Successful Succession

To keep the business going, become part evangelist, part strategic thinker, and part realist

Like many business owners, Steven Portrude, president of Harwill ExpressPress, a printing company in Lawrenceville, New Jersey, avoided thoughts of succession planning for as long as possible. Not only did he not care to think about situations in which he would not be able to run the business, he had no clear successor among the firm’s 25 employees or in his own family.

Portrude finally dealt with the succession question when working out other estate-planning issues and writing his will. “Once you look at it from that perspective, it becomes relatively simple,” says Portrude. “Most people think they are invincible, but going through this process provides some clarity in where you are going.”

Once he began considering what would happen to the business if he could no longer run it for any reason, he quickly realized that he needed plans for the business for any short- or long-term absence. In a short-term scenario, including any need for him to take extended time off for any reason, Portrude has identified two or three individuals who can run the business until he returns. In a longer-term absence, those individuals would be called upon to run the business for up to six months or so to keep things going until a family member is able to arrange the sale of the business.

Portrude is no stranger to the importance of succession planning. He took over the business from his own parents in the late 1990s. Now, at age 50, Portrude is not planning to retire anytime soon, but he is still making plans for the future with the goal of either selling the business in 10 years or lessening his workload and relying on others to keep the business going. Until then, his key focus is on continuing to build the value of the business for the future.

What is succession planning?

At its most basic, succession planning identifies who will take over the business when current leadership is no longer willing or able to run it. This can occur when the business owner dies or health problems keep him or her from continuing in a leadership role. Succession plans can also provide a roadmap for a leader to exit a business on his or her own terms.

“Succession planning is about ensuring the business can survive the business owner, literally and figuratively,” says Tensie Homan, co-founder of in Denver and author of Beat the Exit Bubble. “It is an exit strategy to ensure the smooth transition of a business from one owner to the next.”

As such, succession planning takes time and it is never too early to get started. This is true whether the business is sold to a family member, one or more employees, or some outside entity or individual. Even if the business is sold to a third party, it still makes sense to assign appropriate leadership to ensure smooth business operations through the transition to a new owner.

The fact that the printing and paper industries are contracting makes succession planning even more important. In those circumstances, “only the best-prepared businesses will make successful transitions,” she says. In fact, a strong succession plan can differentiate an organization because it shows the potential for ongoing stability, which will reassure and help retain key talent.

Succession planning is also a long-term endeavor designed to help free up company leaders from their current responsibilities and turn them over to the chosen successor. “It is an opportunity for senior leaders to take on a whole new role of mentorship and coaching, without the day-to-day hassles of finance, sales, operations, HR, and so on,” says Paul Cronin, a partner with the Successful Transition Planning Institute in Andover, Massachusetts.

Formal and objective succession plans assure continued business success

To be effective, the succession planning process must have a specific end date when the full transition to new leaders or owners will be complete. However, long-time leaders and business owners may have trouble disconnecting their own lives and personalities from the company.

If unchecked, this tendency could derail succession planning before it even begins. For example, unspecific or soft dates for the final transfer of ownership or control can try the patience of the next generation of leaders. If it continues too long, those individuals may simply decide that the departing leader or owner is stalling—and look for opportunities elsewhere. If handled the right way, the succession planning process can help those leaders loosen their grip on the business and prepare for the next stage of their lives.

To be effective, the succession planning process requires a degree of openness and transparency. Communicating about succession plans does not undermine or create uncertainty for the business. “Business owners often feel a succession plan is a private, personal matter and should be kept confidential,” says Homan. “But just the opposite is true.”

Homan urges business owners and executives to think about succession planning in terms of making the business sustainable over the long term, no matter who is in charge. “An established succession plan can provide current or future leadership with assurance that the business will continue to thrive upon the owner’s exit,” she says. “This can be a powerful incentive to attract and retain talent in the business.”

The succession planning process should also be formal and objective. That means bringing in third parties to handle the range of financial and organizational issues involved in a strong succession plan. Portrude recommends relying on this objective third party to act as a facilitator, whether he or she is an attorney, business advisor, or some other individual. The key is to rely on someone who does not have any kind of stake in the outcome.

Bringing in specialists who understand the strengths and weaknesses of the business, including its people and processes, is also crucial. These individuals can identify and address relevant business, financial, tax, legal, and personal aspects of succession planning. Hiring a valuation expert can help to ensure any resulting valuation is accurate and objective. From there, firms can identify how the financial aspects of the transition will be handled. In other words, how will the exiting business owners or leaders be paid, including any relevant tax issues?

If there is a clear candidate as successor, this is the time to determine if that individual has or will be able to raise the money necessary to take over the business. “Owners are likely to be counting on business value to fund their retirement,” says Mitch Evans, vice president of the National Association for Printing Leadership in East Rutherford, New Jersey. “However, they are likely to be more flexible if the successor is a family member.”

When Tracey Cohen took over Tallahassee-based Target Copy from her mother in 2009, she closed on the deal right in the middle of the recession. In this case, with her mother financing the deal, such flexibility has been key to the continuing health of the business. Since 2009, Cohen and her mother have had to re-negotiate the original agreement a few times to align payments with the reality of the business and to free up cash flow.

Consider your options and put intentions in writing

When it comes to choosing a successor, firms tend to have three options: a family member, an employee, or an outside suitor for the business, often a competitor. No matter which candidate is willing and able to take over the business, the ultimate transition will take some time. For example, if a family member or employee is the strongest candidate, that individual may need time to become comfortable with all aspects of running the business. If the choice is a competitor, the departing leader needs time to negotiate the details of the deal and work through transition timetables.

No matter what avenue leaders pursue, they should put their intentions in writing. This can be helpful even if the owner chooses not to exit the company because it can serve as a succession/contingency plan should anything happen to the owner. In either case, “put intentions in writing and communicate them in case something does happen,” says Evans. “The document should spell out what the owner wants to do” in specific circumstances.

If a succession plan involves hiring a manager or managers to run the company while the current leader retains ownership, those intentions must also be fully communicated at the outset. “If you want to retire in five or 10 years, have that conversation at the time of the interview” with the potential managerial candidates, says Evans. “Qualify and groom that person early on so they can run the company.”

Evans offered one important guideline for this process: Identify the ideal situation for the owner’s or leader’s exit and then work toward that. For example, if an owner wants to retire in five years, that individual needs to determine what to do to make that happen and then start taking steps in that direction. It is also a good idea to have a second option available if the first does not work out.

Once the succession process is underway, Evans suggests that owners immediately start to remove themselves from certain parts of the business to empower the identified successor or others in the company to manage those areas. For example, before he sold his own business, Evans removed himself from any customer contact responsibilities. “I had no customer contact and did not have any correspondence with customers,” he says. “I was not the key person on any of the accounts, and I didn’t do anything that someone else couldn’t do if I wasn’t there.”

This gradual removal is crucial for a smooth transition out of the business. “The best way to do that is not to be [overly] involved,” says Evans. Instead, “delegate and train people on what you do so that they can handle it when you have left the business.”

Exciting the next generation-and planning for sustainable profit

One of the key challenges for family-run businesses is determining whether the next generation is willing and able to take over at some point. For a growing number of business owners, the answer frequently is no. “Fewer children want to succeed their parents in the business,” says Evans. “Kids do not look at the (printing) industry as being very sexy or as lucrative as it used to be.”

Portrude blames himself and his fellow business owners in part for painting a glum picture of the printing industry and its future. “Talk around the dining room table about layoffs and bad economies does not set up the next generation to want to go into the business,” says Portrude. If businesspeople want their children to take over, “we have to [for the next generation] focus on how exciting it is.”

At the same time, it is important to be realistic about where the industry’s opportunities are. “Printing is a mature industry and the challenge is to find ways to get the lifestyle out of the business that our parents got,” says Portrude.

Although printing and paper manufacturing are mature industries that are consolidating, Portrude believes that any business can still build value and expand. The key challenge is to grow a piece of the market, perhaps specializing, that makes the most sense for the business’ strengths. To do this, he says, you have to identify specific markets and what it will take to make money and grow profitably.

That specialization should bring something new to the table that becomes something sellable. For example, businesses can differentiate themselves by specializing in short or long packaging, printing for the college, education, or government segments, or finding ways to make money on smaller print runs. “If you specialize [and set yourself apart], there will be a buyer interested,” Portrude says. “But it requires a new mindset.”

The opportunities for growing a business and enhancing its value are there, according to Rock LaManna, president and CEO of the LaManna Alliance, LLC, in West Palm Beach, Florida. “Growth should have been significant for print-related leaders between 2011 and 2014 at 10 percent or more per year,” he says. “There is research and market-specific data available and global suppliers are developing niche markets for print-related graphics.”