Crafting the Right Ownership Transfer Strategy
In 2007 when Drew Hancock began contemplating a transition of his ownership in Frank L. Blum Construction, the Winston-Salem, North Carolina-based general contractor did about $40 million in revenue in a small geographic market.
Today the company is now a statewide $400 million-a-year commercial contractor with a variety of market sectors, and a new CEO, Mike Lancaster, who started his career as a project manager.
Having been in business for 100 years, this wasn’t the first ownership transition in the company’s history, but it was one that took many years of careful planning and being clear about the owners’ goals after the transfer occurred, said former owner and CEO Drew Hancock.
The key to any successful transition of management is to plan, something that can take years. You need to engage the right people who will be the next generation of leadership early in the process and look for those who think strategically.
“You can be a part of planning a transition or not, but the transition's going to happen, whether it's sudden death, whether it's an external sale, an internal sale, or shutting a company down, it's going to happen, and you can be a part of planning it or not,” Hancock told me during our recent podcast conversation. “The long-term nature of this planning I think is really important.”
Lancaster agreed and offered this advice for those taking the ownership mantle, “If you want to be a part of an enduring company, don't evaluate the scenario as buying and selling but being a part of a team. Where do you mesh into a team? Making sure you evaluate your teammates that you're on the journey with and choose wisely but looking at it as a team effort and picking teammates as opposed to buying a buyer/seller transaction.”
This is sound advice. As you evaluate potential owners, look at candidates in terms of their leadership and ability to influence others in the organization. As Lancaster said, you need someone who “can cast a vision, can create an opportunity and go seize that opportunity.”
Getting People Ready to Lead
Both Hancock and Lancaster agreed that it’s important to give future owners and leaders opportunities to observe and understand how current executives make decisions. Giving them exposure to decision making processes as well as how to handle emergencies helps pass knowledge from one generation to the next and gives new leaders the opportunity to build internal networks.
The idea of putting people first isn’t new, but warrants being continually repeated so it’s top of mind in every decision you make. Ownership transition isn’t about numbers. It’s about the people in the company and who will take over and lead going forward.
“We labeled it OTMS, ownership, transition, management, succession, you could call it leadership succession,” Lancaster said. “But if you don't create a system and a culture where you're transitioning and cultivating leadership to what end, if you haven't built enduring leadership to what end? So, we spent as much time on the leadership succession side, ten times what we spent on the ownership transition side.”
I couldn’t have said it better myself. Putting in place a transition process and nurturing people to take ownership is critical for your ownership transfer to be successful.
Listen to the full conversation for more insights from Hancock and Lancaster via FMI’s Built-In podcast.