Who Makes the Decision Might Determine If It’s a Home Run or Strikeout

“Dad expects me to run the company, except he won’t let me run the company.” Clay (not his real name) was one of the most interesting businessmen I’d ever met. Prior to taking over his Dad’s cement manufacturing business, Clay ran a large coffee harvesting company in Central America, and before that he was in the US Army Special Forces.

Clay got a degree in economics from an Ivy League college expecting to become a Wall Street lawyer. But during college, he got interested in ROTC and world travel, and started down a very different career path. Now, he wore jeans and drove an F-150 to work everyday at the plant in northern Alabama. Clay told me the story over a BBQ lunch, “Dad was getting up in years, and my wife and I didn’t want our children to not know their grandparents, so when he asked me to come back to run the business I could hardly say no.”

As smart, successful, and self-assured as Clay was, there was still one person who, by his own admission, could bring him to his knees, his Dad. Though Clay made 80 to 90% of the operating decisions, he always brought his Dad in on the big, consequential decisions. In early 2016, Clay was approached by a well-funded strategic buyer who was acquiring cement manufacturing plants across the United States. Clay knew he had to take their offer seriously.

“I sat down with Dad and explained that the offer was above market and we were going to make a lot of money if we sold the company. But truthfully I had another concern. If we didn’t sell, these buyers would likely buy another company in Alabama, and we’d end up competing against them. For me it was a no-brainer, we should sell. But Dad took it personally, he thought I was looking for an easy way out.”

Clay owned a 25% interest in the company. His sister owned 24%, but she was married to a local dentist and didn’t care one way or the other. She just enjoyed the annual dividend. So with 51% interest, Dad was still calling the shots. He could veto any decision Clay made, though Clay was the catalyst that kept the company successful and growing. Just in his mid-40s, Clay knew could resign, and easily get a job with more compensation and authority. But for now, he was stuck wanting to help his Dad, but limited in his ability to do so. Although his Dad brought him back the United States under the premise the company would be his to run, Clay goes to work every day knowing he has no authority to make the one decision most important to the business’ future.

Transitioning ownership of a family business is never easy. There are lots of consultants who claim they “know how to do it,” but in every situation I have seen or heard, there is no one right way. The dynamics, the timing, the personalities are always different. When Clay’s father passes away, he’ll get half of his Dad’s 51% interest, at which point he’ll be in full control. I hope that doesn’t come after the opportunity for a home run exit has passed.

 

JIM CUMBEE is President of Tennessee Valley Group, Inc. a retainer-based business brokerage and transition mediation firm in Franklin, TN. Cumbee is an attorney and has an MBA from Harvard Business School. He has a wide range of corporate and entrepreneurial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee.

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Tennessee Valley Group

Jim Cumbee established Tennessee Valley Group to help business owners fulfill their dreams for life after business ownership. It’s a mission that his 30+ year career history had prepared him well for—in addition to being an attorney, transition mediator and business broker, Jim has been a buyer, seller, and entrepreneur. His broad range of experience gives him unique insight into how business buyers and sellers can achieve their goals.

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