SUCCESSION PLANNING is all about a company's future. To ensure success in transferring company leadership to a new generation, the family members must first decide in what direction they want to go and how best to get there. This is another way of saying that strategic planning is an important component of the succession process.
Easy Day Manufacturing/Suburbanite, a family company in Massachusetts, embarked on formal strategic planning for the first time earlier this year and discovered that thrashing out a vision of the future along with specific goals and action plans can help cement a partnership in the next generation of leaders. Such a process was particularly important for Easy Day because the company is owned by two families and the likely next-generation leaders, Harris Footer, 45, and Rob Michelson, 32, are unrelated.
Easy Day Manufacturing is a distributor of 200 consumer cleaning products (mops, brooms, and brushes) based in Holliston, Massachusetts. Though it still makes some of the products it sells to retailers, most of the manufacturing is outsourced. Easy Day's 125 employees work in a I 100,000-square-foot building that houses administrative offices as well as warehousing and manufacturing facilities. ("Suburbanite" is the brand name of most of its products but it is being changed to "Butler," after the company's successful line of dust pans and brooms.)
Ownership of Easy Day Manufacturing is equally divided between two aging but active partners: chairman Harold Footer, 78, who founded the company in 1947 with two other partners now deceased, and CEO Alan Michelson, 63, who bought into the company in 1965. Each has one son in top management, Harris Footer, the president of operations, manufacturing, and purchasing, and Rob Michelson, vice president of sales and marketing. Rob's brother, 28-year-old Mark, joined Easy Day's sales department a few years ago.
The current succession plan was drawn up on the assumption years ago that neither partner's children would work for Easy Day. A buy-sell agreement calls for the surviving partner to buy the shares of his partner's widow. Now Harris and Rob have hopes of jointly owning and running the company; their parents have up to now resisted creating a new succession plan.
In the interview that follows, Harris Footer and Rob Michelson talk with Jayne Pearl, former senior editor of Family Business, about the types of issues that are dealt with in strategic planning in a medium-sized family firm and how it helped them in charting the company's future — as well as winning over their elders. The interview is an expanded version of one that originally appeared in the Family Business Quarterly, published by the Northeastern University Center for Family Business.
Family Business: What prompted you to consider formal strategic planning for your business?
Harris Footer: We first considered it three years ago, when our industry and the world around us were changing very quickly. We were no longer the only company offering a full line of household cleaning products and full service. Consolidation among discount stores meant fewer and fewer customers. There was also consolidation among manufacturers, pitting us against some very large corporate entities such as Rubbermaid. We could no longer get by hoping for a new product here and there.
Yet we were still operating under 20-year-old assumptions. We put all our eggs in the basket of "program selling" — offering a full line of related products to retailers and letting them include a broad array of items in the minumum order that qualifies for discounts. We were the first to do program selling in the 1960s. It allowed us to double or triple the company during the 1970s and keep growing through the 1980s. But increasingly, retailers could buy "programs" from lots of other companies.
Rob Michelson: The bar has been raised on what it takes to compete in our marketplace. In the past our strategy had focused heavily on service. Our strength, our niche, was to ship faster and more accurately than any of our competitors. The consolidation of retailers has made them more powerful and able to demand more out of their suppliers. So our competition has caught up to us. What used to be considered above average service levels are now just average. We had to find ways either to increase our service level or come up with a different approach. We eventually decided on a combination of both.
FB: How does all this tie into succession planning?
Rob: Succession planning takes a tremendous amount of time, energy, and emotion. All too often the business suffers during the process because there is no time left to spend on determining the direction of the company. By committing to the strategic planning process, we have been able to set a course for the business, thus ensuring its health while we work on succession plans.
Because we have two different generations and two different families, no one person is leading the company. While we worried about succession, people underneath us were getting mixed messages about our direction. By doing strategic planning, we got family and nonfamily members to agree once and for all on the direction, so there weren't any mixed messages. Now the families can talk privately about succession without sacrificing the momentum of the business.
FB: Why did you decide to hire a facilitator to help you with strategic planning?
Rob: We started off trying to do it ourselves, with my father leading the meetings. But we had problems. We each had our own biases as to what the end result would be. It made it difficult for us to debate any of the issues. Also, this early process did not include nonfamily executives except John Cooke, president of our sales and marketing arm.
Another reason we failed was that we tried to squeeze the meetings into our daily activities, getting together an hour or two after work. Too many things kept us from getting together on a regular basis. We held our meetings in the building, with phone calls and other interruptions.
Next, we hired a consultant and held an offsite visioning meeting with all our 20 top managers. That was too many people and the approach was too esoteric and abstract. It helped get us all together in a room and build team skills, but it didn't really address the question of where we were going as a company.
Harris: Then I received a mailing from the Center for Simplified Strategic Planning for an introductory one-day seminar that cost $300 or $400. They advertised that we could do this on our own. We could — about as easily as buying a Ford Taurus in a box that requires assembly! The seminar came with a video. I got Rob, Alan, and John Cooke behind [hiring the Center]. But it took about a year to get my father behind it.
The planning process cost more than $20,000 plus the time of those involved. My father sees his role around here as devil's advocate: Everyone else just wants to spend money, so he has to be the penny-pincher and the voice of reason. But I can't think of many cases where we haven't been able to talk him into what we thought was the right thing to do. Our generation is not a bunch of radicals; we're not trying to invest in orange juice futures. But sometimes we feel that we're viewed that way.
FB: Who was involved in the process and how much time did it require?
Harris: We had to eliminate some people we would have liked to include because the process we chose was best done with at most 12 people. We got managers involved who would be part of the changes that would evolve. We wanted to encourage their participation and growth. The process required us to meet seven days altogether — two or three days at a time a couple of months apart.
Rob: Harris and I wanted the process to be inclusive, to go beyond us four family members. The senior generation managed by entrepreneurship. We would like to build a team and manage by consensus.
But having nonfamily members involved is a two-edged sword. The plus side is that we got buy-in from all of them. The minus side is that with nonfamily managers present, we were not able to get into some of the more personal succession issues that were related to the strategic topics we covered. Both Harris and I would have liked to have had those issues addressed, particularly Harris, because he is older and needs more clarity about his future right now. He has to worry about funding his kids' college educations, for example. I've just gotten married and have no kids. I don't need resolution [of succession] at this point in my life as much as he does.
FB: Once the older generation agreed to the process, how did they respond?
Harris: The sessions were grueling. My father actively participated, even though it was exhausting for him. Going into it, he kept saying that it was a waste of money. In between the sessions he said it was a waste of time. Finally, when we came, out of it, he said the plan sounded good and looked good, but he didn't think we were going to follow through with it. But he said that if we did, the outcome would be okay.
Rob: Harold Footer is a very smart man with a lot of common sense. But he doesn't understand the need for getting managers together to hash through things and agree on a path. Harold considers that there are certain avenues the company is never going to take and that discussing them is a waste of time.
But the managers we've hired from different organizations don't understand why those avenues are not good to take. Unless we talk about them, they won't understand why we haven't elected to go down a certain road.
I think my father [Alan Michelson] understands the need to go through all of this, but he's still operating under those 20year-old assumptions. Typically, he would say, "That sounds like a good idea, but we've tried it before and it didn't work, so we shouldn't try it again." But the reason it failed in 1970 is no longer a factor in 1990. We may need to reconsider it.
FB: Can you describe the process?
Harris: In the first two-day session we covered an industry assessment and where the business currently was: strengths, weaknesses, and opportunities. We discussed abandoning certain product lines. Some of these were products that had been developed 20 years ago or more and some of the owners had an emotional attachment to them. So there was emotion attached to some of the decision-making in terms of their personal stake.
We would show stuff graphically on a board, dividing the business into pie charts, looking at what we have now, how much we could expect to gain under different scenarios, and the likelihood of that happening in each case. We talked about the competition for market share. For instance, we analyzed whether we should invest $200,000 in an area that might get us 2 percent more business or $50,000 in another product line where we already have a 10 percent market share but might get another 10 percent. It was a very compelling exercise, not something you do every day. A consensus was easily reached and there weren't a lot of gray areas.
FB: What are some specific plans and targets you agreed on?
Harris: For three days, we analyzed the opportunities for growth and identified 10 that were most important and viable to pursue. The top one was selling to a major retailer in a way that we're not selling to them now — emphasizing more service and product innovation. We projected that this would represent a substantial increase in sales.
Several plans revolved around new products or redesigning or refurbishing existing product lines. We also agreed to reduce our cost of goods sold by a specific percentage. We plan to do that by looking at how we manufacture, whether it is cheaper to buy certain products rather than making them ourselves. We will look at [prices] of different vendors as well as our our internal processes to find ways to cut costs. In addition, we committed to writing a five-year facilities plan this year.
Six weeks later we spent two days developing action plans. The thing that's different about this plan is that it has a timetable 12 months — with budgets and responsibilities assigned to specific managers for meeting targets in that time frame. Everyone around the table agreed to the targets, so there's ownership of the program and top management is involved and committed and judging everyone's performance by their success. There's no missing the message if you were in that room for seven days. And there's nowhere to hide if you screw up.
FB: Is strategic planning done differently in a privately held, family company compared with a public corporation?
Harris: Absolutely. There were times when the two owners would say, "We're not going to talk about that." We did agree to a specific yearly percentage for sales growth as our target [10-15 percent a year compared with 5-10 percent a year in the recent past]. But our fathers didn't want to talk about profit in front of the group. They said, "We'll tell you if we're making enough or not. You just worry about achieving that percentage of sales growth."
In a public corporation, that's published information. There were several issues like that, where they said, "Let's move on, that's not up for discussion." I have mixed feelings about that. On the one hand I think generally people operate best with knowledge. If you keep things secret, they assume the worst and are not able to make good decisions at times. On the other hand, if you own the company, you have the right to say "no."
FB: Yet it sounds like a lot of information was shared with nonfamily executives.
Harris: A lot of information that was previously talked about here and there in little corners of the company was now put out to all participants. That made it easier to get general acceptance. Our people also had valuable information to share with us, and that helped enormously. Not a lot of sensitive information got out, though. The owners decided just how much they were going to reveal, and that was that. The process would have worked better, frankly, if they had been willing to give up more information.
FB: What issue did you spend the most time on?
Harris: The question of cost reduction. It had to be done, so how would we do it? We sell a lot of products that we don't manufacture. We buy from our suppliers and assemble them, add some value, but not a lot. For products we don't manufacture, our costs were too high.
Our sales people were telling us they don't get business because, while our customers recognize the value in our service, they will only pay so much for it. So there was a big debate about how much we needed to save and whether we could take out [the reductions] across the board, how it could be done, and who would do it. We also discussed what we'd do with the money if we could save it — pass it on to customers or invest it?
The sales people in the field were saying we needed to use the savings to lower prices. They gave some good examples of how lower prices would help them.
People became pretty animated when we started to talk about where the reductions might come from. The purchasing and manufacturing people engaged in a heated debate. Could we save as much as 20 percent? In the end, the consensus was that we couldn't. But everyone agreed that we could save more than 2 percent. We had to pick a number, and the purchasing and manufacturing people agreed that if we could change the sources of certain products we might be able to reach that. We also explored how much money we could save if we reengineered our operations, whether the investment would be worth it, and when we'd realize the savings.
FB: What do you mean by reengineering? Why would you want to do that?
Rob: We manufacture maybe 25 percent of our products; it used to be less. All our products are produced with our molds and our designs, but in most cases we don't own the machines. About three or four years ago, we started manufacturing more of our own stuff because our costs were out of line with our competition's.
We've now decided that strategic manufacturing makes sense. If a machine is running 24 hours a day, six days a week, producing solely our products in another company's plant, that machine should be running in our plant. If our volume doesn't justify a machine's full-time use, then it makes sense to combine with another company to operate it at its maximum efficiency. We should be producing about 50 percent of our products right now. Through our strategic planning, we have agreed to take a look at the top 15 percent to 20 percent of our product line and analyze the different ways we could be acquiring those items — forming alliances, producing the item ourselves, or reconfiguring the product to eliminate wasted materials or labor.
FB: When do you plan to finish the strategic planning process?
Harris: We finished the initial process in March, but it is ongoing. We have a three-year generalized plan and a 12-month action plan, to be reviewed monthly. Each action plan has steps and timetables. We meet monthly to look at where we are on each. At our first monthly meeting we were slightly behind on two action plans — the first because of procrastination and the second because we had run into certain realities that we had not anticipated, such as the difficulty in hiring the right people. But by the second meeting we had caught back up. So far we're on target.
FB: As you look ahead, how will planning impact the relationships among family members and partners in the business?
Harris: Rob and I aren't brothers or cousins, so there is less of a compelling reason for this partnership to continue. It is my opinion that Rob's dad and my dad will now have more confidence in stepping away from the day-to-day operations. Their roles have become more clearly defined as board members and overseers, as opposed to key operational officers. Planning has also allowed Rob, who is the junior member of the executive staff, to step up to the plate. Rob and I can achieve a greater state of equality now that we have a shared understanding and goals.
Rob: It helped us develop camaraderie and a closer relationship. We hope that this will give our fathers confidence that we can get along well and move forward together. And more important, Harris and I want to know that we are on the same wavelength, seeing eye to eye. If we have a shared vision and shared goals, it makes sense for us to maintain ownership together.
Also, I have a 28-year-old brother, Mark, who joined the sales department two or three years ago. All of a sudden we have three younger-generation members in the business, not just two. If he and I eventually have kids, it could become a very confusing picture. So we're grappling with the potential third-generation transition before we deal with the second-generation succession.
One of the reasons we're dealing with this is because our parents didn't. What is the proper age for retirement? Harris's father is almost 80. My dad is only 63. Harris and I also have about 15 years between us. So many factors will be involved. The more we talk about them now, the better off we'll be in the future.
FB: How do you expect this planning to impact future leadership succession?
Harris: Before we started this process, I was pushing for succession planning. Our fathers have this buy-sell agreement: Whoever lives longer will own the whole company. We talked about trying to change that. Everyone has said they want to, but nobody seems to be able to figure out how to do it. I even brought in a consultant, but it gets complicated quickly and I'm not sure people had the will or the commitment to make it happen. A lot is at stake.
When things in the market weren't so great, how could we have figured out who was going to own the company if we didn't know what kind of a company we wanted to be? Now that things feel more secure, maybe people will be more interested in talking. Succession and strategic planning are related. It took me a while to figure that out.
Jayne A. Pearl contributes regularly to Family Business from Amherst, MA. She is a columnist for Oxygen.com and author of Kids and Money: Giving Them the Savvy to Succeed Financially, Bloomberg Press, 1999 (www.kids andmoney.com).
Business: Manufactures and distributes 200 consumer cleaning products to discount and retail stores.
Location: Holliston, MA.
Employees: 125.
Founded: 1947 by Harold Footer and two partners now deceased.
Ownership: Divided equally between Harold Footer and Alan Michelson, with small amounts held by the second generation and their mothers.
Family Employees: Harold Footer, chairman of the board, and his son, Harris, president. Alan Michelson, CEO, and his two sons, Rob, vice president of sales and marketing, and Mark, regional sales manager.
Claim to fame: Younger generation initiated formal strategic planning process to redefine the company, pursue aggressive growth, and pave the way for succession planning.
— ;J.P.