Sam was from the old school. Sam ran the industrial paint and coatings company profitably, if autocratically, but had no faith in his son’s ability to carry on the business.
Background
Sam was from the old school. During World War II, he developed a business manufacturing and selling industrial paint and coatings to the military in the San Francisco Bay Area. After the Korean War, the military business dwindled but the company successfully transitioned to producing paint for sale through distributors and hardware stores, as well as selling directly to contractors and “do-it-yourselfers” – a much more competitive business. In the effort to reduce costs, Sam moved the business to a small town in the Central Valley.
The Problem
Sam ran the company profitably, if autocratically. His son Sam, Jr. was head of sales and spent as much time on the road as possibly to escape the unyielding demands of the “old man.” . Sam Jr. could always say, “I’m on the road almost all the time now, what else do you want?” On the road he developed a taste for the “fast life.” He was never in touch with the production process, product research or the flow of money through the company. In short, he never learned to manage.
The Solution
I suggested to Sam, Sr. that we use The Profit Process to anticipate all possible events. This part of the process identifies a succession plan for the redistribution of duties and corporate governance once the founder steps down – or dies. The succession plan also anticipates the payment of estate or death taxes and the redistribution of the stock upon the founder’s death, an inevitable event.
The Result
We held countless meetings with attorneys and life insurance brokers, laying out various scenarios. But Sam could never come to grips with the idea of his own mortality. He found fault with all possible outcomes. Ironically, he had no faith in his son’s ability to carry on the business responsibly.
Sam Sr’s procrastination proved fateful. A visit to the doctor revealed advanced inoperable cancer. He was dead in less than 60 days. An attempt to do last minute planning divided the family. Insufficient life insurance resulted in unnecessary estate taxes. No management succession plan was in place to ease the stresses on staff and customers trying to get used to new leadership. Sam, Jr., insufficiently trained, inexperienced, naïve and irresponsible, failed himself, his business, his family and his father’s legacy. In a textbook case of Murphy’s Law, everything that could go wrong, did. In four years, a business that once had $4 million in sales, no debt and full ownership of its premises was bankrupt. The assets were sold to pay the taxes. It was a total and very tragic loss to the family.
Commentary
In my consulting experience, one of the hardest things for an entrepreneur is to know when to let go. They talk about it but doing it is quite another thing. They just can’t face reality: they will die.
But I’ve also seen it done with panache and style.