Passing down a legacy

Features - Business Management

Advice for smoothly transitioning your family greenhouse business to the next generation

June 27, 2019

“A parent-child relationship may evolve into a manager-subordinate relationship that then needs to evolve into a partnership,” Tim Veazey says.
© Monkey Business | Adobe stock

Paul Schlegel started working in his father’s greenhouse soon after Louis Schlegel purchased the run-down facility south of Indianapolis in 1972. Paul, like his seven siblings, helped out in the family business throughout high school.

Unlike his other siblings, however, he decided to commit his career to Schlegel Greenhouse. One day, while working alongside his father, Paul mentioned his desire to eventually take over the business.

“It was pretty casual. I said, ‘I think I’d like to buy your shares, and we’ll work something out that’s beneficial to you and me so the business can thrive,’” Paul says.

In family-owned greenhouse businesses, these conversations are more likely to happen over rows of cuttings than in boardrooms with formal documentation. Because succession planning is one of the thorniest challenges facing family businesses, the way you approach this complex process can make or break your company’s future.

In fact, less than one-third of family-owned businesses survive the transition into the second generation, according to the Family Business Institute. These rates dwindle with each succession, as 12% make it to the third generation and only 3% remain viable into the fourth.

Louis Schlegel had seen other family businesses struggle through the generations — in fact, he experienced conflicts in 1948 when he previously partnered with his parents, who owned greenhouses around Cleveland. To avoid those mistakes, Louis wanted to ease Schlegel Greenhouse into the next generation.

“He wanted to ensure that he was not going to hinder the passing on of the business,” says Paul, 61. “It’s a challenge for anyone who’s spent their life nurturing a business to let go. But you need to be planning for this because the day is coming — faster than you think.”

Only 16% of family businesses have documented succession plans in place, according to a PricewaterhouseCoopers survey. Although every family’s situation is unique, there’s a lot to learn from businesses and consultants who have navigated generational transitions before. Here’s their advice for making greenhouse succession planning as smooth as possible.

Formalize your plan

It’s no wonder why family businesses struggle with succession planning.

“Change is hard, and these transitions require change on many different levels,” says Tim Veazey, CFP, an agribusiness-focused estate and succession planning specialist at Sagemark Consulting, part of Lincoln Financial Advisors Corp. “A parent-child relationship may evolve into a manager-subordinate relationship that then needs to evolve into a partnership. It’s very difficult to manage those changes and make those distinctions between family and business issues.”

That’s why it’s important to engage consultants early on who can help facilitate objective family succession planning.

“You’re going to need some professional help to work through this process and facilitate those discussions,” says Veazey, who is also a certified business exit consultant. “There are consultants that specialize in these areas, but you want to make sure that other advisors like your attorney, accountant and lending banker are all plugged into the process as well.”

The Schlegels met with an attorney to formalize the succession plans that began as casual conversations in the greenhouse. The legal document detailed how Paul would purchase his father’s shares of the business over the course of a seven-year buyout.

“Given the fact that I have seven siblings, we wanted to make sure everything was fair and everyone knew what was going on,” says Paul, who now owns Schlegel Greenhouse with his wife, Marsha.

Family businesses must offer a clear vision of their company culture to progress.
© grki | Adobe stock

Find alignment

Proper succession planning can mitigate potential sibling rivalry by ensuring that everyone’s aligned around the company’s future. In worst case scenarios, planning helps prevent unfit successors from taking over just because of their last name.

“Historically in family businesses, and particularly in agricultural ones, it’s almost a given that if we have kids who want to work here, we’ll pass it down to them,” Veazey says. “That was fine up to a point, but as businesses have become more complex, it becomes necessary to make some harder decisions about the skillsets and abilities someone needs to be in a key management position.”

To help families focus on the future of their business, Veazey and his team guide clients through a strategic framework process to objectively identify the ingredients required for success.

“The first part of that is to articulate the culture of the business: What are the shared core values, the mission of the company and the vision for what it looks like if it’s successful in the future?” Veazey says. “That tells you what the business needs in order to achieve that vision. The hardest part of this discussion is asking, ‘Does our child have the attributes that are necessary to meet the needs of the business?’ Just because they’re physically working there doesn’t necessarily mean it’s appropriate for them to be owners.”

Through these discussions, family businesses can gain alignment around the expectations for key leadership positions. Understanding the job responsibilities for managers, executives and owners can make these difficult succession decisions easier.

Less than one-third of family-owned businesses survive the transition into the second generation. These rates dwindle with each succession.
© Mediteraneo | Adobe stock

Pass the torch

Paul’s three children grew up working in the greenhouse, like he did. The only third-generation Schlegel still involved in the business is Paul’s middle son, Caleb, 31, who’s in charge of sales and marketing with an active role in customer relations and production planning.

“I’ve been putting more on him every year and we continue to give him a bigger voice in our daily management team meetings,” Paul says.

But he’s not just grooming his son for succession — he’s cultivating a cohesive team culture where everyone has a voice and a responsibility to improve the company.

“You need to be planning for this because the day is coming — faster than you think.” — Paul Schlegel

“In the last couple years, we’ve really worked toward building a committed staff and building a culture where they feel valued, so that infrastructure is in place,” Paul says. “It’s vitally important to any kind of succession that you hand off a business that’s solid and strong, so [your successor’s] not buried trying to fix something that’s broken.”

Whether you plan to transfer your business to the next generation, sell it to a key employee or find an outside buyer, the key to succession planning is passing on the knowledge and passion that made your company successful in the first place.

“The business has to have continuity built into it. It can’t be completely driven by the knowledge inside one person’s head,” Veazey says. “It takes a lot of time and preparation to build a team of people — whether they’re family or not — to carry that business forward, because that’s what gives the business value. It’s got to have a sustainable life of its own, or it’s not worth much to anybody.”

Although Paul plans to stay in the business at least another four years before thinking about retirement, he’s already taking strides to share the knowledge, passion and purpose that have made Schlegel Greenhouse successful for nearly 50 years. Those same ingredients will be key to its success for the next 50 — regardless of the owner’s last name.

The author is a freelance writer based in Cleveland and frequent contributor to Greenhouse Management magazine.