Hartford Business Journal

12 Hartford Business Journal • August 17, 2015 www.HartfordBusiness.com When succession planning is done well By Brad Kane bkane@HartfordBusiness.com W hen John Lyman III was 14 years old, he got his first job helping to thin out the peach orchard at the fam- ily business, Lyman Orchards in Middlefield. After college and traveling for a year, including a stint at an orchard in Holland, Lyman III came back to work for his name- sake company in 1980. Lyman III, now 58, is the top-ranking family member of a 274-year- old business that has successfully been handed down through eight generations. While financial planners and business advisers say up to 85 percent of small and medium-sized businesses aren't preparing adequately for succession, companies like Lyman Orchards have been doing it for generations. Lyman III said the succession plan between he and his father — John Lyman, Jr. — was never that formal but was helped along the way by the corporate struc- ture initially set up in 1949 and the support of the 191 shareholders who own the company. Today, Lyman III and the company are busy preparing the ninth generation of Lymans to eventually take over. The key, he said, is making sure ninth generation family members — representing 90 of the 191 shareholders who are almost entirely family — continue to see the value in own- ing and operating the 1,100-acre property and identifying leaders who will take over the day-to-day operations. Lyman Orchards has actually been run by three non-family presidents since John Lyman, Jr. retired — the current president and CEO is Steve Ciskowski, who has been at the company 21 years. Lyman III said a strong management team is key to ensuring smooth transitions generation after generation. "It is going to be more of a formal pro- cess than what I experienced when I came back," said Lyman III, who is the company's executive vice president. Pat Ryan, too, is enthusiastic about the future of the West Hartford market- ing firm he founded back in 1996. He and his daughter Lindsay Jensen Ryan have a plan in place for her to become the second generation to lead Ryan Marketing. "Over the past five years, what she has been able to do has been unbelievable," Ryan said. Ryan said having his daughter with the company has helped generate more rev- enue, too, as it attracted family-business clients like transportation firm DATTCO and grocer Stew Leonard's. Ryan Jensen started tagging along with her father to work when she was 7 years old, accompany- ing him on client photo shoots when he worked for a New York City firm. When she went to college, she knew she was going to come back and work for her father, and as time passed, it became clear to both of them that she was ready to take over one day. Ryan Jensen said the hardest part of succession planning was coming up with that initial timeline. Ideally both she and her father would stay on as long as possible, she said, but they needed that set date where she would take on the main leadership role. "It is a tricky thing to plan for. It is an awkward thing to plan for, but if you talk about these issues upfront, then that makes it easier," Ryan Jensen said. Even as he phases into a less day-to- day role, Ryan Jensen said it will be help- ful to have her father available to drum up business and offer counsel. "My father is a bit of a rainmaker in that his network and his connections are really what creates business for us, and — luck- ily — that doesn't go away with age," Ryan Jensen said. At Lyman Orchards, the board of direc- tors is already talking about who will be the right person to transition in as the lead family member after Lyman III. He said he has a 23-year-old nephew and a 30-year- old cousin who are in the day-to-day oper- ations and could eventually take the reins. "We are very enthusiastic about the future," Lyman III said. "There is a unified view in the family that the land is our big- gest asset." n Camerote said. Because most businesses in Connecticut aren't doing this, owners will have to resort to selling their businesses to a third party, said Thomas DeVitto, chief marketing offi- cer for West Hartford accounting firm Blum- Shapiro, which conducted a global study on business succession planning. Even for businesses that are preparing to be sold — by doing things that buyers like such as eliminating debt, raising revenue, diversifying the customer base — they will face a congested market because Connecti- cut's working population is aging at a fast clip, which means more businesses will be for sale, DeVitto said. "If they end up being purchased by an out-of-state company, you don't know if they are going to close or relocate the business," DeVitto said. "There is then a whole host of unknowns that will have a big impact on the Connecticut economy." Lack of planning The BlumShapiro report "Succession Reset: Family Business Succession in the 21st Century" found that 80 percent of family-owned businesses globally haven't adequately prepared for an upcoming transi- tion, which, in the case of businesses owned and operated by one person, could come at any time with an illness, death or retirement. DeVitto said BlumShapiro has partnered with UConn to study the issue specifically among Connecticut companies and the ini- tial raw data shows 80-85 percent of Nut- meg State businesses are unprepared. Camerote said between 70-80 percent of the businesses he encounters — not just family-owned firms — haven't even thought about succession planning. "When companies are transferred to some- one who is not prepared to take over, your sup- pliers are more likely to leave you, your compe- tition will go after your customers, the banks will pull their support and your employees will start to look elsewhere," Camerote said. A 2013 survey by the Connecticut Busi- ness & Industry Association of 209 family businesses, regardless of size, was slightly more optimistic, showing 50 percent of respondents had a formal succession plan in place. Still, that leaves half of all businesses without a plan for who is going to take over leadership roles in the next 10-15 years, said CBIA economist Peter Gioia. "One of the main reasons is everybody likes to think they are invincible, even 60- to 70-year-old executives, who think they will be there forever and always be healthy," Gioia said. "People live longer, and they are healthier, but stuff still happens." How to plan Transition planning starts with having the designated successor — be it a family member, top-ranking employee or group of employees — understand every facet of the business and build up the necessary relation- ships with the key players, Camerote said. In the case of West Hartford's Ryan Mar- keting, company founder Pat Ryan realized about nine years ago that his daughter Lind- say Ryan Jensen was starting to display a passion for the future that no other would- be successors had. "This is a young person's business with social media and everything being minute-by-minute," Pat Ryan, 67, said. "It has totally passed me by, but Lindsay is just unbelievable at making it happen for us." Ryan Jensen, 33, and her father started planning for succession by coming up with a formal timeline when he would transi- tion out of his day-to-day role. In about five years, he will move into a non-executive chairman role of the 10-employee agency — still chipping in with his network of con- tacts — while she takes over the regular leadership role. "We never felt like we had our backs against the wall, and we were forced into a decision," said Ryan Jensen, who is the firm's managing partner. "My father was never going to hand over the reins of the company unless I totally understood the vision that he had started." This planning and advanced training is the exception to the rule, said Ira Bryck, director of the UMass Amherst Family Business Center, which works with Con- necticut companies. Even when family business owners do have a designated successor in mind and that person wants to take over the role, most firms don't train those people ade- quately on all areas of the business, Bryck said. Instead of starting people in the pro- verbial mail room and having them slowly move up the ladder, would-be successors tend to be put in high-ranking positions right away. "The result is they may be good at their job, but they more often than not are not getting the adequate leadership training," Bryck said. Untenable positions For companies that don't have a succes- sor, the outlook for selling to a third party is never great, as only 20 percent of com- panies that put themselves up for sale are successful at completing a deal, Bryck said. This is largely due to concerns over the unknown: If one strong person founded the company and has been leading it for decades, buyers will be wary of what will happen once that person leaves, Bryck said. "Some companies are not easily sellable because the company is based on the per- sonality of the current owner," Bryck said. "A lot of companies … end up being sold to companies that are not in the area. That is a big problem." For businesses that do have potential successors, the key is introducing that per- son to the company's lenders, Bryck said. Bankers will determine the credit worthi- ness of the next generation, which will be the foundation of a successful transition. "Unfortunately, most business own- ers aren't that concerned about planning," Bryck said. "Chasing down the next order is always more important." The good news is there has been a real uptick in the number of advisers capable of helping business owners do succession planning, Camerote said. As more business owners reach retirement, it is a growth area in financial planning. However, even though the overall vol- ume of companies looking for succession planning is increasing, they still represent only about 20 percent of the firms needing to do such planning, Camerote said. "The people that are getting prepared is a very small portion of those that we deal with," Camerote said. n from page 1 Unplanned succession UNAMI SILVER S Connecticut's Making sure its ninth generation (above) has the same appreciation for the land and the family busi- ness has been a priority of Lyman Orchards' board. John Lyman III (left) — sitting with his uncle Michael Waller, seventh generation family member and former marketing VP — has three sisters and one brother, but he was the only child to stay at the Lyman Orchards business and succeed his father. P H O T O | C O N T R I B U T E D P H O T O | C O N T R I B U T E D

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