—the three discussed who else to include in the company. When the gavel was passed in 2001, Kevin, Jim Jr. and Hap were given controlling interest.
Jim Sr. says it was important to ensure that all his kids were treated equally. To be fair to his two other children, Sharon and Joe, he bonused the present five shareholders out of the old company the seed money for the new company (a new corporation). "That way all four kids could share in what hopefully I would have in my estate. And, in fairness to Jim and Kevin, if they were successful in the business, they could accumulate for their partners and their heirs.”
Jim Sr. then signed a series of notes for the new company to protect his interests (receivables). Jim Jr. and Kevin are obligated to pay back those loans over period of years.
Jim Sr. says he didn’t want to make the mistake some parents do with family businesses: not sharing all information about the company and their own financial position. It is an important part of successorship planning. "This way the kids are not sitting there with a gun to my head waiting for me to crawl into the box.”
As a young man, Kevin, now 42, never took to construction in a big way. "When we were really small, we’d go to the office on Saturdays and play in the warehouse running around on the ceiling tiles … stuff like that. But I just wanted to be a baseball player.” Kevin’s passion for the America’s national pastime prompted him to go to college to play baseball. But eventually he went to work for his Dad. "I’d never picked up a screw gun or any tool for that matter, but I fell in love with the work quickly.”
In a sense, he says the business is like baseball – a team effort wins a game or puts a building up. After six months, he took a job with a branch office doing estimating before coming to Mader’s head office in 1995 to work as an estimator/purchasing agent. Kevin says when he bought into the company along with Jim Jr. the presidency chair seemed a natural fit for him. "We were lucky in the fact that my brother Jim is our controller, our money guy, our insurance guy, while I came from the construction side. Both of us agreed that our roles maximized our talents.”
Paperwork is a big part of the job today. Fifteen years ago Mader’s invoice for a $5 million job was one page long; today, it’s likely to be a 25-page report with a breakdown of the schedule of values.
Kevin says the secret to making Mader successful is to try and make it more than just about bricks and mortar. Enjoy the people you work with and the customers, he says. Like his father did with him and his brother as kids, Kevin will probably expose his two children, Kirsten, 12, Jeffrey, 9, to the business but not push them into it. "Right now, they both love walking the trade show floors to get the free candy and pencils.”
T.J. McCartney, Inc.
Tom McCartney (father, retired), Mary McCartney-Walsh (daughter / current owner)
The drywall commercial contracting company has come a long way from 1976 when it was founded by Tom McCartney, 73, in New Hampshire. Today, run by Tom’s daughter Mary, 41, the company does $28-$35 million annually in metropolitan Boston.
Tom McCartney never groomed any of his five children for a life in his drywall company and only one son, David, showed interest in hands-on construction. But rather than head the high-volume construction business, David chose to go out on his own, forming New Hampshire-based Gemini Construction in the early 1980s.
Mary was the big surprise of all, says Tom. "There was never a thought in my mind that she’d become involved in the business.” After taking a marketing program at college, she came to the business partly in a marketing capacity, partly to do project estimating. "I liked the challenges but I’m not a detail person so estimating was tough for me,” she says.
Eventually she formed an arm of the business called McCartney Interiors which did commercial fit-up work in Boston. After a few years, hard times hit in the early 1990s and Mary went back to school to get an MBA at Northeastern University in Boston. It was then that she realized she didn’t want to be a corporate suit; she saw the construction business as a viable career.
When Tom decided to retire about 11 years ago, some of his "very capable” project managers and a financial expert proposed to buy him out. He chose to get computer profiles of the potential candidates done by a Tampa Bay, Fla., firm, which claimed it could select the best candidates to run the business. "Just as a lark I got the profile done on myself, I think I did my wife, Mary and a bunch of people.” The results were surprising in that Tom and Mary both topped the list as best candidates to run the company.
Tom assessed the value of the company with his accountant, than wrote up a 10-year buy-out package for Mary who was 30. He then left Mary to create her empire. "I saw businesses where the father stayed on, doing nothing much but collecting a lot of money and putting a lot of pressure on the kids. I didn’t want to do that. The business can go south in a hurry.”
It took Mary only two-and-a-half years at the helm to buy the business lock, stock, and barrel. Mary says her business style is similar to her Dad’s. She’s learned from him to listen and respect employees and never micromanage. That might explain why many of the contractor’s youthful staff has been there for 15-20 years.
Mary, who has a son, David, 9, and a daughter Hannah, 10, says she wouldn’t encourage either one to get into the business, although "if anyone could do it, my daughter probably could one day. She’s very independent and very strong. We go into Boston and I show them the buildings we’ve done. I think that’s great, but I would like them to follow their passion because this business is hard, very stressful.”
Any regrets about her career choice are strictly fleeting. "I definitely have had moments that I wish I was a stay-at-home mom, puttering around in the garden, but I don’t know how to cook … I’m so non-domestic because I’ve been on that go-go-go path for so long. This work has afforded me a very nice lifestyle, a lot of freedom to be involved with my kids.”
About the Author
Don Procter is a free-lance writer in Ontario, Canada.