What are the biggest challenges with working in a family owned and operated business? What are some things you can do to make the business more successful upon hiring a family member? In this episode, Wes and Brooks give us their thoughts on running a family owned and operated business.
How do You Maintain a Healthy Family Business?
Running a family business poses several challenges for everyone involved. Being able to pick the right person to hire can be tricky due to the emotional connections within a family. Wes and Brooks weigh in on the importance of the hiring process, company goals, and intentions within a family business.
Learn all about it here on Builder Funnel Radio.
- 3:06 Family construction business's
- 5:01 Challenges in family business
- 10:03 What are your goals?
- 18:25 Sibling involvement
- 24:18 Dangers of onboarding a family member
- 26:42 Deciding priorities
- 35:30 Bring kids into the business
- 37:56 How have you seen culture evolve?
- 39:40 Transitions
- 48:08 Spencer's takeaways
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Full Episode Transcription
Note: this podcast was transcribed automatically and may contain minor grammatical errors and missed words.
Spencer Powell 0:01
You're listening to builder funnel radio. This is the building a family business show with Western Brooks pal. Let's dive in. The power family construction business has been around for over 110 years. Over that time, it's evolved and been through four generations of the power family. What started as a new construction business building spec homes in the Seattle area, evolved to building communities, remodeling building custom homes, and then getting involved with property management. Today the business currently owns and operates two retirement and assisted living facilities, several apartment buildings and does third party property management in the Seattle area with about 750 total doors under management. Over the last several decades, Western Brooks has seen it all when it comes to business evolution family dynamics in the construction industry. This is the show where I work to extract their knowledge and experiences to help you navigate family dynamics among other things in your construction business. Let's dive into the show. Hey guys, welcome back to another episode of building a family business. I've got Wes and Brooks here with me today. How's it going? Guys?
Wes Powell 1:15
Brooks Powell 1:17
In going great, Spencer.
Spencer Powell 1:18
Good. Yeah, I'm excited for today because we're gonna kind of get into the weeds on family dynamics in business. And we're kind of talking a little bit about, you know, the construction industry and just how many family businesses there are. And I know you guys have have been in the industry for a while, is that what you've seen pretty much over the last, you know, couple of decades as you guys have been in the space as well.
Don't all jump in at once?
Unknown Speaker 1:51
Yeah, no, absolutely. I think if you look at the United States in general, it's it's made up of small business, and there's lots and lots and lots of mobile generational businesses out there. And the sad things, of course, that most of them don't last passed. First generation, you know, so the ones that get from the first generation second generation are the outliers. But yeah, I think in in the remodeling space, the building space, it's traditionally been a family business for the most part meeting a couple of really big players that are publicly traded. Yeah, most of the I mean, there's it's kind of an interesting dynamic a, you know, 5% of the homebuilding companies produce about 80 to 90% of the product, but 95% of the homebuilding companies are made up of sole proprietors, one or two person companies, and they produce a lot of housing, but really, the publicly traded companies produce most of the housing in a volume way. There's just tons and tons and tons of small businesses that lend themselves to being a family owned and operated.
Spencer Powell 2:59
Yeah, and I think You know, when you have that mixture of business and family, it certainly has a lot of positives, which we kind of talked about some of those in the first episode, it also brings along its own unique set of challenges. Not that other businesses don't have their challenges, but they're just very unique to kind of that combination of family and running a business. And, you know, I guess, off the top of your guys's heads water, a couple of those challenges that you guys have seen and we can kind of get on maybe working with parents or kids, but then we can also kind of hit on siblings as well.
Brooks Powell 3:39
That's interesting. Spencer. Wes and I were talking yesterday about when you're hiring for a business. Are you hiring in you? You're looking to hire perhaps a family member could be any family member. Are you looking to hire them because they're a family member or you're looking to hire them. Because they have the skills? And what are the real? What are the motivations for actually employing a family member in your business? And that's just an interesting question in itself. Yeah, yeah, absolutely. I think another thing that most of us never thought about, I mean, you know, Brooks and I have the experience of being kids coming into a family business. And I certainly have the experience of hiring kids into a family business and ructions the experience of not hiring kids into a family business very specifically and thoughtfully thinking through that. But I think in terms of a child coming into the family business, a fair amount of thought should be put into that really, I mean, if there should be discussions around those types of motivations, why does the child you know, the adult child want to come into the business? Do they want to come into the business or they only come into the business because mom or dad wants the biggest I'm in the business. And I think it would it would benefit a lot of these smaller companies, family owned companies, certainly would have benefited ours. You know, we'd had those conversations of Trent as to why people were coming into the business. And we set that playing field out in advance. But those are kind of tough discussions to have.
Spencer Powell 5:23
Yeah. And I think, Wes, you said you were when you were getting into the business, you had been in there for a while, and then you were getting really busy. You brought Brooks in, it sounded like it was more like you were excited to work with Brooks. And that was the, you know, primary reason. I think, in that instance, it ended up working out but, Brooks, back to your question. It was kind of like, Well, why was that decision made? Was it because oh, this is gonna be fun, or Oh, I'm looking to fill a slot, you know, in the business. Is that kind of what you're hinting at there?
Brooks Powell 5:51
Yeah, you can end up liking it in our specific situation. It was probably a combination of both. You know, it's like I need to fill a spot. It actually could be fun to work with a sibling. And then the question is, is that a real is a real logical reason? Is it more of an emotional reason? When you're, when you're hiring, hiring is so challenging for any business and because a wrong hire can have such catastrophic effects? Then see, what do you what are the things you can do to make it make it more successful? Starting out with hire? So asking those harder questions at West is talking about what is the motivation? Is there qualifications for the person to be there? Thank you can certainly in those conversations, try to set some ground rules upfront, so try to look forward to what issues might come up. We always think well, there aren't going to be any issues. This is great. It's family, but thinking forward and saying okay, well what happens if the adult child is not interested anymore in participating in the business? What happens? You How does that conversation take place? What if the adult child is not fulfilling their role properly? How does that happen? You know, how does the the parent talk to the adult child about that, and if you can set out some ground rules in advance, then those things can happen in such a way that maybe you don't damage the family relationship, just because there's an issue around the business relationship. And I think that's one of the things you have to think about is that, hey, if I bring this person into the business, could this have long lasting damage to our relationship as family members? So it's just something that has to be thought about? And, and addressed? I think,
Spencer Powell 7:42
yeah, like the idea of having some ground rules. I guess, looking back on both of your experiences, are there some other kind of questions that people should be thinking about if they're going, Hey, I've got this business, and maybe 510 15 years away from retirement or wanting to phase out of the business and looking for In, you know, a kid,
Brooks Powell 8:02
Spencer Powell 8:03
do you think are kind of some of those key questions aside from maybe laying some ground rules that can be good thought experiments for people to think through like, oh, it? Is this something I want to do or is it not? And, you know, because there's no right answer like you should or you shouldn't it's very situationally dependent. But is there kind of a good way to walk through that in your mind and work
Brooks Powell 8:23
through it? I don't know what Brooks would think. I think one of the first things would be as the business owner, deciding what your own goals are, exactly what I was gonna say. Yeah, I mean, what is your goal? Right, right. So it Hey, do I want to have this business? My goal is to transition this business to the next generation. That's a big goal of mine, I want to see that business Go on, or no, I really want to just exit the business and I'm looking for somebody to help me exit the business. And I really have to think through those things uptrend, because and have that discussion with the person who's coming on board family member coming on board because they may have a radically different idea than what your act is. And, and you may think that you're all synced up. But that lots of times that's not the case. You're not synced up. Yeah, I would think the and having observed, you know, other trends in the construction business, you know, bring the family members in, usually, it's been a situation, you know, it can be siblings, or, most often it's a child, you know, an adult child, and having been seen it done different ways. I think the, the, the most important thing is what you said was, which is let's, let's think about it as the business owner, lay out your plan. And think about, okay, what do I want to do as an owner, you know, because you could be, you could be in your early 40s and have a, an adult child who wants to go into the trades and ends up wanting to be in the business, and you might be 20 years away from retirement. So having that adult child come in early, has different effects based on what they want to do with their life and what they want to do with their time. And whereas if you're thinking about it when you're 55, or 60, and an adult child, maybe in their 30s, and want to come back Come, come from another career and come in can have a different impact. So being super intentional, Yeah, I think so. You know, if you have no intention of exiting the business, you're thinking, Hey, I would like to have some family members in here working in the business helping me out with the business, but I want to stay here, you know, until they carry me out. That's really good for the family members coming in to know because if they're coming in thinking, Hey, Mom or Dad, they're going to transition out at some point, and mom or dad don't have any plans of transitioning out or haven't really thought that through for themselves, then that's where you have family businesses that can blow up 15 years in or 20 years in to this role. lationship now all of a sudden, you've got people that have a great amount of time invested in that relationship. And all of a sudden, they're having to try to work through some of these hard questions pretty late. And so that can just amp up the pressure. And you know, the intensity of those conversations, and that's where you can potentially have some damage in the family. Absolutely. I think one of the, you know, one of the great things about small businesses is the ability to create equity. And you can really bootstrap your way up to be, you know, relatively affluent or wealthy by building your business up from like you said, you could start with some tools and in a truck but the whole one of the whole questions you have to ask yourself is, you know, what do I want or, you know, a family member who's coming in? Are they coming in thinking well, I might get some of this equity or are you thinking as the owner know, all this equity is mine. I'm just going to train you you can go get your build your own equity. somewhere else and having those questions because the what creates a lot of tension is control who's in control at a certain point. And then and then where is the wealth has been created? Where is that going? Is it stayed with first generation second generation? Is it being passed to the third generation, and people will put a lot of time in with the expectation that some of that is going to be transferred. And it hasn't been those discussion. Getting back to your point Wess? Yeah, there can be a lot of, you know, family friction around that. I think it's a really good point, Brexit I think one of the things that an adult child coming into a business, you know, everyone has different perspective. So the perspective of a 50 year old 40, or 50 year old versus a 20 year old or 21 year old come in at the business is radically different. So, the timeframes I think the how you view a timeframe is quite different depending on your life stage. So if you're 40 or 50 If you go Okay, well, 20 years, that's not a particularly long period of time. If you're a 21 year old, you're going well, that's my entire lifetime so far. Now and
so if the, you know, the owner comes in says, Hey, you know, Bob, I really appreciate coming to the business and thinking maybe in about 20 years, I'll start transitioning out you can think about buying some of the business then that seems like a pretty long haul for Bob. And just because of his unique perspective of being 21 or 22 lease they're having the conversation but but now you can start to have that conversation on a little Bob's going well, boy, I don't know dad, you know, that seems like an awful long time. You know, let's let's see if we can work something else out so I can start transitioning in sooner. But then it comes to those things that Brooks was just talking about, which are equity and control. So two really big pieces, and typically those two things are locked down. Together, right bricks, I mean, absolutely nothing. They tend to be in tandem. So if you got 60% of the equity, most likely you got 60, you know, get 60% of control, which means you have 100%. All
the control. Yeah.
Yeah, yes. Go ahead, Rex.
What's really? You know, to your point, Wes, is having those discussions about opportunity. Because when it comes to equity and control, you can have equity and control in lots of places today. You know, especially if you're in a city that's got a great economy, you know, just as a good economy, and has opportunities to create equity and control in other industries that are not construction related and potentially build even more wealth than you could in the construction business. If you're in a part of the part of the world where, you know, a construction business remodeling business is your best way to create equity, then and create wealth pursue that or pursue it with the intention of let's discuss transition control. What are the thoughts? When are people going to want to transition control and equity? what's what's, what's fair about when that happens? And how much equities you transferred? And how does that relate with other people in the family? And we haven't we just talked about maybe one adult child working in a business. If there's more than one child, how does that work with other other children or other family members? And I think that's, that's an excellent point because the other children say that they're not involved in the business say there's just one child that's involved in the business. Unless there's really good conversations with the parents, about what's going on. You can kind of assume that those kids are gonna just depend on the kid there that are not involved in business. They're gonna have Assume worst case, they're gonna say, hey, Bob's getting given the business or, you know, and what am I chopped liver? So those those things can pop up in someone's mind. They may never say anything, but it can start to damage the family dynamic, depending on what level of communication the family has around the family business. I mean, that's one scenario. Another scenario would be one, which would be more like our business where we had multiple siblings involved in the business. And we had siblings that weren't involved in the business at the at the same time. So all of that kind of adds complexity to the scenario. Yeah, and for context, maybe we can just review like so you guys were kids coming into the business at one point, and there were five of you, but maybe give the lay of the land and kind of how each of your siblings were involved at different points with the business. Yeah, I'll Start in bricks, you can just kind of pitch in which I missed that. But So originally when I learned how to build homes, I did that with my two older sisters, Heidi and Lori. So we're all about the same age, we're just a year apart. So we started building homes together when I was a senior in high school, and that was really to put ourselves through college. So at that point, Heidi lorien West itself, we all had the same level of knowledge about building homes. At that, that period. Then Brooks came along, he did the same thing. You build houses with us. And then Todd came along, built houses as well. So when the time came to start coming into the business, I came into the into the full business forex game and Todd came in. At that point, her older sister Haiti, had taken a job with a large telecom company and our sister Laurie had married and moved to a different states so they were not involved at that point. Not that they didn't have the knowledge and expertise Do it they did, because they had exactly the same training that the other three of us
So, so really, then it becomes a question of, Hey, why are you guys there? Why, why? Why is anyone in the business and why is anyone out of the business? And unless you talk about it, you know, people can assume all sorts of all sorts of things. Because you get to you, you start having questions around opportunity, you know, what's the, what's the opportunities created by being in the business? What are the opportunities created by not being in business, I can see it from both sides, because you could not be in the business and end up you know, launching into a startup that you got a chance and and can become, you know, become a multimillionaire and what was that opportunity lost by the person in the business? Right, who's like, Oh, I was in the family business, doing my part as a family member. And you know, and john went over and worked for a big startup and, and now he's retired, you know, 30. He's a multimillionaire, and I was over here helping mom and dad out to do, there's both sides of it. A lot of it has to do with the economics of how the economic,
right. And so I think it's
pretty helpful as mom and dad or whoever's running that ticular business. I guess my advice would be is don't don't pressure your kids to go into the business. I mean, because that does happen. A lot of family businesses, you know, there's this expectation, you know, whatever the business happens to be that john or Janine, you know, they're going to come in and take over the business, and they're going to relieve mom and dad from that burden. And so there's a lot of family pressure to do that. And I think, as a business owner, it's important to not exert any of that pressure. And because it can lead to that consequence that Brexit is talked about around opportunity. Well, I didn't take that great job. In another state and pursue my my second passion, because I felt like I needed to help out mom and dad. So you don't want that. I mean, I would say it's not a good place to be. And one of the challenges I, as a as a business owner, you know, growing your business, you're you're just running 100 miles now. And the, your, your children and your your thing about your children, they quickly become very small to young adults, and then boom, they're off, you know, after, you know, 1819 years, they're off on whatever direction they're going. And so it's so hard to be having these, thinking about this and thinking about the ramifications when your kids are 10 1112. When all of a sudden maybe in five years, they'll be in the in the business, and you're just trying to grow your business and you're like, man, I don't know if this business will be here in five
years. Right? I'm just trying to make payroll
and just trying to make payroll and just trying to you know, try to keep this thing going. So Again, like we talked about in previous episode is taking that time to sit down with whoever you're involved in the business with and have those discussions about, you know, what we want to have kids in the business, or we want to have family members in the business. And then how would we see that happening? And would we actually have a process for that?
spencer powell 21:24
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Brooks Powell 22:10
I want to shift gears just for a second and just be in a dive spend too much time on this, but I think one of the dangers of bringing family members into a business is sometimes parents use the family business as a place to park their kid. I don't know how to say any more nicely than that. Sure. I mean, so. So maybe that child has struggled. They haven't done you know, they haven't been able to hold jobs, whatever the issue might be, but, so what they've decided is, Hey, I'm gonna give them a job because then I know they're doing okay and it's and it's done out of love for that child. But unfortunately, just a ban the size of the company. If you have more than one or two employees There can create issues within the company itself. If that child was brought in, they're not performing as they should perform. They're not doing what they're supposed to be doing. And then the rest of the employees go, Well, why am I here? You know, little Johnny's sucking all the money out in his salary, and he's not doing anything he's showing up late. He's not doing his job. Why would I? Why would I work here? And so it just destroys the culture of the company. And which can be devastating for companies spend a lot of time building up a great culture. And then you have this next generation command in that culture gets destroyed pretty quickly. And it's mostly because the parents are trying to help their child and instead they hurt everything. I think it goes back to the discussion we had previously about doing disc profiles doing personality profiles, early on in your company and understanding what are the best profiles for different jobs and understand your own personality profile and how you interact, how you manage, you know, how to how do I as a, as a boss, you know, how do I deal with stress? How do I deal with having hard conversations and trying to understand yourself a little bit more? And, you know, a lot of these businesses are, it's a husband and wife or two partners and that that are related in some way and, and how do they interact, that layer of interaction and then followed by a family layer of interaction of, you know, typically a child coming into the business. You have to decide what your priorities are, what's your priority, your business or your family? If overall for your life, and, and I don't put anything on either one of those, I mean, some people go, Hey, my business is my thing. And my family comes second. Oddly enough. I mean, that wouldn't be the way I would roll but And then the other way is my family comes first, my business comes second. But you have to kind of decide that upfront, and then say if my family is most important in my business is second in importance, but it is important because this puts food on the table. That's right then then how I'm so what am I going to do to make sure that I always have good family relations with my kids, siblings, everyone that's that could potentially be involved in that business or have when ice into the business somehow. So you kind of have to think through that.
Spencer Powell 25:38
Yeah. And Wes, when you were describing that comment of having, you know, I guess in some situations when you bring a kid into the business as a place to park them, I think is you, but I was I was just thinking about No, I think I think it's valid I think that does and, and I was thinking about when I came into the directory Mail business This was after you moved from Seattle out of the homebuilding business to Colorado Springs. And I had come into the business not in that fashion, I had started kind of getting into digital marketing said, hey, let's start a division within this company. But as the, the son of the boss when I came in, it was so awkward because all these people that had been here for a long time, like I'm coming in with my tie, and you know, looking, you know, all professional like, 23 You don't know anything about what I'm doing, even though I knew like what we were trying to do. But I think that dynamic is interesting too. Because when you bring in, you know, a child into the business the the cultural impact like you were starting to describe is like, how is that perceived? Is it perceived that they're just getting it because their family like everyone else had to interview did that person have to interview and and I think that is interesting, too. Like, what's the communication To the rest of the company when that that child is brought into the business. And have you guys seen, like what that can do to just the rest of the team and how that's perceived? Or is it just kind of a nod? Yeah,
Brooks Powell 27:14
yeah, I can kind of jump in with a, an example. And so, Spencer, you know, I don't know that you and I have ever talked about this specifically. But obviously, when we moved to Colorado and purchased the direct mail company, from your grandparents, and my so I was coming in at that point, having had a previous career around building with bricks and Todd and and our parents. And I've done that for probably 20 years, then building for 20 years. So I came in to a new industry at the age of 36. But when I entered into that business, all the employees in that business said, Oh, okay, I guess we know what the owner is going to do now. You know,
Spencer Powell 27:58
Brooks Powell 27:59
Yeah. This Is my future boss who knows nothing about this business at this point. So I'm gonna have to train this new person who is now going to be my boss at some point. And so they're all sizing up that family member because they know that that family members there for that reason, which is the by the company transitioned the company on to its next step in its journey. So it can be very awkward, I totally, totally get that feeling of walking around going, Hey, I have no idea what's going on in this company. I'm buying it, put money down on the table. And, and now I got to figure this out. And I have to create a new relationship with everyone else in the team. And what was interesting about that was is that several people left the company shortly thereafter, and they were both individuals who probably I don't know for sure, but probably thought that they could purchase the business. Yeah. You know, they really
awesome But that made me thinking that
Yeah, they were younger, you know, kind of my contemporaries and age maybe a little bit younger and and so once I came in and purchase the business, they probably thought, well, that door is going to be closed for the next 20 years. But it's an interesting point you make West, which is the as anytime you bring as you try to exit a business, and you're like, you know, whatever age you're trying to exit and you're trying to capture some of that equity that you've created in the sale of the business is something that's very much on the table and trying to find that right buyer. So it could have been you it was more complicated because you were the buyer has a son in law, current ins situation, it could have been anybody. And absolutely, and it still was a bit along the same situations, which is like, oh, here's the new guy. This is who the business owner is identified as a purchaser. And those people that have thought, well, maybe I could get a chance maybe they'd never raised their hand. Never had a discussion and maybe the owner and never had a discussion with I'm casting around looking for a buyer. I know Wes Todd and I, when my younger brother I'm a partner at heart was partners with, when we were looking to close our business. One of the options was, well as there's somebody within the business who might want to buy it, we actually had conversations with people like are you interested in and most of our baby workforce was not entrepreneurial in nature? And they're like, No, I just like working here. That's just fine. And so that was an interesting, interesting discussion to have, and maybe one that your father in law Spencer's grandfather's may have had or may not have had with his employees. We don't know. I don't think that he did. I think he just said, you know, here's, here's West, he's buying the business. Yeah. You know,
Spencer Powell 30:48
yeah. It's interesting, because that was the, you know, probably his default was, hey, I want to pass it to family. Right. Some Yeah,
Brooks Powell 30:56
some connection. You know, that's true, other than he had sold it to another A family member, another company a number of years before, so that 10 years, 12 years before he was approached by the company that said, Hey, we'd like to purchase the company and you think that point he said, Hey, here's a buyer. And as you're in business, well, no, it's like, well, there's a buyer, when I'm going to see my next buyer. That's unusual for small businesses. And so he took advantage of that. But eventually, because he loved his company, and he saw that the new owners weren't any stayed on to work in the company. He saw that he needed to buy it back. And so he bought it back. And then he probably then started looking at family members. Yeah.
Spencer Powell 31:41
Well, that's, that's a good point. I mean, as you were talking, I was thinking, well, maybe that's a big part of why you see family businesses because often your best chance of sale is to your kids. You know, because most people don't have the systems and the process and everything really streamline and actually have a sellable asset in the Because it's a service business, and so you've really got to have your systems dialed in to be able to sell that. And so that may be just that easiest path of how to get some of that equity out is like, here's a buyer, you know, right in front of me. But I kind of want to jump back to that topic, a little bit of, you know, bringing kids into the business and having those tough conversations. And and Wes, you brought it up. You said start with your goals. Brooks, you said I agree like the start with the business owners goals. Okay. I want to exit the business and say the goal is to pass it on to family, there's a legacy or some something tied up in that goal. How do you balance that with those conversation with your kids when say, maybe your kids aren't interested? Because I think that was what happened for you, Brooks with you and Todd, but I'm kind of curious, how do you balance your own goals and what you want to have happen with, you know, maybe your own
Brooks Powell 32:59
kids And what they want to do.
And lots of conversations, I think it's the sitting down and having regular conversations with, especially with your kids about, hey, here's what we're trying to do on the business. What are you interested in doing with your career? Or whether you're, you're going to go right out of high school and go into the trades? Or you have some other some plan? Are you gonna go to college? And having those conversations early on? Yeah, it'd be interesting to talk to my kids, we'll have the conversation Well, what do they remember from sitting around the kitchen table talking around the business and and my wife and I talking about our goals for the business and just having those open conversations as you're helping your kids decide what they want to do with their lives. In our case, our our conversations our kids was, you know, there's not going to be an opportunity in the in this particular business. For you to take over. So let's help you find something else to do. And our conversations around, we'll help you with anything real estate related investments or anything else. But let's not use our business to pay everybody. You know, there's other greater opportunities where you can accumulate wealth outside of this business. So I think those conversations are important. And Spencer, you might remember better how many of those conversations we might have had around our, our kitchen table. But I think if you if you truly are interested in having one of your kids or multiple kids come into the business and transition the business in that way, you really do have to start pretty early in exposing them to the good parts of the business. So if you think about your kitchen table conversations, especially if the economy is down, what are those conversations around? Oh, it's like, oh, my goodness, meeting payroll, how am I going to make payroll this month to our sales You know, sales are bad or you know, all those kinds of things that because we tend to talk about the things that are challenging to us, and we don't talk about the things that bring us joy within the business and and all the great things that come with the business. Absolutely. So, and then we tend to also use our kids. And I think this is interesting, just because I think we've all experienced that everyone here on this podcast and multiple other family members, we use the business. We use our kids as fairly inexpensive labor to help us out when things aren't right. And so my wife, you know, who worked in the direct mail business, she has memories of, you know, eighth grade, seventh grade, eighth grade, you know, stuffing on words, things like that, you know, we talked last time about scrapping lots and and cleaning out houses and doing all the grunt work around construction. That was Brooks's experience and my experience, you know, Spencer, you can speak to your experience. I'm sure it was similar to your mom's Yeah, very soon. Yeah, very soon.
Spencer Powell 36:07
Here, we're gonna put on a movie, if I stuffed these envelopes while you're doing it,
Wes Powell 36:11
Aaron, you don't realize that you could be setting up, you know your potential person who might be very, very interested in the business, turning them off to the business, because you're only showing them the least glamorous parts of the job, you're not really taking a structured approach and stepping them through and allowing them to see the different, more exciting parts and see where they could possibly go. And so I think if you're interested in having your kids come in, then you got to start that process pretty early, so much earlier and it was so much more intention. And of course, yeah, you know, Wes, you and I get the benefit of looking backwards and going, what could what could we have done better? What could we have done differently to and I certainly, you know, with having three kids could have done so many more things better. In that way to maybe created a situation where I could have had a kid, you know, buy the business and take it over. Because in our situation, we just closed it. Because with intention, but it was an interesting thing to do. And when you got to that point, you're like, well, maybe I should have done this a little bit differently.
Brooks Powell 37:21
You don't know till you get there. You get there, right?
Spencer Powell 37:24
Yeah. Well, that was our kind of hindsight is 2020. Right? We were gonna absolutely use that in the, you know, this year. But yeah, so let's let's talk about, we got a little bit of time left for today. And I want to talk about transitions. That was one thing that we had all kind of chatted about. So let's say you do have that family member that's coming into the business and hopefully you've had some of these conversations or you're working through some of them, you know, how, what are some ways to think about transition, you know, do you go fast or slow, you know, is it hey, we've got this 15 year horizon, we're going to just Slowly transfer it or should you pick kind of a defined window? And then that gets into lots of complications in terms of value in the business and all these types of things, which we may not have time for today. But I guess just general thoughts on transition, like, Is there a good way to think about that are good questions to be asking as you you know, get to that stage?
Wes Powell 38:20
I think, for me, I guess there's a good guideline having been on both sides of that conversation. I think transitioning should be as fast as safely possible. So and I could safely in there, because you don't want to just walk away from the business as the say, You're the parent and just say, here, here you go, have fun, and then have the business fail because they haven't had enough time to come up to speed. And on the other hand, you don't want to be in that situation, possibly where, you know, dads 95 you know, daughters Because 75 and dad's still coming into the office, right? And it's just never going to happen. And so everyone's Well, probably the daughter's pretty frustrated in the business her entire life, and it's never never happened. So I just say, I think, transitioning as fast as humanly possible, so that the business but the business can still survive and do well. And that's gonna be different for every business. Absolutely. And it depends on how you know how much equity is required in a business to make it run. And I think some of the friction is created when the selling side and typically the parent if they're not able to take some of their equity off the table, as the business is transition so they can feel secure in their retirement, most likely their business as part of their retirement plan and some cash flow from it or some cash flow from the equity component. quicker, you can get that off the table. And then the parent is going to be more comfortable like, Okay, well, we've made a good transition. Bob can take it now. And it's going to be fine. And maybe they get some, some income off it over time as part of a buyout, but not 100% of their retirement is in the business, because that's going to create a stress where the seller is going to come in and say, you know, you're messing this up, and I'm going to, I'm not going to have the retirement I planned on So, like you said, a quick transition, but in a way that safe, pray for everyone. And I think you know, so that's true even for non family businesses, most small businesses, you know, the new buyer comes in and there's usually you know, maybe some cash down or something, and then it's a workout. And so they're getting paid over a period, the owner is getting paid over a period of time. And there's lots and lots of examples of those deals that haven't gone that well, because the new buyer hasn't performed up to snuff and so the original owner isn't getting the The amount of money that they need, and some things have to be renegotiated. So I think it's, that's where the the quicker transition can be better. So the seller can feel comfortable. And if you can do that, the nice thing is that the next generation hopefully has a good relationship with the passing generation. And we'll go back to them and get advice and all those other cool things that you can get, because it's family. But the money becomes less of an issue for everybody. Because that can just ramp up all the emotions and ramps up all the pressure, you know, the pressure gets really high. So if you can think of other ways, how can i d pressurize this this transition this relationship? So it's still a good family relationship? And that's around those conversations about hey, what does what does the seller need to get out of it? I mean, having those conversations, the more open the two generations can be, the better it's going to be because the older generations say Hey, this is kind of my minimum that I got to get out of it, or this is what I would like to get. And so everyone kind of knows how that works. And, and that just makes it easier, I think for the next generation to go, Okay, I kind of know what I'm up against to make this work for mom and dad.
And I'm okay with that. I think I can do that.
Spencer Powell 42:20
Yeah. Go ahead, Brooks,
Brooks Powell 42:22
this whole question of transitions. And it quickly becomes a discussion about control again, what do you know, when do we transition control? And it quickly becomes a discussion about money? And where's the money? And how's that money going to transfer? And so I throw it back to early on this discussing, you know, how much money can you as a someone coming into business make what are the different salaries within the business? What are the income streams? And what are those opportunities outside this kind of business where you could potentially make more or less soap so there's a good understanding especially if you're a parent trying to guide Your child to the best place for them. And that goes back to West his point, which is, well, how much money could potentially come out of his business, you know, for the seller and for the buyer over time.
Spencer Powell 43:13
Yeah. And it made me think Brooks exactly where you were going and kind of that initial comment you made around ownership and equity, but doing the fast transition, seems like, you know, if you kind of have this long drawn out, transfer, then, you know, each individual has very different goals, probably at their stage of life, you know, you got somebody that's maybe more conservative as somebody that's like, let's push it, you know, and so, if you had this long transition, you probably get into those types of, you know, now you're both in the business and you have different philosophies on where you want to take the business. Would you guys agree?
Brooks Powell 43:47
Oh, I would absolutely agree. Yeah. It's
Wes Powell 43:48
a good way to put it and I think so trying to keep equity and control aligned, I think is this kind of a core concept. That's a good one to think about. So, if the seller still has needs to get 70 or 80% of their money out, and the buying the buyer, the second generation has total control. I think that's a recipe for some conflict, potentially attend. Oh, absolutely. Because there's going to be a difference. There's a change in risk tolerance over time. I mean, that the further down the road you get, you're gonna want to take less risk. And usually there's a 30 year spread between a parent and a child in the business and if someone's 16 someone's 30 risk tolerance, totally their friend. And yeah, you'll get some conflict there for sure. Yeah. And the six year old is going to be going hey, I don't have that much time to recover. If this doesn't work out, well, yeah, yeah.
Spencer Powell 44:47
Yeah. Well, guys, hey, we got a we got a wrap for today. It feels like this one uncovered lots of paths we could dig into for quite some time. We we bounced around a little bit, I think just because the nature of the time topic is pretty complex, you've got you know, family dynamics and then obviously everything that comes along with that with running a small business or a family business. If If you guys that are listening have questions on any of these topics, we'd love to start fielding these and incorporating them into some of the next few episodes. So go ahead and send your questions into radio at builder funnel COMM And then go ahead and use the word family in all caps in the subject line that allow us to flag these down as they come in and we can tackle those but yeah, guys, anything else that you'd kind of want to wrap us up with or just general parting thoughts on, you know, family dynamics or working with kids or parents or anything like that?
Wes Powell 45:41
I always go with loss of communication. Lots of communication.
Brooks Powell 45:46
Yeah, I couldn't agree more. I think that's that's the watchword. Just communicate, communicate, communicate. You can't do it too much. Yeah.
Spencer Powell 45:54
Good advice. Good advice. Well, thank you guys for joining and for everybody listening. We appreciate you guys and We will see you next week for another edition of building a family business. Hey, guys, thanks for listening to our second episode of building a family business with Western Brooks. Again, let's talk takeaways. As we wrap that conversation, the first one was really about intention. And that's actually come up, you know, in the first episode as well, if you remember back to that one, but really being intentional about your goals for the business. So, a lot of times you get into the business and you have you know, one year goals, three year goals and you're kind of pushing in your direction. But then as you've been in the business for a while and you start to think about bringing some kids or other family members into the business, it's even more important to be really intentional about those goals. But that leads me right into the next one which is to over communicate and so communicating, you know, your goals, your priorities and your timelines to your kids and having both sides be able to communicate what they They're looking to get out of it, and where they want to go. And and really I liked what the guy said, which was over, communicate over communicate, and continue to communicate because things change. And so I think that is a huge one because you tend to just get wrapped up in the day to day, the week to week you're busy, you're trying to grow. It's a business like it's tough there, there are challenges, but take a step back, talk about where you're trying to go talk about the different priorities that you each have, and both sides have, and that will smooth out a lot of potential roadblocks and challenges and, and problems down the road. And then the last one, that was an interesting one, it was around transitioning the business. And I think both the guys ended up kind of agreeing on this point which was try to go as fast as you can, is as safely possible. So speed being a very critical element to this but again, not something that's going to put the business in A bad spot or put the business in danger. And so these guys have seen a bunch of transitions gone through different transitions. And what they've seen typically works the best is if you can move through that process quickly, and again, just mitigate the risk to the business. So those are the three takeaways from Episode Two. Again, guys, we're having a lot of fun with this. I hope you're enjoying this content. And again, if you have topics you want to hear us talk about things you want us to dive into, go ahead and send an email to radio at builder funnel COMM And put family in all caps in your subject line. We'll find those down and address them in some future episodes. So thanks again for tuning in. We'll see you next time on builder funnel radio.