Succeeding at Succession

“The biggest problem with first generation family firms is that most founders have a tough time letting go, we call it the “monarch mentality”, explains Carmen Bianchi, current president of the Family Firm Institute (www.ffi.org), an organization of professionals and family business executives dedicated to helping family firms overcome the monarch mentality and other numerous challenges unique to family owned and managed enterprises of all sizes.

“Their whole identity is in the business, they fear if they let go, they won't be anybody. It is common to see a founder in his mid-70's still in control of every dime the company spends, even though his 40 and 50 year old sons and daughters are handling the daily management. ”

Bianchi cites a Massachusetts Mutual survey stating that 40% of all family firms will face the generational transition in the next five years as baby boomers retire. “The biggest challenge with family businesses is getting the families to look at their firm as a business first, and as family second.” she states. Bianchi has worked as a family business consultant since 1991. “Most don't have a real structure, no matter how big they are. We help them create a formal structure by bringing in outside boards, create family councils and even hiring professional managers.”

As for the excuse that a down cycle is not the time to make the transition, Bianchi isn't buying it. She points out the current economic climate is great for properly managed family firms.

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“The is a great time to acquire other businesses. The beauty of wealth managed family firms is that they can turn on a penny and don't have to be slaves to the next quarter's results. They can think and act long term.

“When an opportunity that requires a rapid response presents itself, a properly managed family firm can call a family council meeting and make the decision to go or not. Financing is much easier, their bankers know them and are confident in the capability and continuity of management. There are many advantages to properly run family firms.” Bianchi concludes.

Ferguson Company, Seattle

Started in the 1947 with $3,000, owner Hugh Ferguson was just doing his first job building a retaining wall. When it started to buckle, he ran to the lot next-door and stole a clothesline and some poles. “We used those to shore the wall back up,” says Ferguson.

At age 91, he’s come a long way from stealing construction materials. His office sits on the 67th floor of the Columbia Center in downtown Seattle, with a territorial view of Puget Sound and Mount Rainier. He’s now a philanthropist. Sixty years is a long time for a construction company to exist. The key for Ferguson has been a bit of good planning and luck, says Ferguson’s second owner, Gene Colin.He and four Ferguson employees bought out Hugh in the early 1980s. Now at 67, Colin is looking to sell to company president Todd Vacura.

Colin will still work for the company and plans to sell to Vacura through a structured buyout over the next few years. The price was undisclosed.

Ferguson branched out over the years, but has always specialized in poured in place concrete box stores. “My first jobs came from the people I sat next to at (University of Washington) Husky games when I got back from WWII,” says Ferguson.

Though the three men aren’t related they are passing the company through the generations. Some of their projects run that way, too. Ferguson built the concrete tilt-up Mart store on 110th Avenue in Bellevue, Wash. Vacura is about to tear it down and put a new building on the site.

Nuprecon Inc. Snoqualmie

Another way to transfer company ownership is to sell it to a third party. Nuprecon President John Hennessy sold a substantial share of the company to Evergreen Pacific Partners, a Seattle based private equity fund, in 2006. He retained partial ownership. Now Nuprecon, Inc. of Snoqualmie, Wash. and CST Environmental of Brea, Calif., will merge, forming a three-way partnership with a Seattle-based private equity fund.

Evergreen Pacific Partners, worth $275 million, is now the majority owner of the combined Nuprecon/CST company. The companies will retain their names and corporate leadership. Terms of the sale were not disclosed.

Nuprecon reported sales of $77 million last year and has projected sales of $85 to $90 million, says John Hennessey, Nuprecon president. “CST’s sales are in the $100 million range,” he says. The combined Nuprecon/CST entity has over 1,000 employees.

Each firm performs demolition, abatement, soil remediation and saw cutting. CST works on large performing complete demolitions of a site. Nuprecon specializes on interior demolition.

The merger “allows us to expand geographically and offer different services,”says Hennessey. “We plan to work with existing clients in new geographic areas and to do anything associated with preparing a building for new construction.”

Ryan Construction, Bremerton

For a while it looked like Tim Ryan's kids weren't going to follow him into the construction company he had spent nearly forty years building. Daughter Colleen was the first one to come aboard. She took control of the accounting, and managed the commercial properties Ryan was just getting started to develop for his own portfolio. Tim's two oldest sons got degrees in Construction Management from Washington State University then took off to work for construction giant Hensel Phelps on projects in Colorado and California. They returned so they could raise their kids in Western Washington.

“Most of the projects Dad was working on were stick frame. Kevin's and my experience was in heavy concrete and steel.” says Dan Ryan. “The one thing we agreed on was that we did not want to be in the lowest bidder part of the industry. We made the decision to focus on negotiated commercial projects as much as possible.” The strategy paid off. When Tim Ryan Construction celebrated its 50th anniversary in 2007, the company's clients included the Suquamish Tribe, Doctor's Clinic and Harrison Medical Center and Tim Ryan Properties.

The Ryans have kept their corporate structure fairly simple. TRC is set up as sub chapter S corporation and Tim Ryan Properties is an LLC. Tim is still involved in an advisory capacity. “One big advantage in having family management is that we can make decisions quickly. Plus the banks and bonding companies are very comfortable in working with us. They know us and know we will be here tomorrow and next year,” Dan Ryan says.

The next challenge facing the Ryans is who will follow in their footsteps? “ We created an exit strategy for Tim,” Dan states.”Now we have to create one for ourselves. We are developing a continuity plan.”

Manson Construction, Seattle

Seattle's Manson Construction has been in the hands of the descendants of founder Peter Manson for 103 years. To hear Peter Haug, retired president and chairman emeritus of Manson, tell the story, keeping Manson in family hands was as much a matter of being “fortunate enough to get along as well as we have” as any deliberate attempts at succession planning. Peter Manson's son Harry followed in his footsteps, but after Harry, the company came under the guidance of Harry's brother- in-law Elmer Edwards. Since that time Manson management has “leapfrogged between the Edwards, Haug and Paup familes, ” explains Peter Haug's daughter Lisa, who is part of the current generation of owner/managers running the company.

“We have also been fortunate in that members of the younger generations have shown interest and ability in taking the helm from their fathers and uncles,” continues Lisa. “One of my cousins set his sights on a literary career, but he grew interested in the business after working here and went back to school. He's great with numbers, plus he copy edits my press releases.” Manson has been approached numerous times with offers to buy the company, but the family has thus far resisted the temptations to sell. The company has also looked at going public. “We don't really like the idea, you have to let everyone know what you are doing all the time, “ Haug states.” It doesn't sound like fun to me.”

Active involvement of the family stockholders is one of Manson's keys to success. “We are able to make decisions involving tens of millions of dollars and project risks in a very short time,” says Fred Paup, Manson's 41 year old executive vice-president, who helps his cousin Eric Haug, 53, run the company. “We recently won the $240 million dollar contract to rebuild the Minneapolis highway bridge that collapsed. We are partners with two other companies, but the fact that our family stockholders are all involved meant that we could comfortably make an informed decision to get involved. “