How to take over the family construction business
Updated: Oct 25, 2020
In the construction industry it is very common to pass on the business to the next generation. If a son or daughter is willing to step in and take over, why not. It has taken years to build the business and there is value in that. Why throw it away by shutting down when it’s time to retire.
But, how do you transition the business successfully? As a general contractor myself, I have seen so many construction businesses fizzle away after a passing of the torch. There are many reasons why including: key employees leave, key clients stop calling or the new owner is simply not ready to lead.
There are some very important steps that MUST take place for a successful transition. These steps take time to implement so be patient. Here are the steps:
Step 1: Learn the business from the ground up & earn respect
Let’s assume that the construction business has a number of workers that have been with the company for many years. These workers know the trade and have little respect for people that come in and think they know everything without doing the actual work. If you are the son or daughter of the owner and you want to take over someday, plan to spend time in the field learning the ropes from the crew. Work with the crew side by side and learn the trade. This is the only way to gain the respect of the crew. Why is that important? Having a crew that respects you is essential because without it, you will not be able to manage them and you will ultimately see many of them leave after the transition. Additionally, if you don’t have a basic understanding of the trade, how will you be able to estimate or manage any projects? Most likely your parent did the work themselves at one time and that is how they learned. You can’t skip this step if you want a successful transition.
Pro Tip: One of the best ways to gain the respect of any crew is to volunteer to do the dirtiest job possible. For example, if you are an electrical company doing underground work, grab a shovel and offer to dig the trench. Show them you are willing to get dirty and work hard. If it is raining and you have to get muddy, even better! This will show them that you don’t believe that you are better than them just because you were born the child of the owner. If nothing else, grab a broom and clean the job site.
Step 2: Understand Relationships
The construction industry is about building things but it is equally about relationships. At the end of the day, it is relationships with clients, subcontractors, employees that make things happen.
When you are learning the business during step 1 above, pay close attention to the employee relationships. Learn who the leaders are and who are the key employees. Learn about who might expect to be in line to take over. There are typically a handful of key personnel that are the owners “right hand men” (or women). Who are these people? Get to know them and build a relationship. Understand what motivates them to work for the company.
When the transition is announced, it is important to make these people feel like they are part of the plan. You don’t want to lose these key people and keeping them on board is critical. Consider promoting these people as part of the transition.
Understanding and building relationships with key customers takes time and is a very delicate process. You cannot rush this process. The client will automatically be skeptical about getting the same experience from the next generation. It can take a year or more before clients will be comfortable working directly with the next generation. You have to build that trust and prove to them that you will be on top of things and will deliver quality and the same level of service they are used to. I personally have stopped using a contractor when I was forced to quickly start working with the next generation who I didn’t feel shared the same core values as the owner.
Step 3: Learn the secret
Every construction business has it’s reasons for success. This is it’s “secret sauce”. It may be the best craftsmanship or it could be the fastest response time or it could be the best pricing or it’s special knowledge of a trade. A lot of times it is the personality of the owner & company. It can also be a combination of these or others.
You have to understand what that secret is. Start with your parent that has run this business for so long. Ask them what has led to the success of the business. It may be something you didn’t anticipate….like relationships with an organization or client. It may be the consistent reliable pricing provided or the fact that change orders are rare and only used when justified.
Once you learn what the keys to success have been, it’s important to come up with a strategy to protect it during the transition. For example, let’s say you learn that 25% of the business has been from a large repeat client and that they love working with a few key employees. Knowing this, you would need to plan how to reassure this client will continue to get access to the employees they love and that you know how important the relationship is to your business.
Step 4: Make a Plan for the Transition
Once you know the business from the ground up, you understand the relationships and you have found the secret sauce, it’s time for the transition.
If possible, do this transition slowly. See if the parent owner can cut back hours over a year or more. This will allow for relationships to be built and trust to be earned so that the day when the parent owner is officially retired, the business can move ahead and thrive and not spudder downward.
Realize that your parent owner’s life has been poured into this business and it’s not easy for them to let go. This is to be expected. Be patient. Let the process happen in it’s due time.
I suggest making small changes only at first. Don’t be in a rush to change the entire business. Implement small tools (eg www.buildcenter.com) or process changes to streamline part of the business. This allows you to see how those changes are being adopted before making larger changes.
Passing the torch to the next generation successfully is no easy task. It takes understanding of many aspects of the business plus the time needed to build relationships and having a plan for a smooth transition.
Author's note: As a co-owner of a construction company myself with young children, I have made the personal decision to not pass on the company to my children. Why? In my case, the employees of the company are likely going to be the ones to take over and if my kids want to get into construction, I can help them build their own company.
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