Episode 34: Succession planning: Is it your happily ever after?


All Xero Gravity episodes

Hosted by Elizabeth Ü and Gene Marks

If you’re thinking of selling or passing your business on to family, or giving it to your employees, this is a Xero Gravity episode you do not want to miss.

Guests Dr. Sabine Rau, Professor of Entrepreneurship and Family Business at King’s College London, and Judy Wicks, author and entrepreneur, get down to brass tacks on how to make a business succession plan successful. You’ll hear about name licensing, market valuation, leadership development, the business transition plan, family inheritance, and a bunch more helpful tips and tools to guide you on your path to giving away, selling or closing your business when the time comes.

In addition to that, Elizabeth and Gene break out another installment of “What I Wish I Knew.” It’s Xero Gravity. It’s episode 34. It’s available on demand, wherever you go.

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Episode transcript

Hosts:        Gene Marks [GM] & Elizabeth Ü [EÜ]


Guests:     Dr. Sabine Rau [SR] and Judy Wicks [JW]


You’ve just tuned into Xero Gravity: a podcast for small business leaders and entrepreneurs across America. Now to your hosts, Gene Marks and Elizabeth U.

EÜ: Welcome to this episode of Xero Gravity. Today we're going to be talking about succession planning. What happens when the business owner has left the building? Or when you're planning on leaving the building, how can you make sure that your legacy will live on? My name is Elizabeth Ü. I am an Education Specialist here at Xero, and I'm joined by my fabulous co-host Gene Marks. Say hello, Gene.

GM: Hello, hello. I am glad to be here. This should be a really great conversation to have.

EÜ: This is a topic that I wish that more small business owners would think about earlier on in the life cycle of their business. This is what happens if you are a serial entrepreneur, and you're ready to move on to your next thing. Or maybe you're getting ready to retire, and you need to pass the business on to somebody else. We're going to be talking about different types of succession plans and different scenarios. Also, what happens when you're in a family business; and maybe someone is ready to pass the business on to you or you're needing to look at passing that business on to someone else.

GM: I am telling you, it's something Elizabeth. Right now, after this whole weekend, I've been getting nothing but Snapchats from
my kids at college in various states of disarray and parties and socializing. I'm telling this to you, and anybody listening, I will not be passing my business down to my children anytime soon. I just want to be on record of that, okay?

EÜ: Eventually, they'll graduate.

GM: Yeah, they need about 20 years of maturity first. I get it, right? It's
a really important topic. You run a business for a certain period of time, and you really have to start thinking ahead about what the exit is, and where it's going to go. We don't think about it because we're too wrapped up in just the day-to-day stuff. We need to be talking about the future because we're trying to build value in something, right?

EÜ: It's true. Here to talk about the future, we have both Dr. Sabine Rau, who's a professor at King’s College in London, and also Judy Wicks, who is a long time advocate for social entrepreneurship. I can’t even begin to talk about her entire resume but she's someone who's really been a mentor to me, and a role model. I'm really glad to have her on the show. They're both going to be talking about succession and the different ways they’ve approached that topic in their own business lives.

GM: Looking forward to it. I have to tell you, for anybody like me who has been in Philadelphia all their lives, Judy Wicks is a very well known name. I'm really excited to speak to both of them.

EÜ: Yep, so stay tuned. We'll be talking to both Sabine and Judy in just a minute.



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Guest Soundbite Pay more attention to leadership development; in order to really have a succession plan based on selling to employees. You need to develop that leadership all the way along.


EÜ: We have two fabulous guests today. We have Judy Wicks, who has a long career in values based business. She is the author of Good Morning Beautiful Business, The Unexpected Journey of an Activist Entrepreneur and Local Economy Pioneer. I have had the pleasure of working tangentially with Judy for many years, so I'm really happy to have her on the show today. Then we also have Dr. Sabine Rau, who is not only a part of a family business herself, she is also an expert on this topic in her role with King’s College in London. Thank you both for joining us today.

JW: Pleasure.

EÜ: I wanted to start by asking Judy, who I know has recently gone through succession plan with her business, The White Dog Café restaurant in Philadelphia. Judy, can you tell us a little bit about some of the values that you founded this business upon? Because I know that these were very near and dear to your heart, and very much at the forefront of your succession plan.

JW: Right. It was very important to me to continue the sustainable business practices that the White Dog had initiated during our 26-year long history. The most important one to me was buying from local farms. Then only buying meat that was raised on pasture with humane standards. That was my most important one. But also fair trade items for imports such as fair trade chocolate, coffee, tea, cinnamon, vanilla. All the different things we had gotten from fair trade – to sustain those relationships. Sustainably cut fish was another important purchase for me. Renewable energy of course, renewable electricity. We were 100% renewable at the White Dog and I wanted to make sure that we continue that. Purchasing local beer, and wine as much as possible. Maintaining the relationships with other local vendors.

GM: Judy, first of all, I have grown up with your restaurant. I'm also based here in Philadelphia, and loved the White Dog Café. Your restaurant is a super unique place, because of values that you've had for sustainability. You guys were doing sustainability before a lot of people even knew the definition of that word. I just have to ask you, I mean, you built up a great brand, a great following, well known name within the city. Did you ever doubt your plan to try and sell your business and to put all of these requirements on a potential buyer?

JW: First of all, I didn't imagine that I would ever, ever sell the business. Most of the time that I was operating the White Dog, and certainly when I started it, I didn't really think about an exit strategy. Because I just figured I was creating a business that would be my life in a sense. I lived upstairs. I lived above the shop, kind of the old fashioned way of doing business. My personal life and my family was very integrated into the business. I imagined growing old there. I used to kid about how I would just be upstairs and tap on the floor at my cane and people bring me up food or whatever. It didn't really occur to me for a long time, and then I did realize that I wanted to sell it some point. I got so involved with my non-profit work that I really wanted to spend full time on local economy issues. That became my passion, so I realized this kept putting more and more on my plate, and I had to take something off. I decided it would be the White Dog. It was a very hard decision for me to make.

I really debated about it for four, five, maybe six years. I finally decided that it was the best thing. I was no longer in a position to make the best decisions. That's the point in which I said, "You know, it's time for me to sell this place to somebody who'll be the proprietor. I can't do this anymore." Once I made that decision, my first thought was to sell it to my employees. I went down that road for maybe a year, I had an attorney and so on. It solved the ownership problem but not the leadership problem. I think this is common in the restaurant business, that you have a lot of young people working there who really aren't seeing this as a career. There wasn't enough strength in terms of the leadership to do that.

Then it was just kind of a miracle that the trademark of White Dog Café came up for renewal with federal trademark as it does every ten years. When it came up, I transferred the ownership of the name into my personal ownership. When I sold the corporation, I did not sell the name. I licensed the name to the new owners with the social contract that list all the things that they must do: all the practices they must have in order to use the name White Dog Café.

EÜ: So Sabine, I wanted to ask you a question. Here we have this amazing story about Judy founding this business that was so much a part of her life, and so much of her passion was in that business. But you were born into your family business. Did you always have a passion for forestry? What were your feelings about being part of this family business?

SR: You don't think about it when you're young. You’re just born into it, you grow up with it, and in a way it's just there like a family member. So sometimes you hate them, sometimes you love them, but you didn't get rid of them. That was how the family business was part of my life. I remember when I started studying management, I was very surprised and shocked that they were trying to teach us things about businesses I'd never, ever experienced. That was the first time I realized that I grew up in a business that is very special, and not all businesses are like that.

EÜ: Did you always know that you wanted to take over that business?

SR: The business I'm running at the moment, I took over from my father, but it was the smallest part of the business. The larger part of the business was divided between three siblings. One of them was me, and as Judy said before, and that was very interesting.
It solved the problem of ownership, but it didn't solve the problem of leadership. We did what a lot of siblings do. When there is no clear direction in terms of leadership, and there is not one who is really much stronger than the others, I always started to fight. Also about two years later, I sold my part of the main business to my brothers, and took the small business over. Which was kind of, we are the boys, you are the girl. You can take care of the forestry in this case, and we take care of the real business. I was left with the forestry, and meanwhile, I really have a passion for it, and I'm very lucky that I have one of my children who has real passion for it. I hope it will work out a little bit better than in the last generation.

GM: Judy, did you surround yourselves with advisors? Sabine, she provides advice to business owners when they're trying to figure out a succession plan. Did you lean on anybody? For example, you give an example of getting the trademark, the name to the restaurant, putting it your own personal name. Was that your idea? Or was that an attorney that told you to do that?

JW: No, that was my own idea. It was just a coincidence. I didn't think of it in the context of the succession plan. It just happened to come up for renewal, and I thought, "You know what, I'm just going to put it into my own name." Somehow, because I self identify so much with the name, it was almost like it was my name. So much part of my identity. I just wanted to own it. I didn't know what I would do with it, but then as things progressed, I realized that I could license this name to the owners with the social contract.
I thought of the basic idea when I was at a business conference— the Social Venture Network, which is a membership organization.

I was talking to a friend of mine there, who had his own business. I told him what I was up to, but I needed some help on the deal because I didn't know how to negotiate. I didn't know how to write up contracts or whatever. I told him my basic idea; I said I didn't even know what this was called. I didn't know it was called licensing. I said, "I'm going to lease them the name." He said,
"Oh no, that's called licensing. You need to get a licensing attorney. And have a licensing agreement." Yes, he was very much a good help to me, and he connected me with a licensing lawyer, and held my hand through the whole thing. Negotiated the terms with the buyer.

EÜ: Sabine, when you were looking at breaking up the main part, or at least selling your part of the main business to your brothers and taking over the smaller business, did you ever have any regrets? Were you feeling really resentful at that point or was it a huge a relief? Or something in between?

SR: There is this story behind that: we had to fight and then during that fight, I thought about how to get back into the position to take decisions for the business. Because the business was paralyzed because of our fight. I offered to buy my younger brother’s shares, and he came back with a price that was so ridiculous, that intuitively I said, "Well, you know. If you are paying that price you can have my third." It didn't take long, and then the two of them bought my third, and because of the fight that we had before, it was rather a relief than a regret. Having taught family business at university, many people ask that question — didn't you regret having left your family's business? My answer's still the same. I'm quite sure I would have been a so-so entrepreneur or business leader. I know I'm quite a good professor, so somebody had a
very good idea. It was me.

GM: I love that, I love it. Sabine, going back to it, the business itself: Was there a buy-sell agreement from the very beginning? Or was it something that you guys just had to figure out as you decided to make a succession?

SR: We had to figure it out, and that was an interesting part, because my brothers wanted accountants in to get evaluations and so on. We were quite young, in our twenties, and I said, "No way, then I'm out of the deal. You want to buy, I want to sell. If we agree upon a price, that's the value.” I didn't need any accountant in there to become rich. That's the way we did it.

GM: That's interesting because you talk about valuations as well for a business, so that means you did not get evaluation for yours.

SR: No.

GM: What about now? You teach and you advise people that are looking to transition their businesses. Do you recommend valuations now?

SR: It depends whether you tried to sell it at the market, whether for private equity or strategic investors, or anything else, or within the family. It very much depends on the goals that you have with selling the shares. If I come back to my own story, we have several kinds of goals or plans within which we could take decisions. The one thing was if we leave the business, my husband and I, we wanted certain amounts so we could get a fair value for our children. On the other hand, we didn't want so much money that it would kill the company. Going to the market and getting valuation that a strategic investor would have paid, that would have been the price that if my brothers agreed, would have make it impossible for the business to continue under their leadership.

If you don't have this type of restriction, then you’re in a completely different game. And I think one of the things that you don't do, or many people don't do, is to be very clear about what we are trying to achieve when we are looking at succession. Whether it's succession within the family, or whether it's selling your business: You can't have it all. You have to be very clear what you want to achieve. Make a hierarchy, and maybe you have to give up goal three, maybe even goal two and three if you want to achieve goal one.

EÜ: I think that's one of the things that I love about Judy's story is she was so clear about the things that needed to stay in place during her succession. There was no chance that she was going to pass that business along to somebody that wasn't going to uphold those values. Sabine, in Judy's case, clearly she was ready to move on to do something else. Sabine, in your case, there was this big family fight that caused this moment of succession for you to remove yourself from that part of the family business. There's so many reasons why people might need to come up with a transition plan, or succession plans. I’m hoping you can tell our listeners what some of the most common reasons why people have to undergo some sort of transition, from one owner/leader to another.

SR: You've got reasons that are part of the business itself. For example, when businesses are becoming too big for a niche, but there is not enough financial capital to grow further, you need an investor partner to take over. There might be an opportunity to team up with somebody to really make a bigger or better market. There are family reasons, like for example you don't have any heirs, and you are approaching your 70s. Children are not interested, they don’t have the qualifications. There's so many different reasons why people should think about succession. The interesting thing is that a lot of people who really should consider succession don't do so, because considering succession is also considering that a part of my life might end, even my life might end. If I got it right, in Judy's case, it was like, “I want to move on to a different phase in my life. I'm already moving on, and I need a good solution for my baby, for my last phase of my life.” That's very good motivation because then people really put things in place. If this is your only baby (this business), people will often cling to the business, until they destroy what they've primarily built.

GM: Judy, did part of your life end when you sold the White Dog Café? Was it like killing one of Voldemort's horcruxes or something? You felt that pain inside you?

JW: No, actually I sort of anguished about it for a few years, but then once I made the decision to sell it, I was fine with it. I didn't get emotional. It was fine though, for years, this happened six years ago. I sold the restaurant six years ago. For the first three or four years, I would feel this anxiety, this familiar anxiety, and realized that I didn't have anything to worry about. But, it was like when you have a limb amputated, and you have a phantom arm or a phantom leg where you feel things even though it's not there. I had a phantom restaurant that I was continuing to worry about.

GM: It's funny when you say that. You know the White Dog Café is such an iconic name in Philadelphia, that even though you sold it six years ago, it's always attached to you. I don't know if that will ever change. I guess that's my next question. Did you keep any type of equity or say with the board, or any type of involvement at all?

JW: We talked about this: the buyer and I talked about the idea of my maintaining a small percentage, 1%-5% or whatever, so that I would maintain some kind of relationship in that way. I decided that I actually didn’t want that. I'm an all or nothing person. I wanted to have control, and take responsibility for everything the company did, or I didn't want to have take any responsibility or any control. Because I didn't want to have a situation where I was responsible but had no authority or powers. My only relationship now — we're friendly — they encourage me to come there. I can eat for free, they want me to come as much as possible. They want my name to continue to be associated with the White Dog. They like it when I come there and bring friends. Of course I do at the annual audit to see if they're abiding by the agreement.

During the time I was writing my book, I wasn't able to do that.
I went two years without auditing, and when I came back, they
had (for instance) changed electric companies. And the owner had delegated to his brother to find a new electric company and neglected to tell him about the agreement, or had forgotten or whatever. A few things like that where I'd come back, I'd go to the books and then go and talk to the owner. The were very quick to make the changes, and to abide by the agreement. They're not purposely trying to get out of it.

EÜ: Sabine, there was recently an article in the Wall Street Journal citing a report that you had helped several wine businesses in Germany that were averaging — I think you said — 11 generations in this family businesses. Clearly they're doing something right. Maybe you can mention some of those things that they are doing right, and how you've implemented those in your own business.

SR: They do a lot of things right. We looked at those that are very innovative compared to those that are less innovative. The interesting thing that we found is that the difference in innovation in the business of the incoming generation lies in the family and the family communication. What we found is that the innovative family firms do have a legacy. An entrepreneurial legacy, a story that family members share, about entrepreneurial activities, about resilience when they face trouble. And they use the story to educate the next generation from a very early age — three, four, five years onward. They get to know the story, they are reminded of the story. They get involved early in the business, so they know the business, and they feel part of the business, and also the business is part of their own lives. They get a strategic education. They then work together for quite a while, the younger and the older generation. Which is interesting, but with different roles.

While the older generation still takes care of the day-to-day business, the incoming younger generation has time to experiment. That’s something that is really interesting to observe because it asks a lot of discipline and tolerance from the older generation. The younger generation is trying to do something different. You could think of this is in a way telling the older generation, "We didn't like the way you run the business." You also can think of it as bringing in new ideas of a new generation. It really depends on the older generation, whether they get this discipline to let them experiment, but also to help them to avoid the complete breakdown. Then finally — and that is something most family business owners don't like to hear, especially not the mothers — the very innovative wineries transfer the business to only one heir. The others don't get anything. No extra payment, nothing else.

All the resources stay in the company. It's a very unfair type of organizing succession. If you look at (let's say for siblings), it's the only way to keep the resources in the business, to still be innovative in the next generation. They've proved to be very successful with that idea.

EÜ: Now, we're going to move into our final segment for the show: “What I Wish I Knew.” Sabine, maybe we can continue with you.
Is there anything that you really wish that you had known earlier on, either in your transition from your family business with your brother, or as you're looking into the future for a transition for this business?

SR: I really wish I would have known how impactful family relationships are, and how much the relationships that have been built over a long time change when the central person dies (which was my father). The relationships that have been built over the time which he controlled became uncontrollable after his death. That was something that came out of the blue for me. Nobody ever told me that a family has a life cycle. Nobody told me about sibling rivalry. Nobody told me about using the business as a battlefield for family emotions. I was well trained on the business side; I was well trained on all the cognitive stuff. The emotional stuff came as a surprise.

GM: What about you Judy? Let's say you can go back a few years, and say to your younger self, "Here's some advice to make sure that when it finally comes time to move on from the White Dog Café, these are the few things you should know about now." Anything come to mind?

JW: Yeah, a couple things. One is that I would've paid more attention to leadership development in order to really have a succession plan based on selling to employees. You need to develop that leadership all the way along. I never thought about that, and I would like to have left the restaurant, or sold the restaurant to my employees. That was missing. Secondly, once I figured it out (my exit strategy), in terms of using the social contract to maintain the values: What I would have done differently is had some penalties for not abiding by the social contract. The only recourse I have in the current agreement is to take away the name. That would be difficult for them, but then equally difficult for me. Because the way the deal was structured is that rather than getting the value of the company upfront — as I would have if I had sold the name — in a restaurant the name is worth more than the company. I forfeited the money upfront in order to have this agreement based on the social contract.

I recouped that money over time with the licensing fees. At the end of fifteen years, I've gotten the full amount of the value of the company. It was good for the buyer because it was a payout, elongating the time that they could pay it out. For me it was good because it maintained the values for fifteen years, after which they own the name, which they could do what they want with. The problem is, if for instance they had some horrific problems with abiding by the agreement, I would have to take the name away.
But then I would never get my payment. What would have been better in the licensing agreement is that, if they for instance, were not using fair trade chocolate. For everyday they weren't using fair trade chocolate, they would be fined $100 or something like that. Then I would have some pressure to have them correct the problem without going so far as just threatening to take the name away. That would've been something I would change in my agreement.

EÜ: Well, thank you so much for joining us today. We’ve been talking with both Judy Wicks and Dr Sabine Rau. This has really been a fascinating conversation, and I'm sure that whether or not you are already thinking about succession, you’ve got lots of food for thought as far as when you might be thinking about how to transition your business to somebody else, and what some of
those options might be. So thanks again Judy and Sabine for such a great conversation. I really wish we had more time. Thanks for joining us on Xero Gravity.


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GM: If you have any questions you’d like answered on the show…

EÜ: ...tweet us at Xero using the hashtag #XeroGravity. Or, text us your

questions, to 415-813-9878. We’ll answer them on next week’s show!


EÜ: Wow! What a conversation with Judy Wicks and Sabine Rau. There are so many things to keep in mind when it comes to succession planning for your business.

GM: I know, I agree. I was actually really surprised that Judy is just burning down your business and taking the insurance money. Who knew she was going to... just kidding. For anybody who was just listening to that, they had some really great ideas, and some really good thoughts. Both of you had stories to tell that are really compelling.

EÜ: It was really interesting to hear too about how Judy would've really preferred to sell the business to her employees, but she hadn't paid enough attention earlier on to leadership development and training those employees to be ready. I know recently, when I was researching my book, I saw an article on Bob’s Redmill — they do all sorts of flowers and various greens — that one day he came into the office and told everyone that he had transferred ownership of that company to all of the employees. I thought to myself, "Wow."
I realized I'm only seeing this one brief article, but I really hoped he had spent some time training those employees to take over ownership. Because it's one thing to have your day-to-day job and a role in the company, it's another thing to be in charge of running that company.

GM: I totally agree with you. Sabine's comments about just the trials and tribulations of a family-owned business, and passing it down... she didn't have a buy-sell agreement. She said there was a lot of arguments between herself and her siblings. The best way to avoid all that stuff is to think about it way, way in advance, don't you think?

EÜ: I think so. It's so true. I loved what she was saying also, Sabine, about getting really clear what you're trying to achieve with your transition plan. Because you can't necessarily have it all and even though you might think that you're the best person to make all of these decisions. You can't do that forever.

As far as the couple of the resources that were mentioned on this show, don't forget to visit xero.com/podcasts for both the link to Judy Wicks' book. She does talk about her succession plan and how she kept hold of the trademark name for the White Dog Café in that book as part of her succession plan. Then also, there will be a link to the research that Sabine has done, that showed up in the recent Wall Street Journal article entitled, "How to keep a family business alive for generations.” Great resource there.

Once again, thank you so much for joining us on Xero Gravity. Please tune in next week for the next episode.

GM: We'll see you next week.

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