Passing the Torch

Published in Direct Marketing Magazine

Family-owned businesses must plan for an eventual a transition from parents to sons or daughters. Family-owned direct marketing companies are no different. Too often, proper business planning and delegation does not occur, and suddenly, the next generation finds itself making decisions it didn’t have to make previously.

 

Business and marketing long-range planning differs from legal, tax and financial preparation. Without long-range business and market planning to ensure a continual revenue stream that is consistent and profitable, all legal, tax, and financial planning may become academic.

 

The lack of business and market planning can lead to at least three undesirable outcomes after the business is transferred to the next generation:

1. Lack of decision making. One of the end-results of a parent making all of the business decisions is that the son or daughter has not been trained about how to make decisions. As a result, decisions are not make by anyone. The business stagnates over time.
   
2. Decision by committee. This trap occurs when parents have more than one son and/or daughter who want to own the business. Imagine four siblings all involved in a family owned business with each carrying 25% of the decision making. The committee can become deadlocked, or view certain tasks as another family members’ responsibility.
   
3. Lack of acceptance. This occurs when the parent does not accept suggestions or recommendations by a younger generation. Without flexibility, there is no new testing or updates to contemporary processes.

 

It is often difficult for the entrepreneur who launched the business to hand it off to offspring because they believe it is only they, the original founder, who has the Midas touch. Founders may yearn for the “glory days” of the business that occurred during the early years of the business and seem to have ended. Rather than acknowledge the times and customers have changed, there can be denial that what was once effective may be no longer profitable.

 

For The Senior Generation

The transition of business and marketing plans should be developed thoughtfully and integrated slowly. Here are recommendations if you are the owner of a direct marketing business who plans to pass on the business to your children:

1. What worked then may not work now. It’s hard to accept that how you sold your products in past years may not be as effective today as it was yesterday. Is it possible that what once was successful is now only sustained because of the customer base you have built? Many companies are living off of customer bases that were established years ago. New customers being acquired may not be as profitable as they once were. A new customer acquired in previous years may have been brought on at a loss, but achieved profitability in the second or third year. Times change. New customers brought on now may require more years to break even.
   
   
   Action Item: It’s time now to plot your long-term customer value of customers acquired five or ten years ago versus what the long-term value is today. It’s also time to review allowable marketing costs of customers from yesterday versus today.
   
   
2. Customer attitudes change. The copy style of yesteryear may be out-of-touch. When was the last time you tested new creative against your control? While it is normally considered that successful direct marketing companies test new offers and creative continually, it may surprise you to learn how little the marketing positioning and creative are changed.
   
   
   Action Item: More aggressively test new products and new marketing approaches. By all means, however, make sure your test is statistically sound.
   
   
3. Customers move on. All businesses lose customers; it’s just a question of why. Have you evolved your product base? If your product is the same year-after-year, what are you doing to “re-invent it” so customers stay on? Some customers die. Is yours a mature product in need of repositioning? Or do you need a new product line to freshen up your business model?
   
   
   Action Item: Research your customers via surveys in the mail or by phone. Conduct focus groups. Ask customers what they want now.
   
   
4. Are you open to change? The hardest challenge for many owners who see retirement on the horizon is the resistance to change. Who calls the shots in your business? You only? Or is it shared with your sons or daughters? Do you let them take calculated risks that could result in small failures? You once took risks. They should, too.
   
   
   Action Item: Let your daughter or son make more decisions. If they are given the responsibility, they must be given the authority, too.
   
   

For the Son or Daughter

If you are the son or daughter in the wings to take over, you have a few responsibilities as well:

1. Challenge conventional wisdom. Yes, it may be your father or mother you’re challenging, but you must do it. Respect the fact your parent has personally witnessed a great deal more than you have, but you mustn’t roll over when it is time for you to spread your wings.
   
   Action Item: Explain why you should be making more of the business and marketing decisions, then be responsible and implement tests or change carefully.
   
   
2. Don’t change everything at once. The day you’re the boss is the day you’ve dreamed of where you call all the shots without that nagging voice of dad or mom in the background. Change may be good, but significant change all at once may not be in your best interest.
   
   
   Action Item: Take things one at a time. Test new approaches carefully. Determine what percentage of your marketing budget you are willing to place in “high risk” categories.
   
   
3. Accept that you will make errors. If marketers all had a crystal ball, there would be no errors. But if you’re the only person in the company who thinks your idea is a good idea, that should be a warning light which suggests either your marketing approach should be altered, or tested in a very limited way.
   
   
   Action Item: If you’re wrong, don’t let a defeat keep you from getting up off the ground and on the horse again. And frame expectations from your parent so they don’t write off you’re first error as the last one you’ll ever make while they’re still alive.
   
   

Gracefully Passing the Torch

Discussing change is often not easy, but to sustain your business, you must do it. Using outside counsel, just as you would for legal and tax planning, is another option. Many successful transitions have occurred over the generations. But there have been many companies that didn’t realize their entire potential—and, for a few, fortunes have been lost—because of the failure to plan for tomorrow.