Ian Campbell (with H. Christopher Nobes), one of Canada’s best-known business appraisers (or valuators as they say in Canada), has written a wonderful book on business transitions.  The title is 50 Hurdles: Business Transition Simplified.  Campbell has recently retired after successfully transitioning his well-known valuation firm, Campbell Valuation Partners, Ltd (Toronto), to his co-author and others.

I have known Ian Campbell by reputation for many years and have read and quoted his book, The Valuation of Business Interests, on several occasions.  However, our paths never crossed until a few months ago when we connected by telephone.  We have  since had a number of excellent phone and email conversations and exchanged books.  We plan to meet personally in the near future.

In the meantime, I want to write about his new book.

50 Hurdles

50 Hurdles is a different book in the business succession, or exit planning, field.  Campbell, like me, does not like either term.  He tells us why he uses the term, transition planning:

Succession is the act of one person or thing following another.  In contrast, transition is the change or passage from one state or stage to another, usually over time.  Either word can describe the process whereby one group of business owners or managers replaces another.  Succession is the word most often used in that context.

Transition, however, has a greater positive inference because it implies a time factor and planned smoothness whereby those facilitating the transition have a critically important and continuing involvement in the transition process.  Hence, transition better describes the process that results in the successful passing of both ownership and management of family [and all privately owned] businesses.

At the outset, Campbell makes clear that he is discussing both ownership and management transitions.  Like the famous song about love and marriage, “you can’t have one without the other.”

The majority of 50 Hurdles addresses family generational transfers of business ownership and management.  However, if a reader simply omits the word family, it is apparent that Campbell’s book is also addressing issues related to what I call “closely held and family businesses,” or all successful private businesses in need of transitioning.

50 Hurdles or Barriers?

The book does address some 50 hurdles that can keep any closely held or family business from experiencing  successful ownership and management transitions.  I’ll talk about the hurdles briefly and then we’ll talk about some of the advice (he uses this word carefully, as do I) the book provides leading up to the discussion of the hurdles.

Campbell’s 50 Hurdles are broken into several types:

• Fundamental business hurdles.  A business has to be viable and scalable, and have sufficient growth prospects and value to be transition-able within a family or group of owners.
• High-level hurdles.  The high level hurdles address the necessity for families to be ready for intergenerational business transition.  They recognize that, from the viewpoint of a business, not all family members are develop equally.  From the viewpoint of older generations, Campbell points out that you should be independent of  your business financially if you plan to transition ownership to your children.  And you should be sure that your transition strategy meets your retirement goals.

At this point, I’ll just list the remaining types of hurdles, and the picture should become clear:

• Family business hurdles
• Family hurdles
• Ownership and management hurdles (notice that there are many hurdles before it is time to address ownership and management hurdles directly)
• General corporate governance hurdles
• Business valuation, business planning and liquidity hurdles
• Employment policy hurdles
• Legal and related shareholder dispute hurdles

The table at pp. 95-96 listing the 50 hurdles by type provides an excellent outline for reflection and discussion.

Selected Ideas from 50 Hurdles

In no particular order, let me share a few of the ideas, concepts and “advice” provided in Campbell’s book.

1. Selling your business.  The best transition strategy for some business owners may be to sell their businesses in third-party sales.  This is not an idea that some estate planners like, but it is simply true.  This advice is similar to that of Tom Deans, who wrote the foreward to 50 Hurdles, who suggests in Every Family’s Business, that families, not businesses, are the legacies of business owners.
2. Focus on value.  Campbell emphasizes the importance of staying focused on maximizing the value of your business, which is similar to the question I ask, “Is your business ready for sale?”  Continuing focus on maximizing value provides the highest probability for successful family business transition or outside, third-party sale.
3. The budget for transition planning.  It does take money for internal business expenditures, external advisory expenses, and other expenses to engage in transition planning.  Campbell suggests creating a budget like a percentage of the value of your business, for planning.  For more on this concept, you can obtain a pdf of my booklet, The One Percent Solution, by signing up for email notifications of my blog posts.
4. Darwinian and Draconian.  Family business transitions are not always easy.  “In the context of generational business transition, Darwinian means that you need to accept the concept of survival of the fittest within your family.  Draconian applies because some business family members may be treated, or believe they are [and perception is reality], more harshly that other family members…owners will be forced to make difficult, objective decisions on many fronts….”
5. Founders have to give up control.  Leaders must be involved in planning, but they must be willing to let go, as well.  Campbell makes the point that founders who are willing to give up operational control in a planned and strategic manner increase the probability of successful transitions.
6. Regular business appraisals.  Families that are serious about managing wealth and planning for successful transitions should have a regular, probably annual, business appraisal to track growth (or decline) in business value and to benchmark against other returns.
7. Growing families require growing value.  There is a nice analysis that relates the growth in family size (mouths to feed, so to speak) and the growth in business value.  This is why, if you want to maintain a family business, it is so important to focus on maximizing value over time.

The ideas that Campbell espouses are, for the most part, logical and straightforward.  However, that does not mean that they are easy to implement.

• In a family setting, there are many emotional barriers to successful communication, and many lines of relationships that have nothing to with the business that can get in the way of planning.
• In closely held business generally, there are barriers between shareholders and emerging differences due to age, financial circumstance, health, family situations, and more, that make planning difficult.

Nevertheless, you will transition your business in terms of ownership and management, so planning is important.

Campbell’s Key Conclusion re Transition Planning

Campbell concludes with four overview messages:

1. You and your business family need to address business transition now, with immediacy and focus, and continually hereafter.
2. You and your business family need to address the current and prospective long-term viability of your business now and continually hereafter.
3. You need to make a real ongoing choice about whether you and your business family are going to sell your family business or whether you are going to continue to pursue generational business transition if you are doing that.
4. If you and your business family choose to pursue generational business transition, you need to be prepared to invest a great deal of diligence, time, effort and expense to be successful in that pursuit.

Campbell’s Chapter 17 is titled “Shareholder Disputes and Related Legal Hurdles.”  Chapter 18 is titled “Shareholder Agreements.” He addresses relevant hurdles pertaining to shareholders and shareholder agreements.  He emphasizes the importance of shareholder agreements and talks about how they, or their absence, can be significant hurdles to successful transitions. (Speaking of shareholder agreements, a good companion read would be either my Buy-Sell Agreements for Closely Held and Family Business Owners, a print book, or my Buy-Sell Agreements for Baby Boomer Business Owners, an Amazon Kindle book.)

Conclusion

In case I haven’t been clear thus far, I like Campbell’s 50 Hurdles and suggest that business owners and their advisers can benefit from reading it.  Click here to buy the book and read it and share it with your family and advisers.  If you are an adviser, share it with your business owner clients.

As always, if you have questions about business or valuation-related matters, please do not hesitate to call (901-685-2120) or email me (mercerc@mercercapital.com) or write a comment on this post.

Until next time,

Chris