[Transition Planning] All in the Family

Owning your own business. For many, it’s the pinnacle of the American Dream. You work hard, persevere and build a business which supports not only your family but also the families of those you take on as employees. Your own son or daughter has even joined the company, and you are beginning to consider passing the business along to the next generation.
But how do you know when the time is right? What do you — and your children need to do to prepare? What do you do when there is more than one sibling? And once the decision is made, do you make an abrupt departure or slowly ease out of the business?
PCT spoke with representatives of five pest control companies who have transitioned or are in the midst of transitioning the business from one generation to the next. And the answer to all the above questions is there is no single right answer — it depends on the personalities and situations of those involved.
However, we did glean some best practices and kernels of wisdom from the vast experience accumulated by these families. Following are some sage words of advice from those who have been there.
Probably the most controversial decision is whether the older generation should pass along the business through a clean break or an eased departure. Here’s how our panel of experts viewed this potentially divisive issue.

A CLEAN BREAK. “Having a clean break of ownership and management is essential,” says Stacy O’Reilly, president of Plunkett’s Pest Control, Fridley, Minn. “Once my father decided to transition, it was a clean break. That’s definitely the way to go.” O’Reilly’s grandfather set this precedent when he passed the business on to his son through a clean break, she says, adding, “My father appreciated that, and he gave that gift to me.”
O’Reilly feels that a clean break is important so the lines of authority are clearly established for employees. “Dad ran the company very well for almost 40 years, so how much authority was I going to have if he was just down the hall?” she asks. “Without his endorsement of my authority, no one would have followed me.”
Plunkett’s also found this to be the better solution because both O’Reilly and her father, John, have such strong personalities that neither wanted to try to run the business together. “The business is too small for that much personality at the top!” she says. She has been surprised, however, at how her father and mother were able to let go and have faith in her leadership abilities and decisions. When she makes changes, she says, her father doesn’t tell her what he thinks. “He shrugs his shoulders and says, ‘It’s your choice.’”
Bill Russell and partner Glenn Sidder, retired owners of Eradico Services in Novi, Mich., also made the final transition through a clean break, Russell says. They began the formal process five years ago with a second level of stock for their sons (Russell’s two, Steve and Chuck, and Sidder’s, David). Two years prior to the transition, they began to investigate and negotiate the sale, then one year prior came to an agreement and began to position the company for a change of leadership.
“During the final year, I believe it is essential that the senior members begin to make the break,” Russell says. In his case, son Chuck took over the Pest Services Division and Steve managed the Lawn Services Division. They, along with David, had grown up in the business, having joined the company directly out of college. “They know the company, the industry and our people very well,” notes Russell, and were recognized as leaders by the entire company who were informed of the transition plan. “Still there is a tie and loyalty to the senior owners,” Russell says. “My strategy was to withdraw as much as possible from the interaction and workings of the company other than some projects that I felt had to be done to strengthen it.”
The strategy ensured that Chuck was prepared for his leadership position and created a seamless transition, Chuck says, but the finality of the transition was difficult at first. “I really wasn’t prepared for the separation being as acute as it was. I equate it to a mourning period.” While he can still talk to his dad about the business and decisions, “he’s not right down the hall. All of a sudden the guy you always went to talk with isn’t there.”
But, Chuck adds, “He had a lot of foresight. He set it up so the second generation was ready to take on the leadership roles, so that when the transition went through it was seamless by design.”
AN EASED TRANSITION. Two other companies are taking more of a gradual approach to the transition, with father and son working side by side to run the business.
In Northfield, Ill., Rose Pest Solutions director of operations and heir apparent, Bob Dold Jr., has done a great deal of study on family businesses. “The transition from the first generation to the second is often the most difficult,” he says. It was a dream of the first generation owner, which brought with it the drive to build the business, Dold Jr. explains. The second generation often doesn’t have the same dream or drive and research has shown the rate of business failure at this stage to be approximately 50 percent, he says. By the third generation, you often end up with owners who sell out. This generation wasn’t around when the business was begun and has no idea of the work and effort that was put into its creation. But Rose Pest Solutions has survived each of these challenges, and now in its fifth generation of ownership, has learned a great deal from this long history, Dold Jr. says.
Rose is currently run by Dold Jr. with his father, Chief Executive Officer and Chairman of the Board Bob Dold Sr. (whom Dold Jr. refers to as “The Chief”), and his mother, Judy Dold, president of Rose. There will be a day when ownership of the company shifts, but, Dold Jr. says, “Ours will absolutely be a gradual deal. Dad will be here until the day he dies — which as far as I’m concerned is great!”
This works well for them, Dold Jr. explains, because they are very supportive of one another. Dold Jr. is able to make decisions and make changes in the company, and “The Chief has been right on board with those changes.” It does take sensitivity on both sides to make it work, though, he affirms. “The person taking over has to be very sensitive to the person letting go, because it is difficult to let go when it’s been your whole life.” On the other hand, he says, the person letting go has to realize that he does have to break the tie at some point and allow the next generation to be the authority. “If you don’t recognize that both sides have sensitive areas, it’s going to be a problem.”
Dold Sr. appreciates that he and his son have a unique situation. “I’ve looked at other businesses; that’s not the way it works,” he says. There aren’t many businesses that work well when two generations are in control, he says, but “every one is quite different. It depends on the individuals. I don’t think there’s a textbook answer because it depends on the personalities of the people.”
The gradual transition also works well for Rose because Dold Sr. has transferred a great deal of the authority of the business to his son. “The position he is in gives him access to everything in the business,” Dold Sr. says. “There’s nobody that questions his authority at this stage of the game because, truthfully, he makes better decisions than I do.”
While Dold Sr. is in no hurry to leave the company, he also understands that he does need to pass it on. “I’m not looking to not be around. I love the business. I love being part of the business.” However, he adds, “I am looking to have Bob have ownership.” The company’s consultant, family business expert John Ward, put the timing into perspective for him. “From [Ward’s] perspective, it’s still possible for me to be able to give up power. But after a certain age it becomes difficult to give it up,” said Dold Sr., who also shared some of Ward’s other observations: “‘If in five years Bob is not controlling it, either you’ll have a very unhappy son or he’ll leave.’ That made a strong impression,” he said.
But even when Dold Jr. is the owner, Dold Sr. does not plan to be completely out of the picture. “I think our relationship is that I welcome the opportunity and I think he welcomes the opportunity for me to stay.”
At Adam’s Pest Control in Hamel, Minn., President Harold Leyse (dad) and Vice President Todd Leyse (son) believe that a gradual transition is also the right business model for them. “I still like doing what I’m doing, but I am now taking off Fridays,” Harold says; as Todd quickly interjects, “except when I schedule meetings for you on Friday mornings — like this one.”
While the two may disagree on the details, they generally agree on the direction of a decision, they say, with the give and take of the conversation providing a good look at how the two interact at work:
Harold: “I’m giving him a lot of decisions, but I’ll be there if he needs any help.”
Todd: “He’s given me a lot of authority and always has. He doesn’t second guess things I do.”
Harold: “Even if I disagree, I’ll let him make mistakes. Everyone makes mistakes — just don’t repeat them!”
Adam’s’ bigger challenges came from the transition that had to be made when Harold’s previous partner passed away. The two had been equal partners and each had what they thought was adequate life insurance. But the partner’s sudden death and the fact they had never increased the insurance amounts meant the Leyses were left with a financial burden while paying off the partner’s estate over six years.
From this experience, the family learned a great deal about estate planning and working within partnerships. Harold advises against partnerships unless you are absolutely sure you can trust your partner implicitly and he or she has a similar work ethic — similarities Harold had with his partner and has with his son. Even when you’ve set out agreements and believe that all is in order, the day may come when you are dealing with your partner’s family. Put your agreements in writing and agree to review them periodically.
Dold Sr. offers similar counsel for passing on the business to one of many siblings. “I’ve learned that someplace along the line, one child has to have control,” Dold says. If you are going to divide the business among siblings, each has to have a business under their own control. “If you give four children each 25 percent, it’s a disaster,” he says. “Give one 100 percent and compensate the others through other resources.” You do have to try to make it fair, and be sure that all siblings know of your decision. “If they’re going to be mad or fight, I’d rather have it at me than at the sibling down the road,” he says. “Family is very important. There’s nothing I have or own that’s worth the fight.”
The Leyses have made a similar decision with their children. Todd will get the business and daughter Andrea, who has been involved in the business but has no desire to run it, will be compensated equally but differently.The Leyse family had considered selling the business after the death of Harold’s partner. “I didn’t want to sell,” Harold says, “but it was close. We had a buyer.” Instead he spoke with Todd, who was working in computer science management at Rosemount Measurement at the time, asking, “Would you ever consider coming to work for me, to work in pest control?” Although Todd had never planned to get into pest control, he was always interested in running a small business. He agreed to the move, both because he saw it as an opportunity for growth, and to help with the financial aspects of the business. “Dad is not a numbers guy, that’s what the partner did,” he says.

OUTSIDE PERSPECTIVE. Todd also feels that his time spent working outside the family business enables him to contribute more to the business. “I established myself as successful outside the family business,” he says. “I probably bring things to the table that I wouldn’t have if I had grown up with the company.”
Dold Jr. also worked outside the family business for a time, establishing himself in business, law and even a stint with the White House; and he recommends that anyone going into a family business take this time away. In fact, he says, in a presentation he delivered to family business owners he asked participants the question: “Should someone work outside the business before they come back in?” The affirmative response was unanimous. In addition, he says, 75 percent of the attending owners said they have a policy that family members must work elsewhere before joining the family business.
When a son or daughter does then join the business, it is generally with the plan of eventual ownership, but in most companies this has to be earned through hands-on learning of the business, the industry, and working with a variety of mentors.
At Eradico, both Russell and Sidder hoped their sons would join the business, and wanted to leave the business to family when they retired, but they also believed the position should be earned. “We decided that they would earn the position and not have special favor,” Russell says. “I believe the concept of earned respect and competence is very important in the transition of leadership in any organization.”
From the time they joined the company, Russell says, they were being trained for their eventual takeover. “The people of Eradico respect and trust Chuck and Steve because they were given the most difficult, and often the dirtiest, duties and performed well in all they did.” Thus, the company was able to establish a culture of competency, not inheritance.
“The day I started working for Plunkett’s, my dad set up a plan for me,” O’Reilly says. She, too, had established herself in other businesses, and says, “I needed to go out there and see other businesses — to know I had the skills.” And from the moment she began at Plunkett’s, the company knew she was being groomed for eventual ownership. This has to happen, she says, not only because it’s best to be up front with employees, but because they will know anyway. “There are not many MBAs from Dartmouth hopping in a technician’s truck!” O’Reilly quips. 
O’Reilly’s grooming included one year as a technician, one year as a supervisor, “then we signed the documents and he walked away — to my great amazement.”  Having this clear plan with a timetable helped make the transition a success and ensured that things didn’t drag on, she says. “Both of us were very satisfied with the timing of the transition.”
Of all the advice given from both sides of the generational transition, the most often cited is to set your plan now — in writing and working with professional advisors.
No two transitions will be exactly alike, and once you begin to plan, questions will arise that you would never have thought to address. “Those that want to legally transition the business really need to sit down, map it out and get some professional help,” says Dold Sr. “For most of us to think that we’d be experts — that’s sort of insanity to me.”

The author is a freelance writer based in Champlin, Minn., who is a frequent contributor to PCT magazine. She can be reached at llupo@giemedia.com.