Succession Planning Starts Now
When Bill Bernick and his partner Rick Jordan Sr. began their journey as shop owners in 2004, Bernick sought the advice of an independent business owner in the air conditioning business. Having never owned his own company, he wanted some tips on how to get their business, Fifth Gear Automotive, off the ground.
The first piece of advice shocked him.
“He told me the first thing to figure out was my exit strategy,” Bernick says.
“We are just starting,” he thought, “why am I focused on the end?” Perplexed but intrigued, Bernick kept listening.
To fully run the business how you want, you need to know what you’re working toward, the entrepreneur said. “Are you building the business to sell it in five or 10 years? Or are you building it to sustain?” he asked.
That made Bernick and Jordan think, “what do we want?” They settled on a business that they hoped would sustain their income for the rest of their lives, but one that they didn’t have to run until they died. To do that, they quickly realized they would need more than one location to support both of them. So they set on a strategy to get them there, and soon after put together a transition plan for their eventual successors that would keep the business running smoothly while providing for Bernick and Jordan’s long-term goals. As of today, Bill is still in the business while Rick’s son has stepped in for his father.
It’s important to note, Bernick and Jordan’s plan is not the norm. Just 34 percent of family businesses have a robust, documented and communicated succession plan in place, according to PwC’s 2021 US Family Business Survey.
But according to Joe Marconi, Ratchet+Wrench columnist, Elite Worldwide coach and recent seller of his business, it should be how shops operate.
“I don’t care if you’ve been in business for 10, 20, 30 years. You have to get the business ready as if you’re leaving tomorrow,” he says.
In its simplest form, a succession plan is the transition of leadership from one individual, or group of individuals, to another. And as many owners continue to age out of the industry, it is increasingly becoming a process that shops need to navigate.
So, what do you need to consider when putting together a succession plan? And how do you make sure it is executed properly? Let’s find out.
A Plan to Work Backwards
To best describe how to plan out a succession, Bernick thinks of football. Why do so many games go to overtime? It’s because the trailing team knows exactly what it needs to do to tie the game. Down 14 points? A field goal isn’t going to work. They need two touchdowns.
With your business, if you know what the final goal is, it is much easier to structure how to get there. So Bernick’s advice: start with the end in mind. What do you want the exit to look like?
For Bernick, that meant getting the business prepped for adding a second location. It meant buying the property of both locations. He knew that was going to help set up his part of the succession plan, adding additional revenue streams to support his retirement.
And from there he worked backwards. It helped inform how many technicians, advisors, porters, admin, etc. to hire to get there. And it naturally got him thinking about how an eventual successor would need to learn and rise through the ranks.
Marconi suggests a similar mindset and recommends writing it out. A shop owner should plan out the benchmarks it needs to hit and set dates. First, set the date you’d like to leave the business. It could be as specific as a particular date or it could be broadened to a certain year. But set a deadline. Give yourself something to shoot for. From there, schedule out all the things that need to be done before then. For example, set the date at which you’ll determine whether the successor is in-house or an outside buyer. When will you decide on a final candidate? How much time will they need to be trained in? Think of all these steps and set deadlines for each.
Leave yourself plenty of time.
Marconi had a clear plan to be out of his business by 60. It didn’t happen until he was 66. For one reason or another, it kept getting delayed. He was close with several prospective buyers before the deals fell through. And once he did find a buyer, it took much longer to deal with all the necessary parties and paperwork than he thought. But that was OK, he says.
Marconi is a big believer in setting deadlines and holding himself to them. But sometimes things happen outside of your control. So it’s a balancing act. Don’t get so beholden to deadlines you set 10 years ago. If the business isn’t ready, it isn’t ready. But don’t let that become an excuse to push the decision down the line. Be aggressive in achieving the goals, but be realistic to challenges that will inevitably pop up, he says.
It should also include benchmarks for investments, Marconi says. Too many businesses don’t leave their business in a position to succeed. They stop investing into new technology and equipment a few years before they are looking to leave. And then when they leave, they wipe their hands of the business and the remaining staff and their successor have all this catching up to do.
“You have to run your business as if you’re going to be there 100 years. Two months to go, you should be thinking, “what’s our marketing look like, do we need to update the scan tools?”
So while you need to be ready to leave at any moment, you should also not get complacent along the way.
It’s one of the mistakes Marconi sees most. The business owner begins to abandon investments at arguably the most critical time for those investments, which is during the transition. All these steps should be addressed in an exit plan.
A Clear Organizational Structure
Mike Tatich came to a similar realization about creating a succession plan as Bernick and Jordan did, but much later in his shop ownership. The owner of TMT Automotive for 38 years, Tatich had a close friend pass away and knew another fellow shop owner who had a stroke about 10 years ago. He saw that his friend’s business didn’t have a plan on how to operate without him there. And he looked at his own business and saw many of the same characteristics. So he focused on creating a succession plan.
He has a natural successor in his son, Tony, who had spent his entire childhood working at the shop, through high school and again once he returned from college.
And now for the last twelve years, Tony has slowly been assuming more and more roles and responsibilities as Mike serves as more of the visionary for the company.
Mike credits the clear structure that he, Tony, and the rest of the staff have laid out and followed for the successful transition. As happens with familial succession, it can often be difficult to discern which person will take on what tasks, who truly has “control” of the business, and who employees should go to for issues and questions.
That was happening at the beginning with the Tatich’s team members were hearing one thing from Tony and another from Mike.
So to help create that structure, the Tatichs used EOS (the entrepreneurial operating system), which helps small businesses organize and structure their business.
The team created an accountability chart, which is basically an org chart, that explicitly stated everyone’s responsibilities. The exercise helped Mike break away from wearing all the hats, giving him a concrete way to delegate to Tony. It also made evident to the rest of the team what Mike’s role in the business was and what Tony’s was.
“It really helped us dial in and get pointed in the right direction,” Mike says. “If your business doesn’t have a clear outline of what everyone’s jobs are, who reports to whom, and who makes the final decisions, it is imperative to add that before a succession plan is executed. Also, who is the no.1, 2, and 3 for each task.”
A Desire to Leave (at some point)
For Bernick, the key to creating and executing a succession plan is having the desire to delegate and eventually leave. It sounds obvious, but it is a hard step for many business owners to take, Marconi says.
“It’s a big problem. The business is their baby. How do you hand your baby to someone else?” Marconi says.
That means being willing to allow others to be successful and potentially allow them to do things differently and better than you previously did. And being intentional about it. It also means a commitment to developing a successor. A business owner must invest time, energy, and money into grooming the next owner, and that goes for whether an in-house employee is taking over or another seller, Marconi says.
In the sale of his own business, Marconi slowly had his outside buyer integrate into the business. First, the buyer just bought one of Marconi’s two locations, the smaller one. Over the course of another year, the buyer worked directly with Marconi at the shop three times a week, learning the business, people, and customers. Then, when he was fully up to speed, he bought the second location and was able to hit the ground running.
If the shop owner resents the eventual succession, nothing along the way is going to be easy and it’s likely to never happen.
A Qualified Successor
So, who do you hand over your baby to? Marconi sees another misstep during this process. Many shop owners got their start after being technicians. So when they are looking to find a successor, they first look at their highest producing tech. But to Marconi, many of the traits that make a top technician successful are individualistic. It’s not that they're selfish, but to be a leader and an owner, you have to be as motivated to make your employees successful as you are yourself, he says.
For Bernick and Ricky Jordan, Rick Jordan’s son, they are looking for three things when they are hiring, promoting and thinking about the company’s next set of leaders: attitude, potential, and chemistry. They want to surround themselves with people who work hard, show skills that go beyond the role they are being hired for, and the desire to be part of a team.
Those were characteristics Bill and Rick liked in Ricky when he assumed the President of Operations title of the business and bought a stake in the company. And Ricky preaches the same idea as Marconi: Don’t just look at high producing technicians.
“All those strengths are weaknesses in a leadership role. Leadership takes a high eye and confidence in their identity. Their identity can’t be determined by their role or their production,” Ricky says.
The family business
Ricky Jordan knew that because of his last name, he had a big advantage in potentially being named a successor. After all, the business is family. But Ricky isn’t without his qualifications. He worked his way up in the business and earned the promotion, Bernick says. And if anything, his last name made him be better. Like a coach’s son, they can either get lots of undeserving playing time, or they need to be better than everyone else to get the same credit. It’s been the latter at Fifth Gear Automotive.
“If Ricky couldn’t have evolved to the role we needed him to evolve in, he wouldn’t be here right now,” Bernick says, adding “nepotism is really hard in a small business.”
For many business owners, they want to keep the business in the family. And there is nothing wrong with that. But make sure they are earning it, Bernick says. That ensures the rest of the team respects the second-generation owner and that they are properly prepared to take on the job.
Now does that mean your top tech can’t be your successor? Of course not. But look past the high-producing techs. Find someone who understands, or you believe can learn, the back-end of the business. And then give them time to grow into the role.
Marconi recommends the eventual successor spend at least 3-5 years working with the current owner, slowly taking more and more responsibility. From the time Ricky’s eventual succession was first discussed, it took about five years before it was fully implemented.
And Tony Tatich, who has assumed ownership stake with his father Mike, advises owners to preach patience with their successors.
“I’ll run through a brick wall but I run for the business, but if I run through too many too quickly then it gets to a breaking point,” he says.
He also preaches that the eventual successors are patient with the current owner. Remember, it’s their baby. The second-generation owner won’t have the same connection to the business. Be cognizant of touchy topics and how far to push. It’s hard to understand what the business truly means to the owner until you get skin in the game yourself.
Finally, the exiting owner needs to create their own post-succession plan. For Mike Tatich, he has continued to have a role in the business, looking at bigger picture issues and heading up a lot of the company’s in-house training efforts and acquisitions. For him, succession doesn’t mean he has to leave the business. It’s just the next phase in his shop ownership journey.
“Think of it like the game of football, I’m not playing the game anymore but I am being a much better coach from the sidelines. With over 38 years in the business, a lot of knowledge is built up that I can share with others in our shops and our industry. The last thing I wanted to do is to take the knowledge, bumps & bruises over the years to my grave and not pass it on to the next generation,” says Mike.
For Marconi, that meant an increased commitment in coaching. He wants to continue to be a supportive voice for the industry, using his years of expertise to help other shop owners. One of the many lessons he’s learned? Owners need a post-succession strategy.
If a shop owner doesn’t have a clear vision for their next step, then inevitably the owner will fall back to the business. Going back to the child analogy, they will become the overbearing helicopter parent for a business they no longer own. That is not a productive use of their time, or the shop’s, Marconi says.
So whether the plan is to still have a smaller role, enter a new part of the industry or get out completely and spend your days golfing, there needs to be a plan.
“There has to be something you look forward to in order to make the transition,” Macaroni says. “There will be a lot of second guessing. You don’t just walk away after 45 years and say ‘well that was nice, on to the next.’”