Would You Own This and Never Run It?
Moving ownership to the next generation is mostly preparation. The shares are the last step, and by the time they change hands the people receiving them should already know what a shareholder does, whether they can own a company they may never run, and what the business exists for. Families that skip that work hand over paper and call it a plan.
Most of the succession questions owners bring us are mechanical. What are the shares worth? How does the next group pay for them? Does this belong in a trust? What does the tax picture look like? Those questions have answers, but they are far from the most important thing you should be working on.
The owner who moves a business into a second or third generation well is the one who spent years teaching the next group what they are taking on. Billy Swanson is the owner of Tri County Air Conditioning and Heating in Venice, Florida. I've known him for twenty years and he is the second generation owner in a company his father started. His two sons and his nephew are the third generation, and all three of them hold shares in the company. Getting to the signature took six or seven years.
Three of those years were standing meetings, two or three times a month. Sales, cost of sales, liabilities, assets, financial statements, leadership styles. A full year of that time was spent reading and working through one book about mission drift. If you're going to sell someone your company, they'd better understand what the company is for.
The Question That Comes Before the Shares
Before the share documents were signed he asked every man one question. Would you be willing to own this and never be the CEO? Can you give up the right to run it?
That question does more work than any document in the file. It separates owning from running, and it does it before money changes hands instead of five years later after the damage has been done and the conversation is considerably more difficult. They all had something to work through individually to get to an answer. One of them remembers being fifteen years old and hearing that this could be his someday. It’s doubtful his dad remembers that conversation, but the son certainly remembered it and both had to talk about it now that the stakes were considerably higher.
None of the three third generation shareholders sits in the CEO or the general manager seat. All of them report to someone who doesn't own a share of the company. Having the last name, or holding stock, doesn't make a person the right one to carry the growth of the business or to preserve its mission, its culture, and its vision.
“When you walk through that door, you’re not an owner.”
— Billy Swanson
What Billy means is that ownership doesn't follow you to your desk. Be the best employee in the best lane you have. When a co-worker asks why a decision was made, you don't answer it as an owner and you don't explain the reasoning. You tell them to go ask the person who made it. He's been teaching that for years, and it's the opposite of what most owners say they want, which is for everyone to think like an owner. Billy wants the owners in the business to be extremely competent employees first and foremost.
What a Shareholder Does
Most families assume ownership and authority are the same thing. They aren't. Shareholders take money out of the business, they put money into the business, and they elect the officers of the corporation. That's the list.
The fact that owners have a responsibility to put money into the business surprises people. Owners hear shareholder and think about distributions. Putting money back in is part of the deal, and it works the other direction too. A large pile of idle cash sitting in the company isn't safety. It's a lawyer magnet. Strategic distributions take chips off the table, but there may come a day when growth requires some of them to be reinvested.
Send Them Out Before You Bring Them In
His sons worked in the business growing up, and then they were told to go get an education and go work for somebody else. That was his own path, and he says it was helpful to know what it feels like to be an employee. He set that requirement without knowing whether either of them would want to come back. That ability to risk losing your succession plan to another business owner is key to setting the expectation that a spot on the org chart is earned and not given.
Let the Next Generation Write the Vision
The three new owners spent a year on the vision statement, and Billy says he had very little to do with it. That was the right call. The people who will carry a vision are the ones who should build it, because they're the ones who have to answer for it after you're gone.
The last line of the new vision is that they strive to remain a trusted family legacy, and that phrase came from them. It also moved the horizon out. The plan isn't third generation and sell. They're talking about the fourth, looking at their own young kids and wondering who might join this team someday. The vision they wrote makes room for a family member to work in the business without being the one in charge. Receptionist, warehouse, it doesn't matter to the legacy.
They're writing the shareholders' policy and governance documents now, working through the what ifs on their own. He gets to sit back and watch them do it, and they're more detailed about it than he was.
Some Things Do Not Go to a Committee
Vision belongs to the people who will carry it. Values and mission don't work the same way. I have a conviction about this. Your values and your mission aren't open to interpretation and they don't go before a committee. Decide what governs behavior in your company, write it down, and stop litigating it.
This matters most in a partnership, because partners have to be on the same page about the foundational elements of culture. When they aren't, you go to the mat every day, and the easy escape is to call it culture stuff and push it to next month because there are projects to deliver.
When conviction about the mission is missing, nothing else fills the hole. Not operational efficiency. Not a great hire. Not software. It stays a gaping hole until the thing itself is there.
Mission Statement · Tri County Air Conditioning and Heating
To comfort all in such a way that they are compelled to tell others about their experience and it honors the Great Comforter Jesus Christ.
Tri County’s current mission statement starts with why the company exists, and he loves every word of it. He doesn't enjoy people suggesting edits, and I think that reaction is a feature. His first mission statement was a different story. He wrote it because he was supposed to have one, and it was more business focused, something about building long lasting relationships through quality installations and trustworthy service. He'll tell you now that quality installations aren't how you build a long lasting relationship.
Write It Down
Ask Billy what he'd do over and the first answer is documentation. Family conversations about what the business could be, ideas floated between people who love each other and assume they heard the same thing…those conversations need to be written down at the time. He'll say plainly that they aren't good communicators, that he says something and then has to ask what the other person heard. Most of the fires they spent years putting out started as a conversation nobody wrote down.
Ready for the Money
I watched an interview a while back with a woman from one of the old American money families. Two families, both iconic, and on her side the wealth was intact five or six generations in and so is the philanthropy. On the other side the wealth is gone, squandered. When asked what the secret was, she went straight to education from an early age. She was taught the family values. She was taught what her family is about. The money isn't the purpose, the money is a tool we get to use to accomplish what we were put here to do. You get the money when you're ready for the money, and being ready means owning the values the family was built on.
That's what a good transition looks like from the inside. The next generation cares more about preserving the values than about a title, a distribution, or the option to sell to a private equity buyer someday and turn the shares into personal financial security.
There Has to Be an End to It
Ask Billy about regrets and he goes to parenting before he goes to the business. Words he'd take back, decisions he'd take back, time he spent in the organization instead of at home. There's always more work in a business, always something to improve, and if you're an improving person there's no end to it. His point is that there has to be an end to it anyway.
That's the other half of a succession plan. The reason you build a business people can carry without you is so you have somewhere else to be. He has left me standing in a parking lot in the middle of a conversation because it was his standing time with his son. We had a good meeting about the business, but it was still just a meeting.
If you're planning to hand your business to someone, start with the question about the CEO seat. Are they willing to be an owner without being the CEO, ever? Ask it out loud and listen to what comes back. The answer will tell you how many years of work you have left before the paperwork matters.
Key Takeaways
Ownership and authority are separate. Before shares move, ask the next generation: Could you own the business without ever running it?
A shareholder takes money out, puts money in, and elects the officers. Most families assume the list is longer.
Inside the business, owners are employees. Authority follows responsibility, not ownership.
The next generation should either wholeheartedly affirm or re-write the vision, because they're the ones who have to carry it.
Values and mission aren't committee work. Vision is.
Write down the family conversations. The fires start with something everybody remembers differently.
Frequently Asked Questions
How long does it take to move ownership to the next generation?
Longer than the paperwork suggests. In the case above it was a six or seven year journey, including three years of standing meetings two or three times a month on the financial statements, the leadership, and the mission of the business. The signature is the short part.
Do my kids have to run the business to own it?
No, and separating the two early is the healthiest thing you can do. In the family above, the sons were asked whether they could own the company and never be the CEO before any shares moved. None of the three shareholders runs the business, and all of them report to someone who owns no stock. A last name doesn't make someone the right person to be responsible for the growth of the business or for preserving its mission, culture, and vision.
What does a shareholder do?
Take money out, put money in, and elect the officers of the corporation. Running the company is a job, and jobs are filled on merit.
Should my kids work somewhere else first?
It helps. The owner in this story worked outside the business himself before coming back, and he required the same of his sons: get an education, go work for somebody else, find out what it feels like to be an employee.
Who should write the vision statement, me or them?
Them, if they're the ones who will carry it. The family in this story spent a year on it and the next generation wrote the line that matters most to them. Values and mission are different. Those you set, and you don't open them up to a committee.
References and Downloadable Resources:
Episode 197:How Owners Step Back Without Breaking the Business (Part 1)
Mission Drift: The Unspoken Crisis Facing Leaders, Charities, and Churches by Peter Greer and Chris Horst
Start With Why: How Great Leaders Inspire Everyone to Take Action by Simon Sinek
Grow With Purpose podcast: More conversations for owners and leaders who lead with purpose.
Listen to the full conversation: Episode 198 on the Grow With Purpose podcast