A Too-Common Story

Recently, I hired a tile contractor to redo a bathroom in my rental property. The company did a stellar job, so I asked Mike, the owner, if he could recommend a painter. 

“My nephew Justin will probably do it,” he said. “Justin works for me, but runs other jobs on the weekends. He’s going to take over my company when I retire.” Mike looked to be in his early 60s, so I figured that was happening in the next few years. His tile company is modest but successful, with three employees and a backlog of work. 

Justin was friendly, professional, and sent me a detailed estimate for the paint job. I hired him. Over the course of the project, I got to know Justin a bit better, and by the time the paint was dry, four things had become clear to me:  

1] Justin is a great project manager with a real gift for dealing with clients.

2] He is completely unprepared to run a business the size of his uncle’s company. 

3] Neither Justin nor his uncle seem to feel any urgency about training him. 

4] This is an all-too-common scenario. 

What might happen is that Justin buys the business, gets in over his head, and then Mike will have to come back and help set things right. Or the opposite could occur: A few years go by and Mike wants to exit, but can’t because he now realizes that Justin isn’t ready to handle the responsibility.

The thing about Justin—and so many others like him—is that he’s great at managing production but lacks knowledge and training in areas such as plotting a company’s direction, creating an operating budget, and even daily management outside of one or two projects.

For company owners who plan on selling to an employee, it’s imperative to start training your successor at least five years, ideally even longer, before you intend to turn over the reins. Consider a transition where the buyer takes on new responsibilities, with your guidance, over a period of time. In the case of Justin, this would give him a chance to learn some general business fundamentals, leadership skills, and more detailed knowledge specific to how to run a remodeling company. 

The thing about Justin—and so many others like him—is that he’s great at managing production but lacks knowledge and training in areas such as plotting a company’s direction, creating an operating budget, and even daily management outside of one or two projects.

This gradual approach has the additional benefit of giving the buyer some experience with leading across different market conditions. Justin is 32 years old. He was still a teenager during the boom times of the early 2000s, and remembers the recession from the perspective of a much younger man.  Understanding how to respond to a given market often means the difference between remaining strong versus barely surviving.

Finally, although Mike is successful, he’s decidedly old school when it comes to marketing, and relies almost completely on personal referrals and Yelp to get jobs. In order to succeed long term, Justin needs to learn not only what Mike knows, but also what he doesn’t know. 

To read more tips from a business owner who sold a division of her company to an employee, see our feature "Handing Over the Reins."