Now what do we do?

In December 2002 the Daniels family were enjoying a rare Sunday dinner together. Jane (25) was home for the holidays from Stanford University where she was completing a PhD in history. As usual, the conversation turned towards Ridgeway Harley-Davidson, the business that was started by Joe Daniels (52) and his wife Anne (48). The business had done well over the years and Mark, their son (23) had joined the business full-time in 1998. But once again, as Joe watched his wife and son talk, he started to feel 'out of the loop'. Anne and Mark were talking about some kind of new software they had purchased. Things had changed over the years. It used to be Joe, as a mechanic, who was by far the most important person in the business. It was his skills that brought motorcyclists in to have their bikes fixed. Now the shop had two full-time mechanics. Even so, Joe would still sneak out of the showroom to go back to the mechanic's area as often as possible.

Joe and Anne founded Ridgeway Harley-Davidson in 1987 as a sideline to a business that repaired and sold used cars. Today, the business is exclusively a Harley-Davidson dealership and designer store, selling both motorcycles and branded apparel and accessories. Joe began his career as an auto mechanic, repairing and selling cars in the small shop that he set up with his own savings. In 1987 the Daniels were approached by Harley-Davidson to buy a franchise. What started as a sideline investment became the bread and butter of Ridgeway, as Harley-Davidson sales more than doubled between 1987 and 1994. By 1992 the Harley portion of the business was producing more net profit than the auto repair service. The auto repair part of the business was sold at the end of 1993 and the business became an exclusive Harley-Davidson dealership.  At the same time, they doubled the size of their facility with a new showroom. The dealership continued to operate as a sole proprietorship until 1998 when it became an S-corporation, with Anne and Joe each owning 50% of the shares. The company now has sales of US$3 million per year and employs 16 full time employees.

Anne had always handled the majority of the bookkeeping, since she preferred that type of work. Over time Joe found himself becoming less and less involved with the financial aspects of the business. It became increasingly difficult for the couple to share the same vision of the business, since Anne's perspective was based on 'the figures', and Joe's perspective was based on his daily contact with his old buddies – the mechanics and the local bike owners who stopped by to chat.

Joe believed that running the business conservatively was the best way to assure the continued success of the business. After all, they had made it through the lean times by not being overly extravagant and by spending their money wisely. However, Anne and Mark wanted to expand the store and increase the marketing budget. Joe wondered how he could make sure the business thrived and still have time for the things he'd always wanted to do, such as rebuilding his collection of old roadsters. He knew that Anne wanted to see Mark take over more of the business. Although part of him wanted to have less responsibility and more free time, he just didn't know how to watch someone else run the business he had worked so hard at for so many years. And even though he hadn't been any older than Mark when he started out, Joe couldn't help feeling that Mark was still too young.

Joe snapped back into the present as he heard Jane say, "I have good news, I've been offered a post-doc at the University of London for next year." Then Mark said, "I have news, too. I just got an offer from McKinley Yamaha to be their parts manager. I need to ask you what my future really is here at Ridgeway." Joe looked to Anne for some guidance. Her expression said it all: "You shouldn't be surprised, I told you this was going to happen." Now what?

Commentary 1
Not knowing when to pass the business on to the next generation is a common problem in family business. Lack of open and direct communication, with acceptance of members' personal views, ideas and opinions, is another problem that can lead to, or is at the centre of, family conflicts. When there is not a ­context for dialogue and change, it is difficult to maintain trust among family members. This problem occurs when families rarely come together and enjoy being together as a family; there is an absence of family councils; and there is a lack of shared vision on the future of the family and the business. It appears that all of this is happening in this case.

Joe and Anne founded the business and worked hard to grow it to the size it is today. But it seems that too much involvement in the business made them lose pace and not share the same vision for the family and the future. Since Mark joined the firm, Anne wanted her son to take over and sided with him on the ways of running the business. She warned Joe about discussing these issues and he ignored her advice because of his difficulties in dealing with his own future: ­leaving the business and related retirement issues. Is it too late? Not if they confront the situation immediately.

Succession planning is a process involving family and business and the Daniels will have to decide between offering a good opportunity for Mark to stay and run the business and hiring someone else to replace him until a buyer is found.

The family needs to discuss their own future and the future of the business openly. Hiring an outside advisor would help them find the best way to overcome the obstacles, while building a stronger family relationship and a healthy business future. Joe needs to feel he can fill his free time outside the business and at the same time trust Mark's ideas and future leadership. Mark needs to feel he still has a good career and professional fulfilment within the family business. The ­parents need to feel they can serve as advisors to their son's business leadership development. Parents and son need to feel they can separate and maintain a healthy family relationship and a healthy family business.

Dorothy Nebel de Mello  is president of the Instituto da Empresa Familiar, a partner at Nebel&Mello Consultores Associados and at Clinica Nebel Serviços Médicos Especializados in São Paulo, Brazil.

Commentary 2
The last thing Joe Daniels had on his mind was a family meeting to discuss the future of Ridgeway, but that is what he was now facing. Joe was operating on the fringe of the company but Mark's news provided the 'something' to pull him back.

If Joe does not push himself into action, Mark will take the job with McKinley, Jane will go off to London, and Joe and Anne will continue doing the same old things until another 'something' comes along. And the next 'something' could result in their worst-case scenario: death followed by garage sale.

Joe could begin by working out a process that will help answer Mark's question and be vital for the well-being of the family. Mark's question is pregnant with the unresolved issues at the core of the Daniels family: a shared vision for Ridgeway; Joe's and Anne's plans and ability to retire; Mark's aptitude and willingness to run Ridgeway; Jane's role and stake in Ridgeway; Joe's fear of letting go and his lack of confidence in Mark.

Joe and Anne can decide to sell Ridgeway to third parties. Or, they can develop a succession plan that provides for their own retirement; determines how, when, and to whom they should transfer ownership of Ridgeway; identifies Jane's role in the company, if any; and provides for Mark gaining outside work experience. To help them work through these issues, the Daniels should engage professional consultants and advisors to guide them through the complex and emotionally-charged times ahead.

Their consultants should encourage Joe and Anne to develop a worst-case scenario plan that will address what happens if one of the stakeholders should die before the succession plan or the sale to third parties is complete.

This process will take time. For now, Joe and Anne should encourage Mark to take the job with McKinley, giving the family time to work through their issues and develop the answers. If they decide to sell the business to third parties, Mark will not be left high and dry. If, however, it becomes clear that Mark does have a role at Ridgeway, then he will have gained valuable work experience and earned Joe's confidence.

Whatever the final outcome is, the whole family should, together, search for professional advisors and commit to investing time and energy in working with them.

Kay B Wakefield  is an attorney in Portland, Oregon, USA who practices in the areas of estate planning and business with a special focus on the issues of a family-owned business.