The words ‘difficult’ and ‘uncomfortable’ are synonymous with ownership transition. If you try to execute one on your own, it might come out half-baked.
Last fall we had our annual awards event, the Hot Firm & A/E Industry Awards Conference, in Dallas. As always, the gathering was full of energy and was a true celebration of the accomplishments of many of the top AEC firms across the United States.
As a testament to the incredible people in attendance, the vibe of the conference is one that feels as if you are being drawn forward. Through breakout sessions and keynote speakers, many are pushing the envelope of what it means to be successful in today’s industry.
I was fortunate enough to be asked to lead a panel on one of the most important topics in the industry today – ownership transition. They come in many different forms, starting with the simple dichotomy of internal or external. As Zweig Group’s director of ownership transition, I focus more on the internal transitions and have seen a wide variety of options, offerings, and methods of execution. Going into the panel I was excited to have three panelists representing the three most prevalent forms of a transition for professional services firm: Bo Sutton from Bow River Capital (private equity); James Swabowski from Wintrust (ESOP); and Don Alford, executive vice president of strategic growth for NV5 (M&A).
From traditional internal transitions to private equity transactions, from ESOPs to mergers and acquisitions, the changing of the guard can take a variety of shapes and forms. This was what we wanted to discuss, and to get input on, with an audience that was invested in the conversation. Being overly analytical, I was worried that our second microphone wasn’t going to work, and people would have a difficult time hearing all the input from the room. Well, this turned out to be a non-issue because only 15 people showed up – out of about 300-something conference attendees!
Afterwards, I reflected on why the session may not have drawn as many people as the Strategic Planning or Project Management break-outs, and came to this conclusion: Mark Zweig, chairman and founder of Zweig Group, is right. The AEC industry is notoriously negligent when it comes to real business planning, and that includes preparing for an ownership transition.
Sixty-seven percent of owners are over the age of 50, and nearly a quarter of them are over the age of 60. Over the next decade this presents a huge opportunity and plenty of problems for AEC firms as leaders try to cash in on their equity. But nobody is talking about it. Why? Because it’s difficult to discuss. Probably more difficult than explaining sex to your teenager. It folds money, control, repetition, reputation, fear, uncertainty and anxiety into a series of uncomfortable conversations that can reveal issues that may take years to resolve. Who wants to bring that up and ruin a good thing, especially when you are at an awards conference with your co-workers?
To quote the great J.J Cale, “Money talks, and it says strange things.” It is truly baffling to watch people that have worked together for 15 years, on the same team, sit across from one another and talk about millions of dollars. Aside from the money part, it’s difficult for leaders to cede control. This is perhaps the most trying part of the process. And though these leaders have every right to run their practice as they wish, they are missing a grand opportunity to build value, enrich their team, and create a legacy that outlives their employment. If done correctly, a properly timed transition can generate far more wealth than a haphazard attempt to salvage value and pull the plug over a two- to three-year time frame, which seems to be the preferred MO of today’s leaders.
By bringing in new, young talent that wants to grow the business, outgoing owners can cash in on the growth and take a step back from the business at the same time. Planning is key. After seeing dozens of home-baked plans that fail to address all the issues, I can tell you that some things are better left to the professionals, and that includes sex education and structuring ownership transitions.
Will Swearingen is Zweig Group’s director of ownership transition. He can be reached at firstname.lastname@example.org.Subscribe to The Zweig Letter for free.