You Can’t Wing It
Local Consultants Stress the Need for Succession Planning
George Miller was explaining how he came to be the owner and operator of the Magic Wings Butterfly Conservatory & Gardens in South Deerfield.
He said he would try to make a long story short, but acknowledged that this was probably not possible, and then proved his point.Indeed, it took some time to explain how Miller went from being the construction-company owner originally hired by a team of nine principals to build the unique facility in Deerfield, to eventually becoming one of two partners to create and open the tourist attraction in 1999, and then become sole owner a few years later.
In short, there was obviously a good deal of attrition concerning that original ownership team, Miller told BusinessWest, adding that some of them developed cold feet when they learned the actual price tag for this facility — “I gave them some numbers and then had to perform CPR on a few of them.” Others dropped out during what became a protracted battle with the town for the permits needed to make the concept reality.
“They thought the butterflies were going to eat Deerfield,” said Miller with a chuckle, adding that he was asked to come on as a partner, and eventually, he and the lone remaining original investor prevailed and opened the doors to the facility. But this was to be a short-lived partnership.
“We had different philosophies — I liked making money, and he liked spending it,” Miller said. So he bought him out and continued to operate Magic Wings as a family operation, with daughter Kathy Fiore and son George Jr. eventually taking leadership positions.
Fast-forward to early this year, and Miller decided it was time to move on from the enterprise. Actually, his wife provided much of the motivation.
“She said, ‘when is it going to be my turn?’” he told BusinessWest, a reference to how the venture had come to consume most of his time and attention and how she would like some of both.
So Magic Wings is now for sale, thus becoming one of myriad businesses across this region and around the country now dealing with the complex, often thorny issue of succession.
In many ways, Magic Wings is atypical, said Michael Vann, who, with his father, Kevin, manages the Vann Group, a Springfield-based consulting company now handling the sale, and a company that specializes in such transactions and the larger issue of succession.
Magic Wings is certainly unique — a butterfly conservatory is an unsual business and one that commands a distinct brand of passion from its owner, said Mike Vann, adding that, in this case, there were few, if any, options concerning succession; the next generation has no interest in taking over the venture, and a sale to other employees is not a possibility, leaving Miller to sell.
But in many ways, Magic Wings is typical in that it presents lessons in how succession is something owners must be thinking about and planning for; otherwise, the process can become more tedious and difficult.
It also demonstrates how there are many moving parts to succession planning and the many other issues — from estate planning to retirement savings — that older business owners face as they come to grips with deciding the fate of what many describe simply as “my baby.”
Kevin Vann likened the process to putting together a jigsaw puzzle with many pieces.
“I tell new clients to picture it this way: you take a puzzle box that has 500 pieces in it, and you dump them out on the table,” he explained. “And you try to fit all those pieces to the puzzle — their personal life, their business life, and all those offshoots like the retirement plan — together. And when we get started, we don’t know what it’s going to look like.”
These days, the Vanns are helping many business owners with their figurative jigsaw puzzles — Mike estimates that maybe 40% of the company’s revenues are succession-plan-related — and the numbers will only move higher as the Baby Boomer generation ages and business owners confront something they probably don’t want to confront — succession.
They have forged an alliance with the consulting firm ROCG, a multi-national corporation that specializes in business consulting and especially succession issues, and are thus adjusting their own business plans to acknowledge succession planning as a major growth opportunity.
For this issue and its focus on business management, BusinessWest looks at that opportunity and the many issues involved with succession planning.
Getting the Bugs Out
Mike Vann says the numbers tell the story when it comes to the issue of succession planning, why it’s important for business owners to start thinking and doing something about it, and also why it represents a strong growth opportunity for his company.
“Statistics from a study that MassMutual conducted show that 26% of businesses have done some kind of succession planing, and 74% haven’t done anything,” he explained, adding quickly that many, if not most, of the companies in the former category would be considered larger, more sophisticated enterprises, with dozens or hundreds of employees.
Thus, the number of small and mid-size businesses — the kind of ventures that dominate the Western Mass. economy — with a plan of any kind is much smaller, perhaps as low as 10%.
There are a number of factors contributing to those statistics, said the Vanns, including a reluctance to face the issue of succession (there are several reasons why), preoccupation with other matters, especially the day-to-day operations of the business in question, and the general attitude that there will be time to do succession planning ‘later.’While that’s true, later can sometimes be too late, said the consultants, adding that, ideally, business owners should be thinking about succession from the day they start their venture, but more realistically, they should give it strong consideration starting no later than 10 years before their projected exit from the stage.
Put another way, said Kevin Vann, business owners should put as much energy into how they’re going to exit their business as they do with how they’re going to start it.
Helping clients with these issues has become a steadily larger potion of the business portfolio for the Vanns, who also assist clients with sales of businesses (work that is often related to succession planning), mergers and acquisitions, organic growth opportunities, and strategic planning.
“We carry an inventory of six to a dozen succession-planning cases in different stages at any given time,” said Kevin. “It’s a part of our business that’s growing rapidly.”
When asked about those stages, he said there are several, starting with creation of an actual plan itself. This is followed by diligent updating of this document as time moves on and circumstances change. And then, there’s execution of the plan.
In many cases, companies will have a plan, but it will sit on a shelf neglected, said Mike, adding that this is a common mistake business owners make.
He cited the example of a local manufacturing company operated by two brothers who put a buy-sell agreement together.
“One of them’s 68, the other’s 63, and they have a buy-sell agreement in place,” he explained. “At that age, [the younger partner] doesn’t want to have to deal with buying out his brother, and there are no family members to take over. So it’s great that you have a buy-sell agreement, but it’s bad news if you’re the one who doesn’t die.”
Kevin agreed. “Succession and the many issues involved with it are a big problem today,” he told BusinessWest. “Over the past 20 years, the population has been conditioned to think, ‘let’s get our retirement planning done; let’s get our elder-care planning and our estate planning done.’ If you’re in business, succession planning has often been pushed off, and it’s catching a lot of people off guard. And we’re all living longer, so it’s easier to put it off.”
Returning to the example of Magic Wings, Mike Vann said George Miller was not exactly caught off guard — he’s known for some time that neither of his children had an interest in taking over the business when he decided it was time.
But that time came up sooner than he might have anticipated several years ago, and he is now tasked with selling — with assistance from the Vanns — a business that requires a certain kind of owner, one with the requisite passion for its unique purpose, the ability to thrive in what is definitely a ‘people business,’ and one that can see past the many challenges to what Miller believes are solid opportunities.
And it may take some time to find such an investor.
For other business owners, there are different issues to be dealt with. And the list is even longer for those in family businesses, where succession-planning issues and estate-planning issues often collide at high speeds. In those cases, matters include which children will take over the business, on what terms, and with consideration to those children who are not involved in the business.
This crowded intersection of planning issues brings Kevin Vann back to that notion of a jigsaw puzzle. And what business owners need to keep in mind is that a succession is like a will in that it can’t sit on a shelf or in a safe as years and decades go by.
“Succession plans are constantly evolving because people are constantly evolving,” he said. “Someone gets sick, they suffer a health crisis, there’s a domestic problem, an issue with children, divorce … all these kinds of things.
“It’s not just about ‘gee, I’m getting old, I might die,’” he went on, referring to the thought pattern that often spurs one to action on a succession plan. “It’s about all those other things that are going on in your life all day long.”
And succession planning is not just about money — although that is a big part of it, he continued, adding that lifestyle issues often come into play.
“Many people want to stay active, stay productive — they don’t want to let go of their business,” said Kevin. “They have nowhere else to go, have no other vocations, no other hobbies. This is their baby, and they don’t want to let go. And they don’t want to be home with their spouse. These issues are all part of the planning process.”
Overall, succession plans are like snowflakes in that no two are alike, said Mike Vann. Therefore, each situation — meaning each business and the people involved with it — is unique. And there are many moving parts to each plan.
“There’s a big evaluation component to the business,” he noted while referencing where and how the process starts. “There’s a lot of analysis with the company and the people involved with it. We spend a lot of time coming to understand not only the business, but the personalities and the expectations of those individuals. You’re dealing with some very interesting nuances with business owners’ spouses; there’s a lot of discussion as to what’s next.
“There’s a recommendation component that addresses various options,” he went on. “You look at the estate plan that’s in place and what the individuals are doing from a financial-services component. It’s a holistic piece, and it needs to be, because, for many business owners, the company is the largest and most valuable asset they own.”
As for the execution phase, well, that comes complete with its own set of issues, said the Vanns, adding that it’s one thing to have a plan, but another thing altogether to carry it out — and the latter is often more difficult than the former.
“It’s not uncommon for us to get to a situation where we’ve completed a plan, there’s agreement on the plan, and no one wants to execute,” said Mike. “That’s because there are some hard conversations that have to come, probably some decisions on a family member that an individual doesn’t want to make, and many other things. It can get difficult.”
The Vann Group’s affiliation with ROCG will help in the process of helping clients navigate all that whitewater, said Kevin, adding that company has several offices in North America and provides access to resources and knowledge.
“If we want someone to look at an employee stock-ownership program, they have people who are experts on those,” he said. “The same with valuations and the many types of situations we encounter. There’s a wealth of knowledge and experience that we can tap into.”
Looking ahead and at their own venture, the Vanns acknowledge that succession planning will soon become a huge source of business for a wide range of companies and individuals involved in consulting.
They believe they will have a leg up (or six legs up, in the case of Magic Wings) on all that competition thanks to their experience, affiliation with ROCG, and work putting together hundreds of those proverbial jigsaw puzzles.
Indeed, succession planning, like running a butterfly conservatory, involves hard work and, well, making sure things take off and land properly.
And they believe they have the perfect flight plan.
George O’Brien can be reached at [email protected]