All in the Family
July 9, 2020 | All in the family
Four of Iowa’s highly successful family-owned business owners have the same advice when it comes to succession: Have a plan in place.
It’s not easy, they each contend, to sit down and talk as a family about business succession. The topic itself generates countless emotions, including thoughts many would rather leave unmentioned, such as the passing of beloved family members and what to do without their guidance and leadership. However uncomfortable, creating a plan for the future is essential to secure the long-term success of the business.
Yet not every business does so. According to the 2019 U.S. Family Business Survey by PwC, a London-based business consulting firm, only 58% of family businesses surveyed have created succession plans. Of those surveyed, 27% have no succession plan in place at all.
A LONG-TERM STRATEGY
When it comes to the future of any business, it’s important to have a vision for continued success and a plan for challenging times. In family businesses, these plans drive growth and create a parachute for when the unthinkable happens.
At Lisle Corp., an automotive specialty tool manufacturer and distributor, and EZ Way, a manufacturer and distributor of safe patient handling equipment — two businesses run by the same family in Clarinda — the greatest business succession dilemma came with the loss of established leaders.
“The biggest challenges have come when our succession timeline has changed due to the passing of a leader, which happened in 1977 with the passing of Ed Lisle and tragically again in 2018 with the passing of his son, Fred Lisle,” said Mary Lisle Landhuis, president of Lisle Corp. and EZ Way. “As a family company, these challenges have been difficult for us emotionally and professionally, but having a succession path in place has been critical with both transitions.”
The Lisle Corp. was founded in 1903 by Landhuis’ greatgreat-grandfather, C.A. Lisle. Back then, the company produced horse-drawn water well boring machines. Several Lisle family members have led the company as it evolved into what it is today — more than 250 employees across the two organizations and businesses at the top of their industries. Landhuis, the 10th Lisle to lead the company, took over in 2018.
She emphasizes the importance of not only establishing a succession plan but also the need to remain flexible.
“It’s never too early to have a plan in place for all leadership roles within an organization,” Lisle said. “Understand the plan can and will change, so regularly review and change course when needed.”
FINDING OUTSIDE HELP
Located in Atlantic, the Tyler family has run the Atlantic Bottling Co. since it was founded in 1909. Back then, Kirk Tyler’s grandfather and his grandfather’s brother were running an ice and ice cream company with its own line of soda flavors in Villisca.
Business was good, and in 1912 they bought a creamery in Clarinda. When they were cleaning up the building, they found a safe in the warehouse. Inside, they found papers for a CocaCola franchise. In the 1920s, they sold their ice cream business to Meadow Gold and focused on soft drinks, with beverage plants in Atlantic, Creston, Shenandoah and Grand Island, Neb. They operated those locations until 1949.
“There was an estate planner that advised my grandfather and his brother that the business was too big for one family and they should divide up,” Tyler said. “All four plants were valued at the same value. Fortunately for us, the brothers got along very well, and they literally drew straws to see who would take which plants. We drew the long straw and we got Atlantic and Creston.”
The Tyler family received an unexpected call in 1974, when Coca-Cola leaders asked the family to take over Coke’s Des Moines franchise.
“At the time, it was one of the two worst Coke markets in the country: Des Moines and Buffalo, N.Y.,” he said. “Fortunately for us, they decided to take a chance and take part in that opportunity.”
Each of these company milestones was an opportunity for the family to sit down together and decide whether they wanted to continue the business, whether the next generation wanted to be involved and how they wanted to plan for the future.
Tyler, who became Chairman/CEO in 1997, said his grandfather and father went through succession planning decades ago, and he went through the same process with his father in the 1990s.
“We're in phase two now of succession planning, which started back in the mid-1990s, and we took about three years to do that. We put a really good plan in place where he was selling his stock to myself,” Tyler said. “None of us are getting any younger, so now I'm starting that phase of the business where we're starting my succession planning with family members going through that process. It's taken a couple of years so far.”
To plan well for the family business, Tyler said it is extremely important to hire outside advisers.
“You talk to a lot of different advisers, as many as you can, really, but each family dynamic is unique and what they want to get out of the business and what they put back into it, how they want the succession to go,” he said. “Everyone is different. There's not a book that you can pull off of the shelf and read it and say, ‘OK, that's what we're going to do,’ because everything's different.”
When working with succession advisers, it’s important to be upfront and establish early on who will ultimately be the decision-maker in the family, he said.
“I think the best thing is to get input from all of the family members and input from different advisers,” Tyler said. “Then the communication is just a huge part, making sure everything's transparent, making sure you have regular meetings to discuss what's going on, what you're thinking.”
OPEN LINES OF COMMUNICATION
At Kreg Tool, which started in 1989 in Huxley, the family didn’t openly discuss business succession.
“I went to UNI [University of Northern Iowa] and got an accounting degree,” said Todd Sommerfeld, chairman of Kreg Tool. “I intended to go into the accounting field, learn about the business and then hopefully someday come back and join the family business, although we never spoke about it as a family.”
Kreg Tool produces pocket hole jig tools for the do-it-yourself woodworking industry, selling through retailers such as Lowe’s, Home Depot and Amazon.
“We sell to both the professional as well as the hobbyist, but I think our passion is, really, why we exist is to activate people, to experience the benefits of connecting head, heart and hands,” he said. “What we're passionate about is the customer experience. And that largely translates to, especially with novice people who are building for the first time, experiencing a sense of accomplishment, the confidence that comes from creating something.”
The company has been so successful it’s building a new 150,000-square-foot headquarters in Ankeny.
Todd’s father, Craig Sommerfeld, invented the “Craig Jig” in the late 1980s and sold it at trade shows in the Midwest. Craig and his brother, Mike, built the tools in the family’s backyard. Todd helped when he was a kid, and while at a trade show with his dad, he discovered his love for the business.
“I've worked in my backyard. I worked here in Huxley part time making products,” he said. “I did my first trade show when I was 15. It was really when I went to a trade show and really worked with the customers and got a sense of how we were creating an impact on the customers with the products that we're making that gave me a passion around business and serving a need out there.”
After college, he rejoined the family company in 1999, working in business development and sales while his dad focused on operations and his mom ran the office.
“I think I really understood what my dad's vision was,” Sommerfeld said. “I was really excited to join him and partner with him and bring his vision to life, even more fully than what had taken place over the first 10 years of the company's existence. I was excited about that opportunity to really help him grow it, scale it. It was one of the big things that we wrestled with, was my desire to treat it like a business and grow it and scale it and not [just] hope we're around next year.”
In 2003, Lowe’s reached out to the family, wanting to sell Kreg Tools in the hardware giant’s 1,700 retail stores. The growth that came with national distribution led to challenges for father and son, mostly on a personal level.
“I think it grew beyond my dad's desire to have a business that grew from a handful of people to today, where it’s 250 people. And when it got up to even over 50 people, it just, it became a business that my dad no longer felt as connected to,” he said. “It started to flip my dad's identity and my dad's vision of where it went and he kind of allowed for that to go. When it became something that he didn't feel was the best alignment for his skills, he kind of stepped aside and put me in a position to lead.”
It was a struggle for the elder Sommerfeld to let go of the company he had created, but he was proud to see the success he and his son built. The Sommerfelds hired outside advisers to help with the succession plan. Money well spent, Todd Sommerfeld said.
Sommerfeld was named president in 2005, and in 2012 he brought in an outside, nonfamily member to run the business and later become CEO.
“And I began going through that same identity thing that my dad did and wrestled with that. So I have a better understanding and appreciation for what my dad went through,” he said.
Over the past several years, the business has shifted business shares from Todd’s sister and parents to him, and now those shares are being moved into an employee stock ownership plan (ESOP).
“At that point, I was ready to transition into the chairman role and elevate the COO I'd hired three years before to CEO,” he said. “And we went through a business succession process that looked at ‘What are your values? Where do you want it? What do you want to do? What kind of legacy do you want to leave?’ Ultimately, we landed on an ESOP as a future succession for me. And my parents liked that idea; that resonated with them.”
Over time, Sommerfeld will sell more of his shares to the plan, until it becomes a 100% ESOP.
“One of the things that I've experienced from succession isn't so much the business side of it, but it's the psychological side of changing your role, letting go of something and moving into something else,” he said. “One of the things that helped me to personally transition through that succession was to get to the ESOP. It was very helpful for me to spend the time on that while the business was really run right.”
A DIFFERENT TAKE ON SUCCESSION
Not every family business is transferred to the next generation of family members. Sometimes, people from outside the company are recruited in to lead. Other times, the business is purchased by an outside buyer.
Keystone Electrical Manufacturing Co. in Des Moines manufacturers protection and control relay panels and turnkey control centers used in the generation, transmission and distribution of electric power. The company was founded in 1964 by Bill Milliman. Fred Buie joined the company in 1997 and bought it in 1998.
“After 16 years in various roles with the General Electric Co., I decided to pursue my dream of owning and operating a manufacturing company,” Buie said. “I was connected with Keystone by a General Electric sales rep I knew. I joined the company as the general manager with the expectation of purchasing the business.”
His wife joined Keystone in 2002 and runs human resources, risk management and technology. Buie’s oldest son worked with the company for a time, until he realized his passion was in a different industry, medical devices.
"If your strategy includes your children, make sure to allow enough time for them to develop a passion for the business,” he said. “Owning and operating a business is very demanding and stressful. Children who may take over the business will have the added stress of continuing that success. Without a deep passion for the business, that responsibility can become a heavy burden, even if the business is well positioned for continued success.”
The family has created its own succession plan for the business.
“Our objective for Keystone is to achieve sustained profitable growth, with or without my involvement in the business,” Buie said. “Our plan to achieve this objective is to develop a team of operating managers to handle day-to-day operations and help develop the business strategy. That team of managers will report to a board of directors that includes my wife and I, our three children and two outside directors.
“During my remaining time in the business, I will develop the board and its understanding of how to manage the success of the business, understanding the industry and business strategy, and develop the relationship between the operating managers and the board.”
Making time to create a succession plan has been a great challenge, he said.
“There are many moving parts to this process, and it does require some sustained focus and thought to work through them,” he said. “I found it necessary to include succession planning in our annual business plan. I allocate budget and time for the process.”
He also suggests finding outside advisers to help with succession planning.
“Succession planning is not a do-it-yourself project. It takes a lot of time and thought, and the process does require the use of outside services. Allocate time and money to the process,” Buie advises.