Build Value in Your Firm before Retirement

by H. Edmund Bergeron, LLS, PE

If you own your company, imagine it’s only a short time until your retirement. You’ve worked out your plan for transferring ownership of your company. The firm has been valued by an independent third party. Several staffers have stepped up to become stock buyers. This is the reward for many years of hard work. You created the firm, built it from scratch, and invested much of what you’ve earned over the years to finance its growth. Now it’s time to reap the rewards, right? Wrong! Who will lead your company when you are gone?

My business partner and I grew up in family surveying firms and worked in them throughout high school and college, and we witnessed many times the pattern of progress toward retirement by the principals. My partner’s dad was a principal who retired, as was my dad as well as his boss. Their retirement pattern included shorter hours, more vacation, not taking on new, large, long-duration projects, and sometimes even notifying long-term clients and staff that their retirement would be taking place in a few years. After all, the kids were educated, the mortgage was paid, and there was money in the bank to pay for a new home in the sunny south, a new RV, or traveling to visit the grandkids.

However, my partner and I saw what was left: a pile of records, staff looking for new jobs, and clients with nowhere to go after many years of service by a very competent and professional firm. We decided 30-something years ago to do it differently. This is when we started building value in our firm.

Our vision is to have a firm that would serve our clients, staff, and community beyond our tenure. This meant hiring staff for the long term and examining each for leadership potential. We realized that our most valuable asset, our staff, walked out the door every day at 5:00 PM and that they had the choice of working for us or another firm that would treat them better. Of course we wanted them to stay with us.

We ensured this in part by building a successful company. We conducted our business by incorporating, marketing, providing benefits, doing strategic planning, and being diversified in our clients and markets. We also worked hard to always have a sufficient backlog of work. Our firm built value in the community by sponsoring many community events, and our staff serves on the boards of many nonprofit organizations. This has carried us through several economic downturns.

Of the members of your staff who will become your successors, are they managers or leaders? Your firm will need both to survive, and in a small firm people often play both roles. Peter Druker, the famous management guru, said, “Mangers do things right. Leaders do the right things.”

Technicians Are not Necessarily Leaders

Technical staff members attain job satisfaction by solving difficult technical problems, “putting all of the pieces of the puzzle together,” and completing the project. Often they are interested in solving the client’s problem before the client’s needs are well defined or even before there is a scope and fee agreement. They may be interested in some level of management, such as assembling the team, researching and obtaining background data, and producing the work efficiently and on schedule. They may not be interested in project management, client agreements, scope creep, negotiating additional work authorizations, accounts receivable, or seeing that the client pays the bill. They feel this is the job of the project manager, the principals, and the firm’s accounting department.

Many principals feel that technical people will automatically become great managers and leaders. This is not necessarily so. Managers and leaders require a completely different skill set. Surveyors and engineers who analyze 120% of the data (also known as the “belt and suspenders” approach) often find it hard to make management and leadership decisions with less than complete information.

Our firm has many talented technical individuals who practice at a very high skill level, in both surveying and engineering. They have been rewarded with firm ownership through the creation of an employee stock-owner’s program  (ESOP). An ESOP is a trust, and all of the employees own a share of the trust. In our firm, the ESOP owns 30% of the firm’s stock. Thus, technicians reap benefits of their work without necessarily becoming managers.

What about future leadership? Can the ESOP own 100% of the stock and elect a company president from the staff or hire a chief financial officer from the outside? A management consultant who helped us with our ownership transition plan said he believes leaders have to have “skin in the game,” and I agree. In my mind it means leaders should own stock outside of the ESOP. They need to have “skin in the game” by purchasing stock with their hard-earned money. If the company is profitable, bonuses help them make the stock purchases more easily.

Develop Future Owners

We have several staff members who have demonstrated a desire to be owners. They share our vision, have sufficient business training and skill and a tendency toward entrepreneurship, and they provide excellent client service. In addition to their technical education, skill, and experience, they have consistently demonstrated leadership within and outside of the firm. They are the ones who step up to organize company parties, volunteer for community activities, captain the company ski team, and represent the company at important functions.

What characteristics should you look for in future leaders of your firm? First consider that leaders are not just born that way; they can be trained. Many great leaders (including Cessar, Napoleon, Churchill and Vince Lombardi) have been studied using an early leadership theory known as The Great Man Theory to determine their common traits and skills, but it was quickly determined that they had little in common. Leadership scholars moved on to study more modern theories, but all research leads to the same conclusion: although people may have a tendency toward or away from leadership, leaders can be developed. (Our military knows this; leadership development and training is the core function of West Point, Annapolis, and the Air Force Academy.) Leadership development is now your job if you are to enhance value in your firm and be able to retire.

What am I doing specifically to develop new leaders? First, I’m looking for people who are not only good technicians but who are highly motivated. They must realize that it takes extra effort beyond the normal eight-to-five day for the firm to be successful. They must share our vision of longevity and our commitment to our clients, staff, and community. I spend a lot of time observing and mentoring these traits in future leaders.

This sincere interest in the clients is especially important; we call it a dedication to client service. Have these potential leaders established a repore with clients, or do the clients still call me with questions and concerns? How good are their client- and public-presentation skills? Do they know their clients’ hobbies, interests, families, and “gate keepers”? How do they handle a phone call from an irate or panicked client? Do they react in a calm, sympathetic way? Do they make the clients feel as though their problems will be given top priority and taken care of right away? Do they deliver when they say they will?

Are our future leaders self confident, well organized, and can they delegate and motivate their teams? If they have confidence in their experiences and abilities and treat their team members with respect, others will recognize this and be motivated by their performance.

I’m also looking for each of them to demonstrate characteristics of the contingency theory of leadership. This means that they must have the ability to adjust their leadership style to different situations as needed to obtain desired results.

Leaders must contribute to the firm by being successful project managers as well as lead a group, department, particular client, or specialty area. And they need to do it with a high level of independence. I’m there to support them as needed, but I want them to come to me with recommendations—such as, “Here is how I’d approach this problem. What do you think?”—not just storm into my office saying, “I’ve got a problem, and we need to solve it.”

Finally, keep in mind that no one is going to do the job the same way you did it. In fact, your talents, responsibilities, and skill set may become divided among several individuals. This isn’t unusual, considering you are turning over the reins to younger members of the firm who have a lot less experience than you. Your new leaders need to cover all the bases to be profitable, including a commitment to producing a high-quality technical product, provide excellent client service, market the firm to assure an adequate backlog and workflow, and maintain careful financial management.  This may take several people.

Your job as a mentor is not to do the work of the new leaders but to direct them through the learning experience, an experience that, when you retire, will assure firm success and a smooth transition while maintaining maximum value of the firm. This takes time. Plan to start several years before your retirement. When the phone calls are no longer for you, your email consists mostly of spam, and your to-do list dwindles to a few insignificant items, it is probably time for you to leave.
Ed Bergeron, LLS, PE, has been the president of H.E. Bergeron Engineers, located in North Conway, NH, for 36 years. He has a B.S. in civil engineering and an MBA. He is the author of A Pocket Guide to Business for Engineers and Surveyors, published by Wiley.

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