First of two parts
During the past 25 years, ambitious Americans created millions of small businesses. Powered by a mixture of dedication and perspiration, many "founding fathers" and "founding mothers" turned their start-up companies into highly successful enterprises.
Now, as the founders approach retirement age, they face a new set of challenges, and these questions:
What will I do with my company when I retire? Should I sell it, give it to my kids or turn it over to my employees? How can I make sure I will be paid for the value of my business? What can I do to ensure that the company will continue to be successful?
I recently talked to a number of business founders about their experiences creating successful small businesses and asked them what they were doing to prepare for retirement. From their answers, I learned two main things:
First, although devising a good exit strategy may be difficult and frustrating, they are likely to be financially well-off when they retire.
Second, disposing of a company is an ordeal for people who spent many years putting their hearts and souls into their businesses. The business is their "baby," and they are not going to hand their baby to just anyone.
Among the founders I talked to, here are a few stories.
* Patricia F. Morris, 55, president of Patricia Morris Associates, a marketing and communications company, Clark, N.J.
In 1984, Morris, who had two young children, sat down at her kitchen table and produced a newsletter for the Cranford Board of Education in Cranford, N.J. Morris, who was trained as a teacher, worked hard to acquire the skills she needed to produce newsletters, brochures, ads and more.
One job led to another, and Morris's operation soon moved from her kitchen to her basement, where her company grew to seven people. Today, 19 years later, Morris is based in an office building, where she runs a $1.5 million-a-year business employing 16 people.
While building her business, Morris recalled, she often worked 18 hours a day. Then, about five years ago, she had a bout with breast cancer. "It gave me time to think about what my priorities were in life," she said. After dealing successfully with the cancer, Morris also had to deal with diabetes and a heart problem. Her health now is good, she said, but she has decided, "I don't want to work myself to death and I don't want to work till I die."
After that, Morris changed the way she ran her business. "I used to go out and get the work and then I'd come back and do the work," she recalled. So Morris hired more people to ease her workload and help her company grow. She still goes out and solicits jobs, she said, but lets others do the work.
After dealing with her health issues, Morris started to ponder her exit strategy. In five years, she said, she wants to have her retirement plan in operation. Five years later, she wants to be totally out of the business.
However, before Morris can do anything, she said, she has to find out what her business is worth. To do so, she has talked to some "financial people."
"What do they say?" I asked her.
"They gave me forms to fill out," she replied with a laugh.
Morris said she expects to choose between selling her company to an outsider or to an insider. Some of her employees have expressed interest. Her daughter, Rebecca, 27, recently joined the company and could become part of a succession plan. Either way, Morris noted: "The business needs to continue to provide us with the income we will need for retirement. It's where my husband, Bob, and I have put all of our money."
Morris said the sale of her company would give her a down payment on the selling price, plus a series of checks over a number of years. She also expects to draw some other income by becoming a paid consultant to the firm for a period of time. Finally, she said, she may use her personal funds to buy a small office building that she can rent to her own company and to other tenants.
The beginning of the process of retirement, she says, is asking: "Can I let go?" There was a time when she would have answered "no" to that question. But now, Morris said, "I've learned how to let go."
* Dick Rennick, 59, founder and chief executive of American Leak Detection Inc., Palm Springs, Calif.
As a small boy, Dick Rennick accompanied his father, Forrest, on his rounds as a plumber in Riverside County, Calif. "I can't leave you any money, but I can leave you a trade," the elder Rennick told his son. Dick Rennick not only learned to be a plumber, he also learned to find water and gas leaks by using the "bash and crash" method. That meant using a sledge hammer to make multiple holes in walls until the leak was discovered. Rennick kept thinking, "There has to be a better way."
After his father died, Rennick kept the business going on a part-time basis while he worked as a policeman for Riverside City and Riverside County. But he spent his spare time doing research and talking to engineers about electronic listening devices that could find leaks.
In the early 1980s, with some bulky early-stage equipment, Rennick went into the leak-locating business full time, and in 1985 he sold his first franchise. Today his company has 350 franchisees, about 75 of them overseas. The gross revenue of all the franchisees totals about $50 million a year, with headquarters receiving $8 million to $9 million a year in royalties. The company employs 45 people in its Palm Springs headquarters.
While leaks of all kinds -- including water, gas and oil -- continue to be a national problem, Rennick said, leak detection is now easier because of the sophisticated electronic devices available.
Seven years ago, as Rennick was thinking about the future of his company, his son, Tim, decided he wanted to work in the business. Tim, 29, a graduate of California State University at Fullerton, started as a helper and worked his way up the ladder. It soon became apparent that he would be Dick's successor, and he was recently named president of the company.
"I'm just blessed to have somebody that's interested in taking over what the old man started," Dick Rennick said.
Tim Rennick said he had gotten extremely good training in all aspects of the leak-detection business, but he was still learning the art of successfully communicating with franchisees.
Happily, he said, he expects his father to remain active in the company for several years, giving him time to hone his executive skills.
* Andrew D. Gilman, 51, president of CommCore Consulting Group, Washington.
When corporations get into trouble, they often call Andrew Gilman. When companies want to avoid trouble, they also call Gilman, a communications strategist and crisis counselor. Gilman and his staff get enough such calls to bill clients about $2 million a year. The company began operations in 1984.
Gilman's past crisis experience includes providing advice to the University of Virginia Medical Center when a baby-switching incident was discovered in 1998; helping Johnson & Johnson deal with the Tylenol poison case in 1982; and helping executives of Martin Marietta (now Lockheed Martin) prepare for congressional hearings after the Challenger disaster in 1986.
These kinds of calls keep Gilman on the road two to five days a week. From time to time, he says, he asks himself, "How many more years can I keep doing this?" At the moment, he says, he thinks he will retire in three to five years.
But first he needs to get the answers to two questions: Who is going to succeed me? And will I be paid the fair value of my company?
Like other small-business founders, he would have to decide whether to sell to an outsider or an insider. A sale to an outsider might provide a higher upfront payment, but it also could open the door to unwelcome changes in Gilman's company. A sale to an insider probably would preserve the company's style, but it might take longer for Gilman to be paid.
You can tell which way Gilman is leaning from his description of what he would like to see happen: "Ten years after you leave the business," he says, "you run into somebody on the street and mention, 'I used to be with CommCore.' And they say, 'That's a great company.' " That, Gilman says, would prove he had a good succession plan.
Gilman's associates seem to understand the way their boss feels about this company. Vice President Jerry Doyle, head of CommCore's New York office, says of Gilman: "His business is almost a child of his. Just as you wouldn't trust your child to anyone, he doesn't want to trust his business to just anyone."
* Cynthia McKay, 48, president, Le Gourmet Gift Basket Inc., Castle Rock, Colo.
"I was at the bottom of 42 lawyers," says McKay, recalling why she gave up a legal career to start her own gift-basket business in 1992. Fueled by a Type A personality, McKay built her small retail company into a $1 million-a-year franchise operation with 510 franchisees in the United States and overseas.
McKay says she has thought about retiring in the next few years. But she worries about what would happen to her company, her 24 employees and her clients. "I don't know if I could ever trust anybody else to take over," she said.
McKay noted that she has no children or family members to train for her job. "It is agonizing to consider bringing an individual in as a successor who may not have a similar dedication to the corporation as I have."
While McKay regularly scans new employees for signs of the qualities she is seeking in a successor, finding the right person won't be easy.
"It is my greatest fear to witness the decline of a company that has absorbed all of my passion and energy over the past 10 years," McKay says.
These stories are only a sample of the transition dilemmas that are likely to occupy small-business founders in the next few years, as 76 million baby boomers begin to retire. What is now a trickle of retirements will become a flood. How that will change the nature of small business in America is still uncertain, but floods of any sort generally leave their mark.
Next week: Retirement issues facing executives of nonprofit organizations. Stan Hinden can be reached at firstname.lastname@example.org.