Wayne Sloan racked up a fulfilling list of accomplishments over his 36 years as president of BHS Construction: building the St. Thomas More sanctuary, updating the Columbian Theater in Wamego and renovating numerous Greek Houses, just to name a few.
But at some point, every business owner begins to contemplate exiting their company. For Sloan, that happened around the time he turned 50. Retirement was still 15 years away, but he wanted to have options when the time came. Perhaps he would try something else as a career, go on a mission trip, or spend more time volunteering.
He came across an article that broke down the odds of a successful leadership transition by the number of years spent planning. Leaders who started 15 years ahead of time had a very high likelihood of success. The odds were about 50-50 for those who began five years out and dropped from there.
Those statistics inspired Sloan to get started right away.
What is Succession Planning?
Succession planning is an intentional strategy for transitioning from one leader to another. It serves as a compass, preparing business owners to exit the company, whether for retirement, health concerns or a shift in personal priorities. Sometimes that means handing the keys over to a family member. Other times, the next owner is an employee or someone outside the business.
As 74 million Baby Boomers approach retirement, the need for succession planning is greater than ever. Unfortunately, 60 percent of businesses lack a documented succession plan, according to a survey by The Wilmington Trust. Most owners said that they put it off because they enjoyed running their companies.
“A lot of people think that they can wait until they are ready to retire or want to sell the business to start the process,” said Laurie Pieper, a business advisor at the Kansas Small Business Development Center (SBDC). “The reality is that for some businesses, it might take a number of years to develop and execute a succession plan; and without a plan in place, life’s unexpected events can sometimes present insurmountable hurdles for the business’s continuation.”
There is a strong connection between strategy and succession. By starting the process early, business owners have more time to identify future leaders and maximize the value of their company.
“For many small business owners, the bulk of their net worth is tied up in their business or businesses. In such cases, the ability to maximize and capture that value is critical to their long-term financial health,” Pieper said.
Sloan relied on a peer group from the Associated General Contractors of America to give him objective advice during the transition at BHS Construction. The group visited BHS several times to interview potential leaders and review the company’s financials. With their guidance, Sloan decided to fund the buyout as bonuses from the company’s profits.
“That’s probably the toughest pill to swallow … how do I just give this away?” Sloan said. “A lot of construction company owners don’t want to think about it. People have a hard time letting go. It’s scary, but you need to be willing to do it.”
BHS Construction’s succession plan is already paying for itself. Sloan said that their staff is 3.5 times larger than before the leadership transition, and they are able to regain cash reserves sooner than projected. A key reason for that success is the people.
As business owners prepare their succession plan, they should consider the traits that the next generation of leaders will need. Mark Weddle, a financial advisor at Keating & Associates who helps local businesses with succession planning, suggested recruiting employees with strong values, capability to lead, aptitudes across several disciplines and skill sets that complement the existing team.
Sloan had invested a lot of time into building good relationships with his employees, clients and the community. It was very important to him that those values continued after he exited the company. With the help of his peer group, he identified two leaders who shared this vision: Patrick Schutter and Levi Schneider.
Patrick Schutter was named President of BHS in January 2018. He started with the company as an intern in 2003, then transitioned into a project manager role after graduating from K-State with a degree in construction science and management. Young and tech-savvy, he brought new ideas for a changing industry. He was comfortable with CAD drawings and scheduling software. Yet, as an older Millennial, he was equally comfortable with analog tools. He also shared the work ethic of the Baby Boomer generation before him.
Levi Schneider, now Vice President, fell in love with the construction industry during college. He worked as a carpenter on concrete crews during summer breaks. After graduating from K-State in 2005, he travelled the Midwest as a field engineer and foreman. Eventually, Manhattan’s charm lured him back, and he joined BHS Construction as a project manager in 2009.
Sloan said that the management transition was even harder than the financial one because of the generational gap between him and both Schutter and Schneider. When the process started, many of the long-term employees were Sloan’s age. They were accustomed to his leadership style and came to him with questions. Eventually, Sloan realized that he needed to take a step back and started telling his crew, “Go ask Patrick!” or “Go ask Levi!”
With five generations in the American workforce, many companies face this same challenge. Gail Hermesch, an employee development coach with Strategic Impact, said that it’s important to consider the values and behaviors of differing generations when preparing for a leadership transition. The process will be easier if Millennials look at Baby Boomers as trusted advisors and Baby Boomers embrace change eloquently.
“It often feels like we don’t even speak the same language,” Hermesch said. “Yet, when approached with an open mind, technology can bridge the gap between generations and resolve many of the differences it has magnified.”
One way BHS used technology to bridge this generational gap was in their hiring practices. Their succession plan required a steady increase in revenue to fund the bonuses. Yet, the company had to be cautious. If they took on too many projects without enough people, the quality might slip. If they hired more staff, they might need to lay someone off in a few months if there wasn’t enough work. Hiring was a continual problem and a catch-22.
Schutter, logical and tech-savvy, decided to dig deeper. He started tracking data on a spreadsheet and discovered it always looked like they wouldn’t have enough work in three months, when in fact, they did. Schutter shared his findings with Sloan, and they adjusted course. Hiring more people and increasing their capacity for work has helped the company grow faster than before the leadership transition.
Consequences of Not Planning
It’s important to start the succession planning process sooner rather than later, especially with the low unemployment rate in our community. Businesses are struggling to find employees, and it could take quite a bit of time to identify a candidate with the right combination of skills.
Sloan told a story about a friend who thought he had found the right person to take over the company, but within two to three years, he realized it wasn’t going to work out. He had to start the process over again. For some businesses in this scenario, the consequences could be greater than a delayed timeline. It could lead to closing their doors.
“Exit planning is not [merely] a nice idea to have rolling around in your head. It is a structured exercise that requires a method to follow and discipline to regularly do it,” said Jeff Koenig, a consultant with Open Four Business.
Our entire community is affected when businesses fail to transition to the next generation. Members of the Facebook Group “You know you are from Manhattan if . . .” regularly reminisce about businesses that no longer exist. “Who remembers Me & Eds on North Third Street with the gold dance floor,” Ron Wells wrote. “It was in the old Schmedeman Implement building… I met my wife there. We were married 46 years before she passed away.” In another, Todd Lowe wrote, “Anyone remember Allingham Motors? It was a VW dealership located where the Toyota dealer is today on Seth Child’s. I would love to have [an] Allingham Motors plaque for the back of my 1964 VW Bus.”
The memories of a place linger longer than the business’s or owners’ names, and the continuation of a company like BHS Construction impacts more than just the people who work there. Their legacy is woven into the character of our community. What if the historic K-State Greek Houses had been torn down, rather than renovated by BHS? How would Wamego be different if the Columbian Theater didn’t exist? Where would people go to worship if St. Thomas More hadn’t expanded into a new sanctuary? Succession planning matters because of this close bond between business and community.
Patrick Schutter is only 37, but he’s already thinking about the next generation who will one day take his place at BHS Construction. He said that it will be tough to relinquish his duties when the time comes to pass the baton. Thankfully, he has an example to follow.
“I will need to lean on Wayne,” Schutter said.
Getting Started with Succession Planning
Local businesses without a succession plan may want to consult with the following experts to get started:
- Business consultants
- Financial advisors
- Tax accountants
- Industry associations
Melissa Harstine is a freelance writer who believes compelling stories can change lives. She writes personality-infused website copy, articles, bios and email newsletters for small businesses. Connect with her at kardiacommunications.com
Photography by: Blade Mages