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Category Archive: Business Succession

Kendall Rawls

Generational Tensions: 4 Barriers to Automotive Leadership

Stressed boss and her female colleagues posing in office

Ensuring the future success and sustainability of a dealership is not based solely on operational knowledge and efficiencies. In addition to creating robust processes, identifying and developing future leaders is critical to building sustainable dealership value. But first, you must overcome the leadership barriers that sabotage your goals.

Generational tensions

In the past, when someone took on the position of “dealer,” it was assumed employees would fall in line and follow the owner’s lead. Today, with up to five generations working together at the same dealership, this expectation doesn’t hold true. Instead, good people check out or leave after a transition in leadership if they don’t feel respected for their contributions and see opportunities for growth.

Generation X and even the up-and-coming Gen Y/millennial leaders have to navigate an additional barrier that can be awkward and uncomfortable. These up-and-comers must earn the respect of the team around them for them to be seen as a true leader. This is a drastic shift in leadership from previous generations where moving into the dealer role was an expectation given tenure and relationships in the dealership.

Contributing to the problem is that the automotive industry has changed so much. No longer is real-life knowledge and experience enough to sustain and lead a dealership into the future. Innovations in technology, a lingering fear of economic uncertainty, ongoing regulatory changes and generational perspectives of “old school” and “new school” way of thinking can build organizational tensions, impacting performance. Put simply, what may have been good enough previously is no longer good enough to lead your organization into the future—instead, formal education, operational training, and a thorough understanding of best practices will be key.

The “old school” versus “new school” issue often causes Gen X and millennial team members to conflict with their baby boomer leaders and employees about fundamental issues impacting the business, such as:

  • What work means. Perspectives of how work fits into our lives—the type of work culture one finds inspiring and the gratification they want from their career—are in constant flux. It’s not uncommon for Gen X and millennial workers to want more time outside the dealership, and older employees/leaders may interpret this as poor work ethic.
  • The nature of leadership. Generational perspectives on who should be considered for leadership may differ. Some feel leadership positions should be earned through tenure, while others think it is earned through performance.
  • How the pecking order works. When performance is rewarded over tenure, older staff may struggle with accepting the authority of younger personnel in more senior positions. (This is especially problematic for employees in family business—heavily scrutinized, your advancement may be viewed as favoritism.) This volatile mix can send an entire dealership into chaos. Loyal employees feel betrayed, and rising stars can find that they lack the buy-in to make changes. After all, the best operations person in the world can’t accomplish a thing without employee support!
  • How to lead effectively. Differences in leadership styles can damage relationships. There are some leaders who feel that motivating others is best done through a directive approach – “Do what I say because I hold the power.” Others appreciate and are driven more by personal influence – “I feel respected for my contributions. I understand the mission; so, I am on board.”

Although they can be subtle, these dynamics impact you and your developing leader’s ability to build respect and trust, as well as motivate and inspire your team to commit to the organizational mission and vision.

Leadership challenges derail performance

If you want to ensure your dealership is driven by strong leadership—today or in the future—knowing how to inspire a variety of people and having the necessary skills to stay operationally cutting-edge are two critical leadership barriers you and any developing leader must overcome.

However, you cannot address these problems simply by working in or “growing up” in the dealership. That’s why The Rawls Group partnered with NCM Associates to create the NCM-Rawls Dealer Executive Program™. The NCM-Rawls Dealer Executive Program™ combines NCM’s operational excellence and Rawls’ deep understanding of how to develop a high-performing dealership culture. Our collaboration allows us to go deeper into leadership development and tackle some of the harder issues and topics that most programs are afraid—or do not have the knowledge and expertise—to offer.

Whether you work with NCM-Rawls or pursue learning on your own, I urge you to think differently about how you want to lead. Choose to invest in yourself, as well as future leaders, to build solid leadership skills based on knowledge and real experience gained working in the dealership. If you do so, I’m confident that you will not only overcome these leadership barriers, you’ll create a thriving dealership for years to come.

Learn more about the NCM-Rawls Dealer Executive Program and how it can prepare you and your successors to lead your dealership into the future.

Permanent link to this article: http://blog.ncm20.com/2017/04/generational-tensions-4-barriers-to-automotive-leadership/

David Ciambella

360° Slam Dunk – Preparing Your Successor for Business Succession

hoopsAs a sports enthusiast, when I hear the term “360° slam dunk,” images of Michael Jordan soaring through the air high above the rim in a Chicago Bulls jersey flash through my mind, which I assume is the case for some of you as well. Unfortunately, this article is not about how to do a 360° dunk a la Michael Jordan but rather the benefit of utilizing a 360° Assessment as a successor preparation tool. The utilization of a 360° Assessment to help identify leadership gaps and coaching opportunities for prospective successors can be an invaluable tool.

Testing your successor in management and leadership situations can provide you confidence in your successor’s ability prior to your departure. Additionally, it can provide employees, lenders and other stakeholders an added sense of confidence that your business will be in good hands when you eventually exit. Properly preparing the next leader of a family business is critical and should not be underestimated. In addition to on the job experience, there are tools available that can assist you in preparing your successor. One such tool is a 360° Assessment.

A 360° Assessment is a developmental tool designed to obtain honest, anonymous feedback from a leader’s peers, superiors, and subordinates on the leader’s capabilities as well as their strengths and weaknesses in a variety of areas. By gathering a well-rounded perspective from those that work with the leader, the 360° Assessment will reveal how the leader sees him or herself versus how those participating in the assessment view the leader being evaluated. At times there are stark contrasts between these two perceptions. By conducting a 360° Assessment, you can:

  • Establish a perception regarding senior leadership effectiveness
  • Identify personal and group leadership strengths and under-utilized leadership assets to leverage for the achievement of organizational goals
  • Identify personal and group leadership development opportunities
  • Identify opportunities to ensure development of clarity, consistency, commitment, and culture so that leadership speaks collectively with one voice

Of significance, the insight and information provided by the assessment tool positions you to develop a specific developmental plan to coach and help your successor leader reach their full potential.

Over the past few years, I have had the privilege and opportunity to work with the General Manager of a family business who happens to be the successor nominee. This individual has been instrumental in driving profitability since joining the organization; however, increased profitability has come at a price. This gentleman is a dedicated, intelligent, tireless worker who loves to compete. He is also a direct communicator who demands results and has a tendency to utilize a positional leadership style to obtain those results.

A “positional” leadership style as described by John Maxwell in the book Developing The Leader Within You, is an individual who uses his or her position to get people to do things. In other words, “I am your boss and therefore you need to do this.” This leadership style often times is accompanied by threats and intimidation to get desired results. As you can imagine, there is a small percentage of the population that responds positively to this type of leader. These leaders typically get compliance from their employees but rarely do they get commitment. And there is a big difference! Results are often short lived before employees depart for greener pastures in hopes of being treated with more dignity, respect and trust. Surely some of you reading this article know exactly what I am referring to and have a vivid picture in your mind of a current or past boss.

Despite the potentially harsh caricature depicted above, since conducting a 360° Assessment on this General Manager he has become more aware of his tendency to exhibit positional leadership. By increasing his awareness and providing a development plan to include follow up coaching, this individual is making positive adjustments and is on the path to maximizing his true potential.

Perhaps your successor could benefit from a 360° Assessment like the individual referenced above. Business executives are similar to athletes like Michael Jordan in that in order to get to the next level, they must constantly be looking to improve and hone their skills. It took Michael Jordan years of working on his game before he could do a 360° slam dunk. Properly preparing your successor takes years as well, and there is no better time to begin than today!

gmep_march_14

Permanent link to this article: http://blog.ncm20.com/2014/01/360-slam-dunk/

Jeff Faulkner

Emotion Triumphs Over Reason – The Dynamic Process of Succession Planning

mazeWhoa! I was totally not prepared for the meeting I just had with my client. I thought I was. In fact, I was very prepared based upon our last meeting and all the decisions that had been made. However, life, and clients have a way of throwing you curve balls. Sybil showed up again!

The bottom line is that I came into this meeting ready to facilitate the client making some substantial asset transfers to his youngest son – it was supposed to be a slam dunk. The transfer was going to be of B-Member units in a real estate LLC. The transfer was for tax planning purposes and to bring the youngest son up to parity with his older brothers on transfers that the father had previously made to them. The transfer would have had no impact whatsoever on the client’s control of the asset or on his income. Simple, right? No brainer, right?

After going around and around about the gifting of these assets and the zero impact on his control and income, it became apparent to me that I was not dealing with rational thinking, but fear-based emotions. Upon exploration, the client indicated that he is indeed afraid of giving up everything he’s worked hard for. Further and deeper into our discussion, he suggested that he felt like he was also giving up his reason for getting up in the morning, obviously bringing into question his will to live (complicated by recent health issues). I reminded him that there are several things for him to consider – first and foremost is that we are playing a game against the IRS and did it really matter if the net worth was being built in his name alone or in the family name.

Further, to give away assets for this purpose doesn’t mean that he has to give up his desire to get up in the morning and keep doing what he does best. A transfer on paper was not being done to limit his involvement or prohibit him from working in his business which he clearly had a strong passion for. I also reminded him that he has over $10M in investable assets that he was not bringing into this transfer conversation. I suggested that since real estate is what makes him feel secure, then perhaps he should invest some more of his portfolio into real estate. In contrast, I suggested that if he earned a meager 5% off the investment portfolio, he was secure. He could take half a million a year out of it without ever depleting the principal. I also described several other advanced estate planning techniques that would preserve his control and his income.

In the end, I left the meeting feeling defeated and drained. It was like we were staring at death’s door all day – and I was talking to a man who was fighting a losing battle between reason and emotion. Despite my best efforts to get the client to go ahead with the transfers he had previously decided upon, it was clear he just was not ready and backed away hard. I fought valiantly, but in the end I recognized that this was an emotional conversation and no amount of technical expertise on how to get the job done was going to address his feeling that by moving forward with this transfer, he would be giving up his reason for living. Now, it’s time for me to go back to the drawing board and come up with a new game plan that will achieve this client’s succession goals while keeping him in his comfort zone.

General Management Training from the NCM Institute

Permanent link to this article: http://blog.ncm20.com/2013/12/emotion-triumphs-over-reason-the-dynamic-process-of-succession-planning/

Hugh Roberts

Succeeding the Old Fashioned Way

father-and-sonThe look on my face when the 54 year old dealer told me that he was promoting his 28 year old son to be the GM was a dead giveaway. “Why is that a problem? – I was a GM at that age!,” he said. “And obviously it worked out great for this dealer,” so why was I questioning his decision to promote his son? The issue, I told him, is that he grew up in an entirely different set of circumstances than the world his son experienced and the maturity levels created by such are hard to replicate.

I explained: when you started out you didn’t have two extra nickels. “Yes,” he said, “I sold my house and invested every dollar I had in getting my first store.”

That’s my point, you had to succeed, you didn’t have a choice – there was no safety net if you failed! As a result, you were handling your finances with mirrors, hoping the receivables could keep up with the payables. You worked in every part of the dealership, with your hands on everything. You didn’t question staying late, working extra hours, doing whatever it took to find a way to sell one more car, so that you could make payroll. You trained all your people to watch expenses and to complete the paperwork correctly the first time so that banks responded quickly. Everyone knew that there was no sugar daddy to rely on if times got tough and sales began to slide.

Over time, due to hard work, some luck, the development of solid business practices and more hard work, your store began to make money. Being conservative, you plowed most of your profits back into your company, knowing that this was the only way to grow and to build financial strength so that you could survive adversity. Over time, your capital accounts began to grow and one day, your accountant even remarked that you are definitely over-capitalized!

One day, along comes your son, eager to follow in your footsteps. You are immensely proud and excited that your dream of working together appears to be fulfilled. You want him to learn the business, but there is a part of you that is conflicted. On the one hand, you know that most learning is caught, not taught and that he will have to pay his dues. But, you don’t necessarily want him to have to struggle as much as you did. He wants more family time and that makes sense to you since you have some guilt about the long hours you put in when he was growing up. You rationalize that he is a bright guy and can learn the business faster than you did. As a result you tend to short circuit the training process, moving him through the departments over months, not years. You even send him to the NADA Dealer Academy, because you have heard how effective this training is for potential dealers. So the next thing you know, he moves through the ranks as a manager – three months in used cars, six months in F&I, then the GSM quits so you decide to let your son have a shot at it – he’s energetic and full of confidence! Before too long you have convinced yourself that he can run his own store – at age 28!

So, what’s wrong with this picture? Maybe nothing, as anyone in the car business can point to many success stories that started out this way. But what was different between dad’s situation and his son’s? As stated above, dad had to be successful because there was no safety net. But his son knows that dad is right behind him and isn’t going to let him fail. The store that junior is running is well capitalized so there is a lot of money and some strong managers to prop him up when needed. Based on this he may seem to succeed at least while times are good and the money is plentiful. But the car business is tough and sooner or later junior is going to face tough times – when that happens, will he be ready? Will he have the emotional toughness to be able to make the hard decisions, to watch the expenses closely, to be creative and work extra hours and do whatever it takes to succeed in a tough economy or with a less than stellar brand.

So, in promoting junior to be the GM before he has been thoroughly trained, all too often I see the children of dealers who think they know what they are doing, but obviously lack the maturity created by learning the old fashion way – by earning their position. When looking at the training necessary to be effective as a dealer for the long haul, don’t short circuit your children by promoting too quickly. Some very important lessons are learned in the trenches, getting their hands dirty, paying their dues. Especially with employees, they respect hard work and knowing that their boss knows what he is talking about because he’s been where they are. It’s easy to give in and bend our rules when dealing with issues regarding your children working in your business. But in the end, if your legacy is going to continue successfully through the next generation, your children are going to have to EARN it.

gmep_march_14

Permanent link to this article: http://blog.ncm20.com/2013/10/succeeding-the-old-fashioned-way/

Loyd Rawls

Bigger versus Better: Business Growth and Succession Planning

Business growth is important to succession planningSuccession planning is all about the long-term continuation of success through the next generation of owners and managers. Discussions of long range success generally bring up the subject of growth. This is a natural discussion because inherent  with the concept of being successful is the assumption that successful businesses are vibrant and “growing” businesses. Furthermore, there are many who believe that succession and growth are synonymous. This belief is based upon the assumption that if you are preparing for the continuation of success there must be growth because competition is increasing and margins are decreasing.

Predominantly, growth is needed for succession because assuming the business has the same margins in the future as it does today, it must grow if multiple successors are going to achieve the attractive lifestyle of the current owner. As I’ve said many times, the first succession imperative is “teamwork.” I now contend that the second succession imperative is “growth.” The status quo is not an option for the future. In order for a business to withstand the challenges associated with the transition of the ownership, leadership and management, there must be growth.

Growth from my perspective can come in two forms; bigger or better. What I have witnessed in my many years of working with business owners is that their fundamental assumption of growth is “bigger.” Bigger involves expanding operations via opening new outlets, starting new businesses or buying businesses. However, I contend that the first and most important growth objective for those seeking succession is not “bigger,” it is “better” — as in increasing volume, efficiency, net profit, management teamwork, management  bench strength, etc. At the risk of sounding crazy, I contend that “better” is the foundation upon which a prudent business owner pursues “bigger.” The low hanging fruit of growth is in “better”. The freedom from the burden of additional debt is in “better.” The peace of mind that working capital is sufficient to withstand unforeseeable challenges is in “better.”

Reciprocally, I contend that bigger and better are not good teammates. Bigger does not naturally make you better. In fact, bigger can dilute management disciples and distort long-standing core values and processes. Bigger reduces working capital or increases debt. Bigger creates a level of stress that generally creates a distraction from the business basics.

No doubt there are benefits of bigger including economy of scale, greater profits, reduced market vulnerability, reduced product vulnerability, more excitement and more opportunity for successors to show what they can do. However, as Howard Hughes discovered with the “Spruce Goose,” bigger is not always better.

GMEPbanner

Permanent link to this article: http://blog.ncm20.com/2013/08/bigger-versus-better-business-growth-and-succession-planning/

Jeff Faulkner

Business Structuring and Family Harmony

passingthetorchBusiness Structuring is a critical component of succession planning that can have a huge impact on family harmony.

Throughout the course of this article, I’m going to describe three different family business situations that I’m currently involved with where Business Structuring is causing havoc.

Situation 1: Active and Inactive Shareholders

The first story is a highly complex third Generation Family-Owned business which consists of a real estate and a separate investment business with four family shareholders.  Two shareholders, father and son, are active in the operating businesses and two shareholders, sister and a sister-in-law, are not active but are financially dependent upon the business. The ownership of the separate entities add even further complexity to the situation in that, the operating businesses own a piece of the real estate,  numerous trusts own a piece of the real estate and investment businesses, and the operating businesses have multiple owners consisting of other entities that the family shareholders control. I have done my best to explain this situation as simple as possible, but due to the bizarre nature of ownership, I have likely confused you.

When we got involved, none of the family members, or any of the family’s advisors for that matter, completely understood the structure.  And for a simple family, it didn’t make sense and was causing relationship stress. The two inactive family shareholders were growing increasingly frustrated because they could not predict their income stream with any reasonable accuracy and consequently, could not plan their lives accordingly. The son was growing increasingly concerned about his fiduciary liability with his siblings.

This structure has worked under the father’s leadership because the daughter and daughter-in-law have believed that things are being done in their best interest. However, nothing could be further from the truth. To create dependence in any human being is never in their best interest. If these issues are not worked out with a new, simpler structure, the likelihood of the next generation living under these conditions is highly speculative at best, and more likely pointing toward volcanic explosiveness.

Fortunately, all family members have come to understand the issues and are cooperatively working toward a straightforward structure that is easy to understand and that creates predictable and meaningful sources of income. The initiation of the process towards an uncomplicated structure, in and of itself, has created a more harmonious family environment. The inactive family members’ frustration levels have subsided, and the son’s fiduciary liabilities have been reduced, as they all see movement and growth toward independence.

Situation 2: Blended Family Business

The next situation involves a blended family business that has two children from each side.  Two of the four children are actively involved in the business, one from the dad’s side and one from the mom’s side. Both active kids want to be able to run the business at some point, but the entire family has strongly suggested, if not warned, against the two active kids working together.

Here’s the problem, the business is made up of five different franchises underneath one corporate umbrella. That’s right; all five businesses are inside the same corporation.  And, the bulk of the family’s net worth is the operating business. What’s a family to do?

Well, you could start by forcing the kids to grow up and learn to cooperate with each other, so they could work together. On the other hand, if the family is right in that there is absolutely no way to make this happen, we’d then be setting them up for failure and family disharmony. So, why not build in some flexibility? An IRS Section 355 divisive re-organization, or tax-free spin-off, of the separate businesses is in order.

While this will most certainly be a costly initiative that is dependent on IRS approval, it will create the flexibility for the active kids to remain in business together if they show that they can mature beyond their sibling rivalry issues. In the event they cannot, well, we then have the flexibility to divide the businesses up and allocate one or more to one child and one or more to the other child.

Further, we will also segregate the real estate that each business is sitting on into separate entities to provide additional planning flexibility, not to mention, much needed additional liability protection. While this environment is not perfect by any stretch of the imagination, it most assuredly creates an environment that is more conducive to the maintenance of family harmony in the long run.

Situation 3: Good tax planning but not necessarily good succession goals.

The tax-driven planning accomplished in this case is particular to the client’s state of residence. Similar to the situation in situation number two, this one involves an operating family business and business related real estate, with two children active in the business and one not. The typical structure is to have a lease agreement between the operating business and the entity that owns the real estate, thereby generating a long term and reasonably dependable source of income for the owners of the real estate. Many business owners establish such a structure to provide them with retirement income once they decide to leave the business. Others, as in this case, use this type of structure as a way to create equality between their children, with those active in the operating business paying rent to those not active in the business, and giving the actives the option to buy the real estate. Not perfect, but it works in a lot of cases.

In this particular case, however, the owner did not set up a lease agreement between the two entities; rather, he established a joint venture between the operating business and the underlying real estate to avoid paying sales tax on the rent transaction. The way this works is that the real estate and the operating business share the net profit of the business. Makes sense, huh?  Except that in this most recent economic downturn, the operating business lost money a couple of years in a row, thereby generating no profit to share with the real estate. Rather, the operating business, which thankfully was well capitalized, loaned money to the real estate to pay its share of the income taxes. Now, the real estate (inactive child) owes money to the operating business, with no other source of income to pay the loan. The actives could buy the real estate, but then it would be a reduced figure due to the loan that would be due them.

Obviously, this is not a great deal for the inactive child. Unwinding the joint venture is not going to be an easy thing to undo. But for the sake of family harmony in the long run, that’s what this family has chosen to do.

In sum, when structuring your business and your acquisitions of other businesses, real estate, etc. that you make along the way, please keep in mind that someday you will likely be in a position of leaving it all to your kids. Always ask yourself, “What impact will the decisions I’m making now have on the long term continuity of the ‘golden goose’ and the maintenance of family harmony?” You owe it to yourself and your family to make these decisions as wisely and with as much foresight as possible. It impacts more than just today.

Permanent link to this article: http://blog.ncm20.com/2013/06/business-structuring-and-family-harmony/

Dan Schneider

Cutting through the fog of succession planning.

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Years ago, I spent college summers with my parents in a small town in southwest Arkansas. It got hot and sticky down there; and when it rained, mosquitoes thrived. So much so that the city government bought a fogging machine to spray the lakes, ponds, and other pools of water. As the truck drove through town, a mechanical voice boomed, “Warning! Do not follow the fogging machine!”

My experience indicates that many succession plans are guilty of fogging. They are, quite simply, difficult to understand. As a consequence, the already difficult process of planning and organizing for succession success becomes even more challenging. I think of this often when I’m with clients struggling with communications. For whatever reason(s), we often have a difficult time saying what is really on our mind. Possibly more often than not, we just don’t want to hurt someone; and, as a result, we just don’t tell them what they really need to know. Some people call that selective communication. As a result, we choose a less effective way of letting others know our unfiltered intentions.

There are ways to communicate a succession plan so clearly that it helps improve family dynamics, business performance, and the several other components of succession success. Here are some simple techniques for you and your planner to use in crafting an understandable succession plan for your automotive dealership:

Use pictures to help the readers see the future. There’s absolutely nothing wrong with having an illustrated version of the succession plan. In fact, you might even want a video of the current generation explaining for posterity what the actual intent of the plan really is. As you get deeper into generations, that could be a source document of founder’s intent.

Remember that people are far more rationalizing than rational. Include enough emotion in your written and oral communications about the plan to provide a level of inspiration that comes with knowing people are involved in something that’s bigger than money and bigger than themselves.

Let the next generation of leaders choose, whenever possible, how certain portions of the plan will be implemented. Avoid the temptation to rule from the grave.

Communicate with compassionate honesty and empathy. The truth does not have to be brutal, but it does have to be the truth. That’s about the only way to insure integrity and accountability. Brutal honesty is just cruel; and sympathetic honesty opens the door to entitlement. Neither is much of a legacy.

For a high level of commitment, market the plan. Use all of the communications tools identified as part of the integrated communications bundle: written, oral, auditory, sensory, emotional, and factual. As our friends running for political office are fond of saying, stay on message.

Dan Schneider, M.A. is a partner with The Rawls Group. Nationally recognized, The Rawls Group specializes in business succession planning by addressing the issues that impact the continued success of a business legacy.  By partnering with their clients and their clients’ other advisors, they work to develop a plan that will perpetuate the leadership, culture, performance, and relationships that are key to business success.  For additional information contact Dan at dschneider@rawlsgroup.comLearn more at www.seekingsuccession.com.

Creating and communicating your business succession plan is the mark of a thoughtful and strategic business leader. For more leadership tips and best practices, consider attending our next 1 1/2-day session on “Leading Your Dealership Team to Success” in Miami next month. Click the link below to learn more!

Learn to Lead Your Dealership Team to Success!

Permanent link to this article: http://blog.ncm20.com/2013/03/cutting-through-the-fog-of-succession-planning/