Closely Held or Family Businesses

In closely held or family businesses, the CEO is often an owner/operator. The challenges of CEOs who launch or inherit such firms can play out in unique ways.

With most or all of their experience coming from within the business, they may feel that their perspective is limited, and that they may be missing great solutions and known best practices.
As their business grows and scales, they are concerned that they’ve never managed a business so big and so complex.
They may feel locked into perpetuating long-established ways of running the business, especially if they haven’t worked in other firms.
They can worry that non-owning/non-family executives of the firm are reluctant or unable to offer necessary input for growth and redirection.
When confronted with the necessity of making substantial investments to stay competitive, they may focus on the risk to the asset that they and/or their family have built up over the years.
They look at the next generation and wonder how to prepare them to run the family business in the years ahead.

CEO to CEO understands such ways of thinking and their root causes. We help CEOs of closely held or family businesses deal with these issues and a myriad others, empowering them to build their skill sets and raise their performance as firm leaders.

Client Silvaco

Silvaco, a Silicon Valley software firm, lost its founder and CEO when Dr. Ivan Pesic passed away in October, 2012. His wife, Kathy Pesic, became owner of the company, without a clear succession plan. CEO to CEO helped the Pesic family navigate the management transition and transform the business, from a centralized, “founder runs everything” company to a collaborative enterprise positioned well for future growth.Kathy Pesic had worked as a process engineer at HP and done real estate investment, but had not been involved running Silvaco. She wanted guidance as the company faced the difficult transition.

Dr. Pesic, intent on beating cancer, had not made specific succession plans in the event of his passing. The COO by default moved up to CEO and the head of accounting took the CFO position. Mrs. Pesic took the role of Treasurer, and her son, Iliya Pesic resigned from a five-year position as a biomedical engineer to work at Silvaco, learning the business and the industry. Neither one had senior leadership experience.

Silvaco’s industry is Electronic Design Automation, creating software tools that enable engineers to design semiconductors. Ivan Pesic had been an early innovator and Silicon Valley pioneer, founding the firm in 1984. The Santa Clara firm had grown to 180 employees with offices in California, Massachusetts, and Texas, as well as the United Kingdom, Japan, Taiwan, Korea, and Singapore. Customers include leading fabless semiconductor companies, integrated semiconductor manufacturers, foundries, flat panel display manufacturers and universities.

As Mrs. Pesic and Iliya Pesic learned the business and connected with employees and customers worldwide, they decided to set the company on a growth path to become an industry leader, which required transitioning to a professional management team that had already walked this path. The Pesics reached out to Robert Half Management Resources, looking for both interim leadership and help identifying a consulting firm that could coach them through the management transition. Steve Hall, Senior Director Client Services at Robert Half Management Resources partnered with Robert Sher, Founding Principal of CEO to CEO, given its specialization in midsized companies, to present a full solution.

Hall and Sher worked together to gain a full understanding of Silvaco’s needs in a series of interviews at Robert Half’s San Jose offices. They shaped a proposal that would ultimately be accepted by Silvaco as the best option for support during this critical transition.

CEO to CEO brought in principal David Dutton and together, Sher and Dutton led the engagement, laying plans for the transition day and beyond, coaching the Silvaco board (Iliya and Kathy Pesic,) and coordinating with legal advisors. The pair also helped the board evaluate interim leadership candidates presented by Robert Half. Steve Hall led the Robert Half team, pulling resources from Management Resources, Accountemps and the company’s Executive Search team. Dutton, with a long background in the semiconductor industry, was selected as the interim CEO.

Robert Half led the search for the interim CFO and HR leader, who were selected after a series of interviews in quick succession at an offsite location. Kathy, Iliya, Dave Dutton and Steve Hall interviewed as a group.

A transition day preparation list was built that included job descriptions for interim executives, a dismissal plan, a legal checklist, communications, interim governance plans, expected obstacles and risks, a financial review, and much more.

The weekend before transition day, the interim team attended a half-day orientation along with the Pesics and team members from Robert Half and CEO to CEO. An overview of the company was given, as well as the near term vision from the Chairman. Interim team operating principles and the Phase 1 team tasks were finalized. The transition day schedule was reviewed and rehearsed to help ensure flawless execution. The team decided on operating principles that included full transparency with owners and team members; maintaining honesty, integrity and respect for everyone; making hard decisions quickly; communicating frequently and focusing on key objectives.

On transition day, September 22nd, 2014, the minute-by-minute schedule that had been rehearsed proved key to success. It kept everyone on the same page, and when deviations arose, the team addressed the situation quickly. The day went according to plan as the CEO, CFO and VP Engineering exited, and interim CEO, CFO and Director of HR began. Executive Chairman Iliya Pesic says, “With the help of CEO to CEO, we planned very carefully for this difficult day. The planning paid off. The changes were made with respect and the company and our industry reacted well, and as expected. None of our fears were realized.”

During the first week, the interim team, CEO to CEO, and Kathy and Iliya Pesic met daily, identifying a list of critical issues and tackling them. Within a week, the stability of the organization was confirmed, and within two weeks phase one of the transition plan was complete. New leadership took firm control of the company.

As the engagement rolled forward, Rob took on the role of owner’s advocate, making sure the Pesics’ voices were heard, and that they understood and agreed with the rapid-fire decisions the management team made. Steve Hall also stayed involved, watching that the interim team he had placed was firing on all cylinders. He marshalled the resources of Robert Half in the search for permanent executives. Regular calls and meetings between Rob and Steve kept them in sync.

The second phase of the transition encompassed the fourth quarter of 2014. Key objectives included: Finding and retaining the permanent management team; installing a basic planning discipline throughout the organization such that always-precious engineering resources were deployed to the highest potential opportunities; confirming the financial record keeping of the firm; and if necessary, right-sizing the workforce globally.

In November, it became clear that Silvaco needed to increase its headcount in engineering, and decrease overhead spend. A small reduction in force, the first in many years, was made to allow the shift in resources. The new team handled it without any significant issue. The company completed a follow-on restructuring in Japan in early 2015 with the support of Robert Half consultants from Tokyo.

Throughout this time period, the team ensured that management’s actions were fully transparent, and that ownership could oversee all activities without infringing on the normal decision making latitude that management must enjoy. CEO to CEO instituted an oversight and communication cadence that allowed for this, with defined roles for the board versus management, and a board meeting and reporting process.

The search for the permanent team began as the dust started to settle from the changes. Ownership really appreciated Stan Jones, the interim leader of HR, and they made him an offer that he accepted in November, 2014. The interim CFO was a career interim not interested in a permanent position, so Robert Half conducted a search that brought a handful of top candidates from which ownership and Dave Dutton selected the permanent VP of Finance who began in mid-December. Finally, having seen Dutton’s high performance as interim CEO, Silvaco retained him as their permanent leader as of January, 2015.

In a crucial step, the new leadership gave Silvaco a more disciplined and effective approach to strategic and operational planning. By the end of 2014, just one quarter after the management transition, all functional areas had detailed operational plans. The engineering department rebuilt its roadmaps and engaged with product managers and the sales team more deeply, connecting customer needs with new products and features. Iliya Pesic says, “The teams are really excited at the heightened level of collaboration at Silvaco. The new leadership is truly inspiring and everyone feels that their contribution will impact the quality and value of our toolset.”

During the first quarter after the transition, the company’s leadership model morphed from centralized to collaborative and empowered. The team established current quarter plans and a first-ever annual operating plan, and turned a flat organization into a functional organization — allowing for clear decision-making, accountable execution, and strategic planning.

Dave Dutton says, “It was amazing how fast the leaders and internal people promoted to leadership shifted to collaboration, setting up a modern organization that is becoming competitive with top tier EDA competitors. We have seen immediate acceptance from customers who are willing to look at Silvaco with the new changes.”

Six months after the transition, the company released critical new products that had been failed projects previously, and completed a key acquisition that expanded the company’s design flow to include verification.

“Silvaco has a strong financial base, an experienced team. and leading products helping our customers accelerate electronic product designs to the market,” said Iliya Pesic, Executive Chairman. “We have an amazing future and I’m excited to field a team that can aggressively pursue that future.”

Client GoGrid

With 13 tech start-ups to his name, and six profitable exits, John Keagy knows a thing or two about building tech companies. But from the vantage point of his gratifying new career in philanthropy, one of the lessons from this veteran CEO is the critical importance of knowing when to raise your game – and when to bring in support to help you achieve it.

Over nearly 25 years, John built and exited a number of successful Internet services companies, culminating in huge success with GoGrid, the San Francisco-based firm he founded and successfully repositioned over eight years and then sold in 2015.

Although in 2007 the predecessor to GoGrid was healthy and growing, John saw an emerging opportunity and followed his hunch, repositioning the firm in a key area of one of the fastest-growing sectors of the $3.3 trillion global information technology industry: cloud computing. More than doubling its revenue within four years, after eight years John had attracted such interest that he was able to sell out and move on.

Part of John’s story is a familiar one in Silicon Valley: a visionary, driven CEO who launches and leads his firm to rapid growth. But other parts are less typical. First, he put his own money behind his companies: he funded GoGrid and its predecessor, ServePath, without outside investments. Second, he realized that repositioning and managing a firm far bigger than any he had run before required him to raise his game as CEO.

John’s instinctive grasp of the potential for cloud computing was certainly on target. Cloud today is a $40 billion sector of the global IT industry that is projected to balloon to $240 billion by 2020, according to respected market analysis firm Forrester Research. While cloud services might not be as tangible as smart phones or notebook computers, cloud is white hot, considered as hot among venture capitalists as any component of the IT sector. Even Larry Ellison, the legendary founder and CEO of software giant Oracle, who initially dismissed the cloud market as “water vapor,” had to backtrack on his skepticism – with Oracle itself making significant acquisitions to enter the cloud market, such as the 2011 purchase for $1.4 billion of RightNow Technologies and the 2016 purchase for $9.3 billion of NetSuite.

GoGrid commanded a great deal of attention even though it lacked the funding of much larger rivals in the cloud space, including Amazon.com and Rackspace Hosting, Inc. In fact, under John’s leadership, GoGrid established itself as a market leader in one corner of the cloud market: infrastructure as a service (IaaS).

As he drove GoGrid’s repositioning, John was lauded by tough Silicon Valley technology sector watchers, including the highly influential site GigaOM. “Under Keagy’s watch, GoGrid has been expanding in terms of scale, scope and capabilities at a fairly rapid pace – all without venture funding – and it has developed a reputation for quality performance,” wrote blogger Derrick Harris in an article in June 2011. The company also attracted significant mainstream press attention, with articles in The Economist and The Wall Street Journal, among others.

GoGrid’s growth was stunning, but as it took off, John knew he needed help, and that’s when he brought in Rob Sher and the team at CEO to CEO to help improve his leadership. “When a business’s pain points come to the CEO level, that’s where Rob can really help,” John says. “Rob can bring multiple department heads to work effectively together. That saves the CEO from needing to be a Judge Wapner” – a reference to the hit TV show “The People’s Court.”

John readily admits that was the case at GoGrid for years. “I had bootstrapped the business myself and so, as you can imagine, everything unfortunately revolved around me,” he says. “The business couldn’t function without me, and that’s not healthy. It won’t let a business scale. It wouldn’t let me go on vacation.

Even as the firm continued to grow, with Rob’s help, John began to be able to take peaceful vacations. The guidance he and his team received from CEO to CEO ranged from the strategic to the tactical. John’s first assignment for them was to help the firm attract hard-to-find tech talent by creating “sizzling” collateral that marketed GoGrid as a model place to work in the highly competitive Bay Area.

After assisting the GoGrid team with a number of such critical decisions and tasks, John then asked them to help with the firm’s biggest strategic challenge: creating a business plan to reposition GoGrid from a managed hosting company to a cloud software vendor. While this may sound like two ways to say “IT services vendor,” that’s far from the case. Using its own computer hardware, a managed hosting firm typically maintains its hardware and stock operating software at the ready for customer applications. A cloud software vendor, in contrast, writes software and provides access to it as a service (SaaS) to run customers’ critical business applications and technology infrastructure.

A key distinction is that a cloud software vendor must spend far more on research and development to ensure its software is flawless and its data center infrastructure is modern, secure, and fail-safe. “We went from a company that didn’t spend much on R&D to a company that spends a third of its revenue on R&D,” says John.

The shift in GoGrid’s business model required John to raise his game as a CEO. He is a creative out-of-the-box thinker with tremendous passion and charisma. But coming up with new ideas – especially complex new software products – wreaks havoc on an executive team still trying to implement the last idea.

In terms of leadership skills, Rob helped John appreciate the importance of committing to a plan. To reposition GoGrid, John put the firm’s business plan on a large poster and kept it hanging in the executive conference room. John then signed the poster and had his team do likewise. The symbolism was big. It showed John’s team that he was fully committed to the plan and the transition to a cloud software vendor.

John also learned how to delegate better – entrusting his senior managers with executing their part of the strategy without lording it over their efforts. They all learned to set and live by an office code of conduct: No one would be allowed to yell or display other forms of unprofessional behavior in meetings, including John himself.

Rob also helped John determine what skills his management team had to master in order to make the transition. “We had one guy who was a staff systems administrator, who had then become manager of systems administrators, and then director, and then a vice president,” says John. “Not only did he have to learn management on the job, he then had to learn executive management, and managing managers. We have several people like that who became vice presidents who had gained all their professional experience working for one company.”

Rob designed a training curriculum so the whole management team could raise its game, bringing in additional advisors with specialized skills, such as running an R&D organization. These efforts helped the firm identify gaps, and it made several new management team hires as well.

In the four years that CEO to CEO worked with John and his team, from 2007-11, revenue more than doubled. The firm also expanded globally – expanding its data centers from the U.S. into Europe (including a center in Amsterdam) and servicing clients across North America, Europe and around the world. Uber and YouTube are just two examples of iconic Internet companies that launched their services on GoGrid.

GoGrid was sold to Datapipe in January of 2015, which in turn was bought by Rackspace in November 2017. As for John, he doesn’t disclose figures. But as a result of the sale, he is enjoying a life change. He’s still using his disruptive vision, but now in philanthropy, founding organization called SErtified to promote social entrepreneurship and establish what he calls a “new paradigm” to encourage business leaders to give back to the world.

It’s quite a journey from the intense pressures of repositioning an innovative business within a highly competitive corporate environment.

Along the way, John sees the assistance he received from CEO to CEO as invaluable in GoGrid’s successful transition from managed hosting to cloud services firm – and its ultimate sale. “Rob Sher operates as a comrade and a peer for the CEO,” John says. “He knows so many CEOs and has been working on CEO pain points for so long that he’s not going to get thrown something he’s unfamiliar with. He understands the CEO’s challenges. That’s his expertise, and that’s where he delivers optimum value.”

Client GSC Logistics

In 1988, Scott Taylor and Andy Garcia left their executive jobs at two San Francisco Bay Area consumer goods distributors to set up their own firm. They have never looked back. More than two decades later, Scott and Andy have steadily driven their firm, GSCLogistics, to become the largest logistics provider at the Port of Oakland.GSC today handles in excess of 15% of the goods that come into the port, third-largest international gateway on the West Coast. The firm has come a long way from its early years shipping Gatorade to Northern California food and drug stores, and has gained a customer list that includes some of the biggest names in retailing: Target, Walgreen, JC Penney, Crate & Barrel and many more. Yet despite building GSC into a $35 million business by 2010, neither Scott (CEO) nor Andy (chairman)were satisfied with their firm’s growth. In fact, they thought GSC should have grown much faster, but by the end of 2010, their immediate concern was enabling the firm to better manage their existing business.

Scott, Andy and their 15-member management team had scrambled to manage the biggest third and fourth quarters GSC had ever seen in its business. Shipping containers were flooding into their Oakland cross-docking facility at 30% over plan because a key customer, in an impressive vote of confidence, shifted its business to GSC from another provider in a different port.

By December, Scott decided the management team should hold an off-site meeting to review what went well, what didn’t and – most of all — what the firm needed to do in the future to accelerate its growth. The question would be who should lead the meeting.

Earlier in 2010, GSC’s chief financial officer, Joel Lesser, watched Rob Sher moderate an Association for Corporate Growth (ACG) panel of CEOs with a deft hand and with confidence. After hearing good things about Rob from others in ACG, Joel envisioned Rob leading the GSC offsite.

But Rob first had to sell himself to GSC’s two owners. Joel brought Rob in to meet Scott and Andy. After an initial discussion, Andy, who is skeptical of the value of consultants, challenged Rob: “How do you think you’ll be able to make our offsite more productive when you don’t know anything about our industry or our company?” Rob described his approach: before the offsite, he would meet one-on-one with each management team member to understand their issues and ensure they would be discussed at the offsite. The second benefit of meeting with the team in advance was that it would help Rob know far more about GSC’s challenges going in. He told Andy and Scott that letting an outsider without a vested interest run the offsite would be to their advantage – particularly an outsider with insider knowledge. All of that resonated with both owners.

Scott was especially impressed and excited about having Rob run the meeting. “He had a great way about him,” Scott says. “Rob was very calming and very, very engaging — not a hyper guy. The personality came through strongly, and I really liked him when I first met him.” They agreed to let Rob facilitate the off-site meeting to be held in a local hotel that December.

The meeting went exceptionally well, bringing a number of current and future growth issues into focus. “It was a very, very effective meeting,” Scott says. “Rob found a way to solicit opinions and get everybody engaged – better than if we had tried to do it internally. He is such a good people person that he can bring the personalities together, disarm everybody, and make them feel comfortable and have equal voices. It takes somebody outside the organization to effectively lead this kind of meeting. He’s a very calming influence. Nobody feels like they better be careful about what they say. He puts you at ease.” The team came out of the offsite energized and organized, with a list of action items to work on in 2011.

By February 2011, Scott was convinced the firm needed more of Rob’s help to continue the momentum of the offsite and focus the firm on growth. Scott voiced his concerns to Rob about GSC’s ability to grow at a faster clip. Says Scott: “I told him that we had to start thinking outside the box with the way the economy was going and our challenges in this industry, which is low margin and very competitive. I said that we had to do some things very differently and asked Rob whether he could help us out.” At the time, GSC was pursuing an acquisition in the Pacific Northwest, but it was getting harder and harder to expand its core business.

Scott and Andy’s first request was for Rob to help with the firm’s sales plan. But after listening carefully and thinking about the offsite discussions, Rob suggested he help them and their management team create a three-year business plan. “At first, we didn’t see the value in that,” says Scott. “But Rob said he had a way to create a one-page business plan. We’re now knee-deep into that exercise with our top six people, both sales and operations. It’s been an extremely enlightening exercise because it has focused us and helped our team members become much more open and transparent with each other. We’re starting to see the fruits of our efforts already.”

One of the ways Rob has helped the GSC management team is in learning how to evaluate ideas for growth. Rob demonstrated a systematic way to vet ideas without dampening managers’ enthusiasm for volunteering them. For example, one GSC team member suggested that the company not only deliver goods imported through the Port of Oakland but also handle goods to be exported through the port. Rob taught the management team how to conduct disciplined research to evaluate the idea, including determining the investment to implement it. They quickly realized that the export business would require specialized equipment, personnel with skill sets the company didn’t have on staff, and other big investments. They abandoned the idea.

But they didn’t reject the idea of expanding to an adjacent market segment. While researching the export plan, they realized that picking up or delivering domestic trailers at the railheads was not much different than handling their current business of transporting international containers. They even found another synergistic area of growth at their own deconsolidation facility. “Once we had filled a trailer to be shipped across the country on rail, we handed it off to another company,” Scott says. “We realized, ‘Why hand it off? Why don’t we take it to the railhead ourselves?’”

In logistics parlance, this is called the intermodal business. It’s become a new GSC division and revenue source, one that didn’t require significant investments. “It was the first time that our company had really analyzed a market segment and developed a plan on how to attack it – i.e., the people we would need, the systems and other investments,” says Scott. “Rob taught us how to create a rigorous growth plan.”

Part of the plan covers the integration of their first acquisition, which closed in June 2011. GSC acquired a Pacific Northwest distribution company called Best Way Trucking Inc. That enables GSC to expand its business beyond the port of Oakland to the Seattle-Tacoma region.

GSC now brings in Rob once a month to help keep its three-year plan on track. “Rob has a good business mind. It doesn’t matter what business you are in –- he figures out what he needs to know very quickly. He does a great job of bringing teams together,” says Scott. “Some of it is his personality: He’s non-threatening. He’s there to help you, not to criticize. He helps you be creative and look at things in different ways. I’ve been doing this so long that I get stuck in my ways. He’s able to help you think outside the box.”

Scott says GSC’s three-year plan has clarified the path to growth — $80 million is the target for 2014 (double 2011’s revenue) –- and therefore made it more achievable. “I can see how we easily transition from Phase 1 to Phase 2,” he says. “I’m not sure what Phase 3 will be yet, but I’m sure that as 2012 starts to unfold we’ll get a better picture of the operational and sales changes we need to make.”

Client Kevin Barry Fine Art

In 2007, Kevin Barry Fine Art Associates was at a crossroads. The family-owned company’s growth had stalled as the economy was beginning to nosedive. Purchases of artwork to adorn the halls of company offices – KBFAA’s core business – had begun to slow, judged expense items that could easily be cut. The founder’s plan, to retire and sell the business to his children and another manager in about five years, was at risk.But today, with the help of CEO to CEO, KBFAA has weathered the economic storm. KBFAA, now a $7.2 million and growing firm, clearly knows where it is going, who is going to lead it when the CEO retires in 2014, and how it must be led for future growth.

The 15-person company, based in Los Angeles, procures artwork for corporate, hospitality, healthcare, and residential placement. The firm’s galleries in Los Angeles, Las Vegas and San Francisco carry a full-line of work including original art, limited editions, sculptures, tapestries, and fine art reproductions.

The company is owned and led by Kevin Barry, who has been in the art business for more than 30 years and has operated a Los Angeles gallery for the past quarter century. KBFAA comprises a team of experienced art consultants and other professionals in the art industry. The team is rounded out by Kevin’s daughter Allison, who runs the company’s San Francisco showroom; his son John, who runs KBFAA’s Las Vegas operation; and Jason Fiore, a childhood friend of his children who serves as KBFAA’s marketing director and general manager.

Everyone in the company handles sales and design consulting. KFBAA almost always supplies the art that it specifies in its designs, often outsourcing the production work to picture framing factories and other contractors, and then reselling it.

Six years ago, however, Kevin felt that he and his team had reached the limits of their ability to adequately plan for the firm’s future. Since they were a small company, the team found much of their time was being swallowed up by the minutiae of daily operations. “We were growing, but in some ways we were so busy with the day-to-day stuff that we couldn’t see the forest for the trees,” Kevin says. At the same time, Kevin, who is 66, was beginning to think about retirement. “It became important to develop an exit strategy and figure out how my successors were going to carry the baton.”

Around this time both Kevin and Jason Fiore became aware of Robert Sher’s firm CEO to CEO and thought Robert might be of use to KBFAA. “Jason thought it would be a good idea to have an outside consultant come in to work with us, and maybe help us see the big picture in terms of what the future might look like and how we could grow the business,” Kevin says.

Kevin had actually met Robert 10 years earlier, when the latter was CEO of Bentley Publishing Group and KBFAA was a small customer of Bentley’s. Recalls Kevin:

“Rob came to the gallery in Los Angeles and we did business. We didn’t work very closely, but I remember being impressed with Rob. I liked the way he handled and presented himself. And I thought it was good that, as the CEO of his own company, Rob was out making the rounds and staying close to the streets, so to speak. A lot of CEOs who run small businesses get trapped into managing the business and lose that face-to-face contact. But Rob wasn’t like that at all.”

Kevin also enjoyed the fact that Rob already knew the art business. “We knew what was kind of in his wheelhouse,” he says, “so we had a couple conversations with Rob, and he came down and we talked some more.”

Kevin signed a month-to-month consulting contract with Rob with the initial goal of developing a one-page business plan. Immediately, Rob began to reach out to all five on the leadership team in the organization and met each one individually, either by phone, email or in person. According to Kevin, the results came quickly.

“It is advantageous for us that Rob had a good working knowledge of what the industry was about. But he is also a visionary guy with great organizational skills. He was able to see things more objectively because he wasn’t an employee. We had a lot of thoughts and ideas about where to take the business, but we were so busy chasing the day-to-day stuff to execute – we were a little like rats in a maze. Rob kind of put our feet to the fire in terms of what his own expectations were, and made sure everybody got on board with the same goals. Then he was able to galvanize a lot of our thoughts and ideas into a plan of action.”

Because Rob came from a family business himself, it seemed to Kevin that he had experienced many of the same bumps, hills and valleys that KBFAA had. “I think he had a little bit of an advantage because he came from the art business, but to his credit, this is not an easy industry to understand – there are a lot of nuances to the business,” he said. “In some ways, we are all square pegs in round holes, because we are all creative types, and yet it is still a business.”

It was fortuitous that Rob began working with KBFAA right before the most challenging time in the company’s history. After three decades in the business, Kevin says that 2008 and 2009 were the toughest years he’d ever seen.

Rob’s first goal was to help KBFAA draft a definitive plan for where the business would be in five years and how it was going to get there. The focus was on results. Said Kevin: “Rob taught us two things: how to be more productive, and how to look closer at the bottom line and your margins.” The plan was concise, and articulated not only a crisp vision and mission, but specific metrics to be watched every month, specific high-value projects, and a set of key strategies that would deliver growth. The team would know each and every month if they were focusing on the most important things, and whether that focus was delivering the results mandated in the plan.

To help steer the company through rough waters, Rob worked with Jason. According to Kevin, Jason has been with the company for more than 10 years and already had significant managerial expertise of his own. “In 2008 and 2009, we had to tighten those purse strings company-wide,” Kevin says. “Rob worked closely with Jason to develop better financial reporting that helped us all determine what should be cut, and what should not be cut.”

In the depths of the downturn, KBFAA was reaching a juncture where growth had all but stopped. However, Rob pushed Kevin and his team to think about nearby adjacent markets. “Traditionally we did a lot of business with hospitality and high-end residential designers. But now we have broadened our target markets to include senior living facilities and healthcare organizations. ” Kevin says. “Personally, I always wanted it that way – I didn’t want all my eggs in one basket. But Rob helped us actually make the move.”

Financially, things began to turn around as well. “Our business was flat during 2008 and 2009, but in 2010, things began to pick up and we had a 10 percent increase in revenues,” Kevin says. “In 2011, we’re on track for another 10 to 12 percent growth.” KBFAA also opened a second gallery in Las Vegas run by Kevin’s son, and a third gallery in San Francisco, run by his daughter. “We’re certainly not out of the woods economically,” adds Kevin. “But since working with Rob, we’ve expanded our business, our revenues are growing, we added three new employees, and we’ve increased our market share.” Rob’s role includes teaching the next generation what it means to be owners. “We’ve got a good, strong team of young people – our executive team is all in their mid-30s,” says Kevin. “Since working with Rob there has been a definitive maturation process among them.”

2012 marked a change in business ownership and scale. With Rob’s direction and coaching, a team was assembled to begin the transfer of ownership to John, Allison and Jason. The board was formalized, with regular quarterly board meetings and Rob was asked to be the outside board member. The focus of the firm was clear, sales rose by 42%, and net profit grew dramatically, more than enough to fund the gradual transfer of shares to the next generation. In 2013, the governance process continues with Rob on the board. What has for long been governed by the founder is slowly transitioning board-based governance. Plans have been laid for growth toward a target of $15 million revenues over the next few years.

Asked what makes Rob so effective, Kevin suggests it’s a number of factors – among them intelligence, accessibility, communication and experience both as a CEO and working with many other CEOs.

“Rob has great people skills – he knows people very well. That’s one of his most salient features,” Kevin says. “He’s also triple smart, and part of the reason for that is that he doesn’t sit still. Rob chairs roundtables with other CEOs and works with lot of different companies and with different executives. Everybody in business is scrambling to get to that next level, and the exposure Rob gets from working with so many innovative leaders helps him, and helps us.”

“Rob went over and beyond most of our expectations,” he added. “We’ve had some bumps along the way, and that’s part of business, but Rob was always there for us. Having a seasoned CEO who is participating in the company’s growth, serving as a mentor, and providing guidance is great. It’s given us a little additional edge to see the future. You certainly want to focus on tomorrow, but five years is always right around the corner.”

Client HdL Companies

Clients of HdL Companies may have noted an extra spring in the firm’s step recently, as it seems to have been expanding its offices, services and staffing at a steady clip. A West Coast professional group helping local governments maximize revenues through compliance audits, analytical services and software products, HdL has in the past few years established a new HQ in Brea, California, expanded operations to Texas, added cannabis consulting to help local governments manage legalization, and continued to make significant new acquisitions.

Amid this impressive growth, many acquainted with the company may not realize that it has also been heavily engaged in the process of managing an ownership transition – migrating from visionary founders to the next generation of leadership under a new albeit home-grown CEO and senior team.

If handled badly, ownership transition in an early midsized firm can throw up a major set of hurdles and risks. Even if bold choices and a solid new leadership team are selected, challenges will have to be faced, and HdL’s own journey has not been without its hiccups and strains. But it is ultimately the combination of leadership, strategy and teamwork that can set the path for a next phase of growth. Getting this mix right is what has positioned HdL so well for its continuing success.

Embracing Transition. Founded in 1983 by Robert Hinderliter, and joined by co-owner Lloyd de Llamas in 1987, HdL, now has 96 employees in five offices in California and Texas (with three new states coming online soon). Early on, the founders recognized the major ownership challenge facing U.S. businesses, as according to some estimates up to 70% of the owners of small and midsized firms will retire within the next 20 years. This means that the ownership and control of some $10 trillion in assets will change hands, yet the majority of firms do not have ownership transition plans in place.

Hinderliter and de Llamas understood that a planned exit pathway was the best strategy to provide a positive retirement for them while also protecting the current employees and ensuring a platform for the future growth of the company they put so much effort into creating. Rather than selling to an outside concern, they opted for an Employee Stock Ownership Plan (ESOP). They mapped out a timeline for transitioning ownership to the employees, while identifying and mentoring a new leadership team combining inside and external talent.

It was a daunting task, with a number of key requirements. They had to find a next generation of leaders and owners in which they could have confidence. They had to win the buy-in of this new group to believe that they could really invest their lives into the business, including finding a way to fund the buyout. And the founders understood that, at the right time, they truly had to hand over the reins of leadership and allow the new team to get on with it.

As the example of HdL shows, a handover can be broken down into three main phases, each critical and with its own risks:

Mapping the Transition. A successful transition involves building a culture of ownership among the new leaders, and fully delegating all the tasks and responsibilities that owning a business entails.
Selecting the Leadership. The next CEO should be selected based on their true potential to be a great leader for the company. Many founders, failing to make hard a choice, opt for the emotional favorite, even if he or she does not have the full skill set.
Consolidating the New Team. The ideal leader will naturally develop followers and should make excellent decisions. But this is also the chance to update the management structure and draw in fresh expertise as well as outside advice and support to establish a fresh culture.

Making Succession Work. So, how did HdL’s leadership handle their transition? While managing the corporate changes, the company continued to expand impressively, moving to new headquarters to accommodate growth, adding its first out-of-state expansion into Texas with the purchase of Houston-based Sales Tax Assurance, and incorporating fresh services, including the new field of cannabis consulting. By the end of 2017, a decade since starting the transition, HdL had tripled its top line.

The key to this growth has been a series of excellent strategic decisions.

The first good choice was the new leadership. In 2010, the owners appointed Andrew Nickerson as President and CEO. Nickerson had joined the company in 1992 and had held a succession of roles with increasing responsibility, rising to vice president.

“When I was appointed with a new management team, employees already owned 33 percent of the firm, so the transition was unmistakably under way,” Nickerson remembers. “The completion of the ESOP buyout from the founders within two years made it clear that the future was ours to create, and it was very exciting.”

By mid-2013, Nickerson’s stewardship at HdL had borne fruit. Three long-time leaders had solidified around his leadership. The company had already paid off its note for buying one-third of the shares. And revenues were up.

The second important decision was to develop new business. With the approval of the founders, Nickerson and his team undertook growing the company to the next level. That made some of the older ESOP participants nervous that their ownership might be put at risk.

As CFO Jeff Schmehr, who joined HdL in 2005, recalls, “When we became a 100% ESOP, our near-retirement-aged employees lobbied hard for an ultra-conservative growth strategy. We wanted to minimize the risks, but we knew our employees were better served by supporting both the core business and developing new growth areas. Now I receive phone calls from these retirees congratulating our team on a job well done.”

The third key departure was to expand the senior management. With strong opportunities beckoning, the company required more leadership bandwidth. So, in 2013-15, Nickerson hired five more senior management leaders. The Board developed too, with three new outside members joining in 2016-18.

Consolidating the Change. It was not all smooth sailing, however. The company was correct in recognizing the need to change. But each new initiative brought fresh requirements, and all this change brought sharp challenges and “pain points” – strains in the system represented by inefficiencies, lack of clarity, skills gaps and risk. Moving from the founders to a new and expanded leadership team, opening new offices and taking on new product lines highlighted the need for a more disciplined management practice. The team recognized that this was vital to keeping the transition on track.

A fourth key decision, then, was to focus on management consolidation and growth planning. This was not just a general idea but rather an active choice to invest meaningful time, energy and resources into the effort, including bringing in outside help.

In spring 2016, Nickerson and Schmehr reached out to Robert Sher of CEO to CEO, the expert San Francisco-based consulting group specifically oriented to midsized firms such as HdL. This immediately gave them access to a wealth of top executive expertise. While the HdL leadership team had their hands full running the company, Sher and his colleagues were able to focus exclusively on the needs of the HdL senior management and on practical steps to ensure that agreed improvements actually took place.

At a delicate moment in the transition, the leadership especially appreciated the objectivity of the advice Sher was able to provide.

“Within the company, there was a progressive, change side, and there was a kind of status quo side. We realized that a new director would become the deciding factor,” recalls Schmehr. Nickerson and Schmehr attended a seminar hosted by Sher, and they liked what they saw. “So, the next thing we know,” Schmehr continues, “we are turning to CEO to CEO in several areas, helping us through the changes, and especially helping Andy [Nickerson] find creative ways to deal with the issue of balance on the Board.”

One of the first innovations was to develop a One Page Business Plan, bringing clarity and accountability to key corporate objectives. The leadership committed to meet monthly to review progress and encourage bonding within the group. Communication and teamwork increased immediately, deepened by a two-day workshop on team cohesion.

“As part of that trust building, we were encouraged to share something personal about ourselves,” says Schmehr. “I think even Rob [Sher] was amazed at the kind of personal information that came out during those moments. It showed everyone that there was in fact a high-level inherent trust within the room.”

This bonding effort was combined with ongoing business coaching, for Nickerson and other key members of the leadership, provided by Sher and Megan Patton, another CEO to CEO principal. Being a CEO can be lonely, and this process helped Nickerson think through the challenges and come up with fresh solutions.

“We were well into the transition by then, and were all feeling a lot of pressure to perform,” says Nickerson. “But some of the things we were facing where out of our wheelhouse. Rob [Sher] was able to draw on a huge breadth of corporate experience to help us find fresh ideas and new solutions. It was absolutely crucial.”

These discussions helped the team acknowledge that the new areas of business demanded new expertise they did not have in-house. While the out-of-state acquisition in Texas, HdL’s first, needed to be bedded down, the team was impatient to acquire more. Glenn Fishler, another CEO to CEO principal, coached the team through a planning process, so that all further acquisitions would be strategic and well planned.

The CEO to CEO team also provided advice on the particular challenges of a start-up venture, which was effectively the case with the new cannabis consultancy. HdL proved to be expert at the work itself. But unlike in the sales tax auditing field, where the firm is a recognized leader, they did not appreciate the essential need for aggressive marketing when moving into a new area.

“We had this nice dinner table all ready and set for California’s local governments, but the word wasn’t getting out to everyone,” says CFO Schmehr. “Basically, we were sitting back and taking clients as they came, and Rob [Sher] said, ‘Yeah, you’re not going to grab market leadership that way. You’ve got to get out there.’ He was instrumental in making sure that marketing for the new area was not under-resourced or under-appreciated, otherwise we would have missed the window of opportunity.”

The consolidation process also focused on Board transition, as it needed to move from an internal and founder-controlled body to a more professionalized strategic entity. This dialogue led to a successful mapping out of the additional skills required, recruitment of three new members, and training on new roles and responsibilities, so that the Board could work collaboratively with management.

Tying all these efforts together, the HdL leadership launched a process to develop a new long-term vision. To kick off the exercise, the CEO to CEO team organized another two-day offsite workshop to share approaches on how to develop, consolidate and drive a fresh vision. Once approved by the Board, the resulting strategy will guide the company’s future over the coming decade and ensure that the workforce at all levels is pulling together.

Be Strategic about Succession. Ownership succession planning requires a strategic approach that starts several years before the transition moment. Founders must be thoughtful and realistic. Then they must move steadily to transition the business for a new future. The new owners also have to be strategic, mapping out their plans while recognizing and taking steps to fill their weaknesses and gaps – whether through additional senior managers, fresh Board members or expert external support like CEO to CEO.

As Nickerson says, “From a macro-perspective, taking 10 years to change our company into a team-led growth machine seems slow. On the other hand, it felt like each year at some level our culture and leadership changed. We took it slowly, one step at a time, even though we were eager to arrive where we are today. In the end, we have preserved the best of what our founders, Robert and Lloyd, created along with new energy and high expectations.”

Who We Help:

Closely Held or Family Businesses

Read about how we helped the CEOs at these companies raise their performance:

Guiding A Pioneering Software Company Into A New Era

Raising Your Game, Changing Your World

GSC Logistics’ Top Team Chart Clear Path to Faster Growth

Guiding KBFA’s Transition to the Next Generation

How HdL Made Its ESOP Work

The Feel of the Deal; How I Built a Company through Acquisitions and Rob’s latest book, Mighty Midsized Companies; How Leaders Overcome 7 Silent Growth Killers

About Robert Sher

Book Robert To Speak

Contact Information

Subscribe for New Articles