Bridging Generations: Navigating Family Business Succession

Maartje van Krieken: Hey, welcome for tuning in today. I'm glad you're back here. Today, I have a guest Mike Schmitt, who is going to talk to us about succession planning. Mike Scmitt is the president and founder of the ruber group, and for over 14 years, he's helped family and closely held businesses with generational succession enterprise value enhancement that sounds very attractive. Mike is based in Southern California, but operates nationally, all over the US. And we met through a Yeah, networking, right? And Mike as a specialist in a topic that is very relevant in terms of business continuity, is an excellent example of a larger referral network, right? If you tap into a consultant, or if you're willing to go out and ask for help, and then you also tap into the network that with the help that you bring in, right? So for me, Mike would be the type of specialist that I would refer out to, because he operates in a space that's out of my expertise area. And hence we're going to talk today more about not so much about scars or emergencies themselves, but more about the tools and tricks around succession planning, both in the preventative space, but yeah, definitely some of what Mike and I are going to talk about is also helpful in dealing with the challenges once they're already there, I would imagine. So welcome, Mike.

Hey. Thank you very much. I appreciate the invitation to be here.

Maartje van Krieken: Yeah, can we start off with you to elaborate a little bit more what what it is that you do in enterprise value enhancement and generational succession. What does that all entail?

Yeah, you know, when we first started the business, it was all about enterprise value enhancement, and over the last seven or eight years, we've had relationships with families and closely held businesses for long enough that they've gotten to a spot where now they're really thinking about, what does it look like in the future? You know, who is it that we're going to develop come in and develop for for the next generation of management, whether they're in the family or not, they're not in the family. I tend to focus in a few in a few market segments. Agriculture is a passion of mine. You know, your ranching and farming families, Orchard orchards, and people like that. You know, I have a degree in agriculture from Cal Poly San Luis Obispo, and that's an area that I think is ripe for needing just a little bit of help. Right in those areas, I'd love to see these families preserve their places and preserve their positions in the community and the food system. We also help construction, development, type, type companies and and and manufacturing as well. So tend to be kind of the the more industrial kind of more more or less blue collar worker type businesses. And it's been fun and fun and rewarding. Yeah, we really help think about, you know, we work with families that generally have gone through at least one succession already, and now they're looking at their third, fourth, fifth, sixth, seventh. I've got a family who's eighth generation ranching farm that, you know, they took over their their land in 1816 and have continued to ranch it successfully for the last over 200 years. And a lot of people are amazed that in America we have companies that are like that, but we have an awful lot of companies that are like that. And see, it's a pleasure to be able to work

Maartje van Krieken: with them. Can you talk a little bit about how it starts that people work with you. Because, you know, I started off this episode say, recognizing that it's sometimes hard to ask for help, and although you work in a much needed subject, I would think particularly really thinking and talking about succession is not always most favorite subject. So what typically triggers that people say actually we do need to or what should trigger? Maybe, I don't know if people come to you at their right time, or maybe later than would be useful, or you talk about that, yeah,

you know, very few of the families actually find me directly. And to your point, on the networking side, you know, my families come to me through their commercial banker or their investment advisor, their insurance person, you know, their philanthropy. You know, maybe they're, they have a charitable activity that they very much like and, and so they have somebody who's in their trust or their estate planning attorney, and you know, they, they have a trusted advisor that knows the family and understands and has an ear and a comfort level and and is also familiar with me, and says, Hey, you're getting to a spot where maybe it's time to think about these other things. It could be that there's stress in the business or and it's not stress in the business usually, when I because our businesses, that I did do what tend to be pretty, pretty successful, pretty you know, they're performing well, everything's kind of going well, there's, there's no there's no urgency, because everything's going alright, but we have an aging population and aging management, and sometimes interpersonal relationships start to get in the way. And one of these trusted advisors goes, Hey, these these three sisters, or this father and daughter or what have you. Aren't. Getting along. Well, maybe you could help, and we can start to kind of get through some of the issues so it doesn't cause us bigger challenges in the future.

Maartje van Krieken: Yeah, okay, yeah. So interesting. That not necessarily a lot direct then, huh? And then talking about the the dynamics, there's a whole TV show, of course, that shows, excellent as it shows very well. Uh, how, uh, toxic it can get from a succession perspective in the time every bad

story from every bad family transaction and put it all into one TV series. Yeah,

Maartje van Krieken: yeah. So we all know that reality is slightly different. But yeah, in my experience, I've I had a client, also in the family business space, and he was married into the family business and in a senior position. But it's Yeah, complex dynamics then, because there was other siblings in there, and yeah, he'd left his own career. There is a very different type of career, and there is, there is expectations, and although it's family, people keep it civilized, and maybe might not say much, but eventually that kind of builds up, right? Yeah, in so can you talk a little bit about what role you play and what are some of the solutions to deal with, with trying to work through that tension.

You know, people ask, What do I do? And sometimes my wife isn't even really sure what I do, but I say about 40% what I do is, is his communication, it's the psychology, it's the interpersonal relationships. 40% of what I do has to do with financial literacy, making certain to everybody that it might be within the family, whether they're active in the business or not, but maybe they're interested in the equity stack, you know, has, it has kind of an understanding of, kind of where the business is and what's going on, and then 20% is tactical, whatever that business does to create cash or preserve wealth. We'll kind of talk around some of those, you know, some of those things. But I think the key thing is communication. We recently wrote a book in and launched it in September. And the idea behind the book was that, after all these years, right, what have we learned, and is there a way to go through and have a tool that would facilitate communication? So the concept behind the book is 13 chapters. Every chapter starts with a question. We work the question in the chapter, and every chapter ends up with an exercise that the closely held partnership, or the family office or the family business could start to work. And its idea, it's meant to be soft questions in the beginning and gets to a little more serious right towards the end. And it's designed to be a fairly easy book to read two and a half, three hours. I designed it so if I flew from here to New Orleans, I could have it done, and I could dog ear a couple of chapters and say, I want to come back and look at that. But the idea is, if you can facilitate communication within these partnerships or closely held businesses, it diffuses a lot of that that can end up becoming troubling down the road. Yeah,

Maartje van Krieken: and that's the whole point with when there is dynamics and there is stuff that their people are holding on to, or that is build up, right? And why not be overly dramatic, but just dreams and hopes that maybe don't align, and that can be in the commercial space too, right? I typically come in and there's people who who've been holding out hope, or have maybe felt that things were promised to them in terms of promotion or future opportunities and and the challenge is that if things heat up, then that comes out, and it comes sometimes out in a very ugly way, because it's been building up, so then when it boils over, and then, particularly in the family environment, I could imagine that it's more problematic than in a commercial business, because things are set that you can't take back. But

sometimes, sometimes there's 40 years of baggage, and some of that baggage has nothing to do with the business. Exactly. This is the way somebody was treated as a teenager or towards some other vulnerable part in their life, you know? And, yeah, it to your point. It's all civil until it's not civil anymore. And then they bring up all this stuff from 25 or 30 years ago, and you've got to kind of like, help them think about, okay, we're in the here and now. Let's focus on the here now. Let's, I mean, we can have a conversation around that, but let's not destroy the here and now because of an insult from 15 or 20 or 50 years ago?

Maartje van Krieken: Yeah, yeah. And I think that's right. I know for a fact that that a third party, having somebody else there in that communication, can be really helpful, right? It can be helpful in terms of a little level of mediation. Hopefully it's not at that stage, but even differently, because I'm pretty sure that by the fact that you come in and you start talking to all the parties involved, you pick up also on some of these underlying dynamics, and you can quite elegantly, try and bring some stuff to the forefront without everything needing to spill out or over, right the third party plan? Yeah,

and try to be safe, right? I mean, try to be that safe. So you have to build some rapport and trust. And you know, if I have a conversation with you, and you don't want your brother to know about it, but you still want it to be brought out, you know, is there an elegant way that I can go through and bring something up without, you know, picking at that wound that's now been kind of soiled and more or less healed over, but it's still something we want to deal with, and you have to be thoughtful about and respectful of people that when they tell you something, you know, okay, what can I share? What should I share? How do I get to where they want to get to? And sometimes they sit there at the table or in the conversation, they're like, you're never getting to, you're not even close to where I want to be. But ideally, it circles back around in an asymmetric manner that you kind of get back and you get them the information they're looking or you get them a response that they're looking for, without putting them in a vulnerable position or a more vulnerable position that they may think they already are in, yeah,

Maartje van Krieken: and without disruption or creating damage that's kind of irreversible, right? And yeah,

yeah. The goal is to preserve these families and these family relationships, ideally, if you can. And, you know, sometimes families fracture and they and then they something they you know, business transitions can be a time, just like, you know, when when parents die. Sometimes, you see, just in a regular estate that doesn't even have a business involved with its sometimes family members can get to be in little there's challenges that come up as you disperse the estate. Well, now you're now, you're kind of starting to talk about that end mortality in somewhat of a fashion, if you can be prepared, if you can help keep people educated. We really like the idea of having a family business council that deals with family issues that are related to the business, separate from the advisory council that goes to the to the business. So any Advisory Council the business is really just about the operating unit and about management and about getting certain metrics and making it easier for them to use that the family is now more aspirational. It's about what is it? Why are we in this business? What do we do with the assets that we accumulate because of the largess that comes off of our operations. You know, what is it? What's the culture that we want to instill in our children, our grandchildren, our great grandchildren? How do we perpetuate all of this that we've accumulated over, you know, generations, ideally, and make certain it's maybe still there 100 years from now, and it doesn't just get rendered away in the next two or three generations. Because you have the issue sometimes, when you don't, when you don't have these conversations and prepare the incoming group, whether they're going to be part of the operation or not. You know, if you haven't really kind of given them some of that cultural bias to help preserve and retain legacy and wealth, it sometimes just evaporates.

Maartje van Krieken: Yeah, so I love that concept, and I could see how it worked very well. The My question is, maybe that's also informed more about a TV series and the books, right? But sometimes in family run businesses, or even by businesses that are started by some individuals, who's still very much involved. There is this drive to make sure that even after they're gone, the business is run in their vision, right? So how, in the structures where you operate, or in the situation where you operate, how do you deal with where it's kind of clear that maybe the next generation would really like to take it in slightly different direction or and the current generation is trying to put its stamp on what it also should be beyond them, their involvement. Yeah,

there's, there's a tension there, certainly right because, because sometimes people get stuck on process and not on overall outcome. And so what we try to focus on is what the culture is. Why, you know, how do we approach the idea of this thing that we're doing, whether it's ranching or or we're building, building apartment buildings or, or we're manufacturing widgets, but at the end of the day, that's what we do. But is it who we are? And so trying to get people to think of who they are as a family, there's a culture that there's cultures within all sorts of different communities and families have their own kind of culture within it, the way you communicate, the way you respect your elders or treat the children, or, you know, what have you, and you know. So we'll try to get them to start thinking about the bigger picture and then think about that operation. Because I think sometimes entrepreneurs, especially first gen types, they get so stuck on I'm doing this, and they're really good at what they're doing, but they're so stuck on the process that they forget that the why is something greater than just what the bottom line is on that particular operation today, especially some of these serial entrepreneurs that have six great ideas in their head, and they're and they're really making money on a couple of them, but they'd like to kind of go off in d3 or four and but they get pretty stuck on one or two of them, because they tend to be highly successful, and they kind of lose a little bit of that idea. So one of the things we try to do is try to remind people why they got into business to begin with. Why is it that you didn't want to take a w2 job? Why is it that you didn't want to just go be a person's employee, and how. You start to think about where you are. And I think if you look at the way the agricultural community looks at them, at their operations, they look at their operations as if they're stewards of that operation for a point in time. It's not there just for them to go through and create just individual, specific wealth, but it's there for a longer, a longer period, and it's their job in the period of time that they get to manage it, to go through and try to make it better, so that the next steward that comes behind them has an opportunity to be highly successful as well. And if you start taking that perspective, even in regular businesses, and you start thinking about even if you're a entrepreneur and you're driving towards something, and you think that you're just a steward for a moment, and the next steward is going to be a private equity group that's going to go through and take it that's great, but you it's then trying to take that leadership and get them to start thinking about themselves as, hey, you're a steward in a point in time. And at some point somebody else is going to come along, just because, you know, life is a fatal condition and you have to, you have to kind of think about, if you want to have it go on, you have to instill things that are strong, like but culture you know, kind of perspective about how you treat employees and customers and vendors, and kind of how you know debt tolerance and risk tolerance and these type these are things you can teach that then you have to empower future leaders to go through and make decisions within the context of that culture.

Maartje van Krieken: Okay, can we talk a little bit about timing businesses or business owners who have, yeah, not really got major, structured plans around succession, what would be an ideal time to get started. And what do you do if you already find yourself in an emergency? Yeah, so maybe the unfortunate case that you are in a family business where one of the key family members passes away suddenly, way before their time. What are then some important things that you can or should do Sure. You

know, ideally you're starting five to 10 years out, especially when there's asset heavy companies, because in order to do proper tax planning and things like that, it's really hard that if you're going to do transitions, there are ways that, if you get thoughtful tax planners, that you can go through and transition things without having as huge a tax burden. But oftentimes it takes a time, a period of time, three years minimum, in many cases, seven to 10, depending on gifting and some things like that, and how large the estate is are also kind of important. So ideally, we're starting far enough out that we can start to kind of work with the Trusted Advisor Group and start to get everybody together thinking about your best plan for equity transitions in the future, and make it as tax efficient and as rigorous as possible, because you also want to be able to protect the next generation in coming from failed marriages or sudden deaths or, you know, or tax laws that might change. So there's a lot of different things you want to be thoughtful of, but how do you try to preserve this thing. And then if you come in and you get to a spot where it's just, hey, something happened. Somebody didn't do any plan. Now they're, they're either terminally ill and they're only going to be here with you for a few months, or, you know, unfortunately, somebody waited till six months after the patriarch passed away, and now they're trying to figure it out. You've got to get everybody. It seems urgent and it is urgent, but there's a it never needs to be solved in 24 hours. So trying to get people to take a deep breath so that we're making good, rational, thoughtful decisions as opposed to emotional decisions, is kind of the the place you're trying to do. And because if you start going, if things start to blow up, and you're not talking with your siblings. And now everybody wants to do lawsuits, the legal system is going to go through and force you to slow down anyway, and you're going to spend a whole lot of money with people who have really no right to the assets that you're talking about. So you know, think about how to take a deep breath, keep control, do what you can do, when you can do it, start on the smaller things. Work on the bigger things. Then you get to where you're working on really big things,

Maartje van Krieken: yeah. So, so if it push comes to shove and you find yourself needing to do something about is when it's kind of too late, it's sounds like you're also advocating for the typical stuff that I talk about, when it's any business emergency, right? Start, have your panic to power. So kind of calm down, take a breath and take the first two steps, right? The first 24 hours is about what it is you need to keep the business ticking over, right? Do you need transfer of some accounts so you can pay payroll or practical stuff like that? Yeah, you need to go after that cash. You got to

look at licenses, yeah, signature, authority, you know, insurances, you know, there's some things that you can go through and triage really rapidly on, hey, these are the things that need to be really looked at in the first, you know, week.

Maartje van Krieken: And you typically know what they are, because you run into them straight away, right? And, yeah, put your energy in that. It's so that things at least are ticking over again, so you can come to a time that you are a little calmer and and have created enough space to be able to start sitting down the table. And yeah, I would absolutely,

you know, I've had, I've had situations where where family members come into a business, and it's, you know, a large business, but they, they had nothing to do with any of the trusted advisors. So one of the first things we'll try to do is, okay, hey, let's sit out. Let's go. Let's go meet with the banker. Let's meet with the insurance guy. Let's go look, you know, who's running the cash accounts and the equity people. Let's see who, right, and start to get them to start to understand who their team is. Today, that team may or may not change. I try not to get into you. I try to hold it together as long as I can and not have too many changes too fast. But, you know, unless there's no assuming that there's no malfeasance in that, but you try to kind of keep it together and again, and then through that trusted advisor group that's helped build help the family, build a successful business, you start getting all kinds of interesting insights, and you've got people that are willing to pull on the or with you, because they don't want to see it fail either, right? They're in your corner and that you've already paid them, that the organization's already paid them for years. So So now just and so take a deep breath. It's not all on you. There's a team in place. You may not know that team today, but let's go, get out and know that team and start to listen to where they're at and then create a strategy around prioritizing and triaging things in the most important, most urgent and kind of work our way down to the thing, yeah,

Maartje van Krieken: and people assume always that people do want to help, and that if you feel they're working against you, it might also because they really don't understand where you are trying to go, or maybe misunderstood where you are trying to go and so they're moving against you, because they're reacting to that they think you might not be going in their direction. And usually it's a conversation, right? It's clarity. And I love your analogy of the lawyers, right? You're better off getting you involved and actually getting an expert involved, and who can help you go through the step, then try and do it yourself, and then spend double the money with on lawyers. Later, you're gonna take

the same amount of time, or more time, and it's gonna be and it's gonna be a lot more money, and there's a time and a place for lawyers. I'm not saying that that we don't have any legal Yeah, we have relationships with lawyers all the time, right? But the idea is it shouldn't be litigators. Yes, right? We don't really want to have to deal with litigation.

Maartje van Krieken: No, that is never good for business continuity, and it just doesn't seem

like it works really well. It's a complete waste of time. But you know, you've got your estate attorneys and you've got your transactional attorneys, and you've got your business civil and your labor attorney, there's good

Maartje van Krieken: lawyers and bad lawyers. Yeah, they're the lawyers. Yeah, you

take the Pope, people that are part of your team, and you listen to them and give they've seen this before, a little bit too that probably, and they're going to give some good advice and and trying to get somebody who's brand new, who's into something, who wasn't prepared for it, get them to maybe take a deep breath and listen, because a lot of times you have those years of years of perspective of I've been waiting for this moment, and I'm sorry it happened, but I'm here, and now I have all these changes I want to make, and I want to make them all in the first 45 days of the transition. And sometimes I'm successful at getting people to take a deep breath and not and not act on those impulses right away. And sometimes I'm not right. Sometimes you just get somebody there, they're so convinced that they got to go do their thing, and you just have to be there for them, right? You just got to love on them and help them kind of get to where they are, and maybe nudge them in, into the best spot.

Maartje van Krieken: Well, I think we could, I certainly could talk to you a lot longer about this subject, but what I'm hearing is a lot of parallels to the general challenges in any type of business, but also very much that there is a specialty to this, and there is really a different layer of dynamics around how you deal with the communication and people, because there's also personal relations and so, yeah, Mike, if people realize that they could use the help of a specialist like you, where do they find you? Where do they go?

Sure, I'd say easiest place right away is the is my LinkedIn site. I'm Mike Schmidt on LinkedIn. Schmidt is S, C, H, M, i, t, t. Our company is called the rubra group. That's R U B, as in boy R A, the rubber group. And we're based in Southern California. But again, we do stuff all over North America, Canada and Mexico included. And we have a newsletter that we publish pretty much weekly. And we just launched a book called the family fortune. It's on Amazon. You can get it on Kindle. You can order a paperback of it. It'll be on a few other locations, probably come middle of November, but it's called family fortune by by Mike Schmidt and my daughter, Catherine Schmidt, my oldest daughter is a consultant, not not with me, but she helped me write it. And so it was a, it was a family collaboration on this book, and it was a, it's a great tool to initialize and initiate conversation within your closely held partnership or your family around these issues. How fitting.

Maartje van Krieken: All right. Well. Thank you very much. Mike, in closing, do you have. A nice chaos theory to share with the audience, a lesson when that is helpful, or you find helpful when you find yourself in turmoil.

You know, I'm kind of theistic, and I sometimes go back to some of the old philosophers. So, so for me, Saint, you know, Saint Francis of Assisi has a concept that, you know, start by doing what's necessary, then do what's possible, and suddenly you're doing the impossible. And for me, that's some place I try to get grounded back to one step at a time.

Maartje van Krieken: That's a fabulous saying. Well, I loved having you here. I think lots of useful tidbits and insights into a whole new area of expertise and insights. So thank you for joining me today, and thank you also to all the listeners. I love that you were here today, and I hope to see you again next week.

I appreciate the invitation. Thank you.

Maartje van Krieken: Thanks. Mike.