– Hello everybody. And welcome to Building my Legacy Podcast Today I have with me Jonathan Goldhill, he works with businesses, companies, especially family owned businesses that want to scale. He has a very interesting background because as I’ve worked with people who coach and consult, one of the things that I’ve observed often is that some of the people who work and want to work with companies don’t really have the experience in working with entrepreneurs or family owned businesses. Jonathan is the exception to that rule. He has experience, he was in a third generation men’s clothing manufacturing company in New York when it was sold. So he now works for the past 30 years with companies that are looking to scale family owned businesses and entrepreneurial companies that want to grow. So Jonathan, you will have a lot of wisdom for us in terms of what is it that businesses need to think about.

– Lois, thank you very much for having me on your show. And yeah, the real story about my family’s business was that it might have made it into the fourth generation had there been leadership that was interested in taking the business to that next level. I think it was at a time when-

– What was year? I forgot what was the time?

– So what really happened as I trace back the history was my grandfather and his brothers started the business with their father. They started the business in the early 1900s and they ran it and it was a very large private label men’s suit manufacturing company, headquartered in New York City with factories in Philadelphia and Kansas City. And to give you an idea of the size, it was a few thousand employees and a million square feet of factory floor space, so pretty large.

– Especially at that time that was a very large company.

– Yeah and men’s suits were still very popular. They’re not today. And they were still being manufactured in the United States, but I think manufacturing was starting to go into decline in the United States in the ’60s, certainly into the ’70s and ’80s, it started to move offshore, eventually moving into just the lowest labor economies in Asia and places like that. And so my actual tracing of the history was my grandfather and his brother sold the business in 1969 to a very large conglomerate, but were given lifetime employment contracts and you continue to operate the company working out of the showroom and keeping the factory in Philadelphia. And they eventually closed the business down in 1986. So I moved to California in 1980. I recognized that there really wasn’t an opportunity to get into the family business. I was an observer from the outside, my father, who was a son-in-law to my grandfather, joined the business, but died at a very young age, like 35. And he was in the business following his education from Yale Law School. He was in the business and he sold a new line of clothing that was named after him and my other uncle who also was not blood family. And I think that my grandfather just saw that there really wasn’t a next generation leader who was gonna take the business to a new level and they would’ve needed that.

– I wanna talk about that. What do you look for in a next generation leader in a family owned business when you wanna scale?

– Yeah, so one of the first things that I look for is someone who’s humble. Humble is really important because they have to recognize that they don’t know it all and that there’s always things to learn and that they can learn from a lot of other people because when a next generation leader is coming into a business and is maybe trying to exhibit some power, or exert some influence, if that influence and power is unduly given to them by their parent, they’re not respected by the people whom they seemingly step over. And I’m sure you see this all the time in corporate America as well, so you have to be humble and you have to be recognizing that these people who have been in this company much longer than you, that may be just employees, they need to be respected, they need to be listened to, they need to be understood. And that’s what humility requires and that’s what a level five leader does. That level five leader is what Jim Collins talked about in terms of servant leadership. So you have to be really humble, that’s the first characteristic, I think. The second one, Lois is you have to be hungry. If you grew up entitled, if you up having everything basically being handed to you, given to you, was easy to achieve, you can develop a false sense of arrogance. So that in modesty is a real turnoff to people. People wanna see that there’s a hunger. And so I work with a lot of companies that are two to 10 or 20 million in revenue and if there’s a next generation leader in there, he has to want a two to 10X that business if he’s hungry. And that means that he or she needs to have a vision for what it looks like, for what an improved set of services, an improved set of products, an improved employee experience, an improved customer experience looks like and has to have a vision that people buy into and it takes time. And so the third thing is that they have to be smart, not just intellectually smart, but more people smart and that they need to get the relationships, they need to have a really good emotional intelligence around the relationships of the people that are gonna get them more where they wanna go. And also you always need to be careful about maybe who you’re talking to on the way up because you’ll be seeing some of those types of people on the way down too, as we say. So I think humble, hungry and smart are, to steal a page from Patrick Lencioni’s “The Ideal Team Player.” Those are what I look for in a next generation leader that wants to take the business to the next level. And obviously this goes without saying, you have to understand the business. You have to really learn the business from the predecessors. You need to learn the business from being out in the field and talking to competitors and talking to the employees and you need to get out in the industry and you need to network with your peers. You need to understand business really well because if people are gonna buy into your vision and especially if your parents are gonna pass the torch to you, they have to know that you’re not gonna burn the farm, sell the farm, bet the farm, these were real fears that agrarian families, agricultural families had when passing the family ranch off to the next generation.

– So tell me, did your family go through a grieving process when they let go of the business? Three generations is quite remarkable.

– Not that I’m aware of, I really was too removed. My grandfather and his brothers were older. My grandfather really he developed what seemed to be Alzheimer’s, later just turned out to be a series of strokes. So I don’t know what that was all related to but the last 10 years of his life were really difficult to be able to have a conversation with him. And there were people that were involved in the business, like the family accountant and he was someone I had a close relationship with and he was of their age too. And so when the business went away and all the taxes and all the paperwork was all done. I mean, he was probably in his 80s and retiring. So I think people, they had a really good ride. And so I think I’m not aware of what grieving process they went through if they went through it.

– Okay, I wanna go back to a comment that you made just a little while ago and that is about personalities and how people need to relate one another. And as I have worked with businesses and with leaders, that is one of the things that I’m often troubled by is sometimes the not so good relationships between father and son, father, daughter, mother, daughter, mother, son, in businesses, so how do you help people work through that? Is that possible? And there are times when you must walk away and just say, it can’t be done, not for this company because of the personalities.

– Yeah, so I’m of the mindset that if the there’s a will, there’s a way, but the will has to be on both people’s part. And there isn’t always the will. I’ve been in situations where family members, one family member did not have the will. And as a result, the other one developed an unwillingness to trust the family member. It was a difficult situation and eventually they had to part company. I’ve observed from the outside father and son in a family business that the son really had very different ideas about the business and the father didn’t agree with him. And the son basically came to the father and said, “How about if I buy you out?” And they bought the parent out. I’ve had family members where they have really good healthy relationships and they work through conflict. And there’s some conflict that they’ve never quite gotten all the way through, but it’s small stuff, it doesn’t inhibit their ability to move the company forward and to grow and to be really unified. So what I do is I try and establish what are the values that this family and that this business has that are part of the cultural fabric and can they all play by and agree to these values and do they live them mostly all the time? And I think where families have a cohesive fabric where there’s a good value system and meaning it’s good because it’s coherent and it’s understood, these are the families that work well together. Families that don’t have that just don’t. So that would be the one thing I come down to is what are the values that you ascribe to?

– You talked about vivid vision, I love that, so how does one have a vivid vision? And is there a process you take people through to really get there?

– That’s a really great question. I recently had a guest on my podcast that has a process and started to break down the process. I don’t have a very detailed process for the vivid vision. I mean, I help people to compartmentalize and look at the different aspects of their life, spiritual, emotional, physical, health, business, the employees, the experience. I mean, so we can look at a lot of different areas and do a simple wheel of life. And I’ve taken people through that, but I think there are others that are probably more gifted than I in taking people through an imagination exercise of what their life looks like. I know I’ve done these many times myself. I’ve been through many workshops and I don’t consider myself to be someone who’s great at coming up with a vision, but I know I must have somewhat of a vision because I’ve led my own path. I followed my own path in my life and I’ve charted my own course. And it’s worked out well for me. But am I involved in or have I been involved in breakthrough ideas or products or technology or services? Probably not, I think a vivid vision is something that someone can work on. I do find that there are some people that come to me that have really vivid visions and those people need a lot of help with practical, tactical execution type stuff. And then there’s people that are very tactical and it’s really hard to get them to have a vivid vision. So I think that I understand the concepts and the need to be able to have both the execution and the vision but it’s almost like it’s a gift with some people and not with others in my mind.

– It’s a balancing act in some ways. And I think that’s one of the reasons where it’s great when you’ve got more than one person. If you have a family business and you’ve got two people, three people, whatever, but they’ve got different giftings, you can have a powerful business if you can relate to each other, as you say, because we don’t all have the same gifts.

– Yeah and I saw that in my family’s business, my grandfather and his two brothers. So my grandfather was a fun, loving, outgoing personality. He was a good salesman, people liked him, he got things done and he made everyone feel really good. His brother was kind of, well, let’s just say he got kicked out of the White House for being too unruly during a presidential talk. He was a character that broke down walls and barriers and was loud and obnoxious. I remember when I was 13 years old and got a birthday present him, it was a Swiss cuckoo clock that made a lot of noise. And I’ll never forget it because it was so much him. My uncle Izzy was full of noise and boisterous and loud. And then there was the third brother who was very quiet and very analytical, very studious and very much got things done. And I think they didn’t always like each other, they didn’t always agree with each other, but they loved each other and it always came back to doing, what was best for the family and doing probably what was best for their company. So I think they shared common values but they were so different.

– I wanna talk for a moment about you’ve grown a business, you have a family business, you’ve come to a time where you decide you perhaps wanna sell. What are things that businesses need to get in order to be ready to be really saleable?

– Wow, well, there’s a number of drivers of value and things that will make a business really sellable. So one is, can the owner or owners be removed from the business and have the business continue to operate without any impediment? So a lack of dependence upon the owner is one of the largest ones that I see with the smaller and even medium sized businesses. So that means you need to have a great number two or a leadership team that can run the business in your absence. And I think that’s one of the most important value drivers. You have to have really, to extend upon that, you have to have really good systems and processes so that the business isn’t just dependent upon the people, so it’s not a people dependent business but it’s a system and process driven business that can be followed, like a cookbook has a recipe that can be followed. I think that’s really important also driver of value. There’s a number of other drivers of value I think that make a business more valuable and sellable, do you have a recurring income stream? I deal with a lot of construction companies and some of them have a maintenance route and they’ve got recurring income coming from the maintenance business. Some of them are just dependent upon projects, construction projects, and there’s no necessarily a reliability of a future income stream. And those are difficult businesses to sell if you don’t have that reliability, so the more solid your recurring revenue is, like a subscription type business that’s automatic, the more sellable it is. So those are a few key items, Lois.

– I think what that says, Jonathan, is people need to start almost at the beginning looking at what is it I have to have in place because down the road I’m gonna have to sell this, right?

– Yeah, I think too many people, I mean, very few people think about selling the business while they’re starting the business. They’re so consumed by what it takes to just start a business that they’re not really thinking like an entrepreneur, they’re thinking like a small business person. An entrepreneur by definition in my mind, and I went to school and I got an MBA in entrepreneurship, but the entrepreneur begins with the end in mind and thinks what’s the ultimate outcome for this business. If I’m going to sell it, who am I going to sell it to? And how I going to get it to that point of value that the buyer will be interested in it. But very few people think like that, most people are not entrepreneurs, most people are small business owners. They start their business by default, not so much by design. And they end up with a business that they’ve been running for 20 years, especially it’s a family business. It maybe is multi-generational and then they’re trying to figure out how to pass it either to the next generation or how to sell it. And sometimes they find that they don’t really have a very sellable business.

– Okay, so let’s go there because I do think you’re right. I sat in a group about a few years ago now where people were gathered that were thinking about selling their business. And it surprised me how few were ready for that conversation. And yet they were all there to have that conversation.

– Yeah, I don’t wanna misstate or misquote some statistics that I’ve read, but I’ll tell you what I believe I recall. And I believe it came from BizBuySell, which is one of the largest online intermediary. It’s basically a place to list your business for sale. I think more than two thirds of all businesses that list themselves for sale actually never sell. And I think that those that do sell many of them require two thirds of the money to be paid on like an earn out and over time. So that means that if my math is right, a third of them are selling, two thirds are not. And of those one third, they’re only getting a third of the money down. And two thirds is being and carried. Now it might be an SBA loan and so maybe the seller is being paid off mostly in full. But a lot of times they’re only getting that third equity from that buyer. So the odds are not very good for a lot of people to sell their business, unless you build it to sell it. And that’s a different mindset.

– Unless you do that from the beginning. These are conversations that aren’t held very often. So the odds of people really getting educated in this way are not very strong. And just as you’re speaking, I’m just taking that in and realizing what an education piece is really missing. And we’re not serving entrepreneurs and business owners well in that way.

– Yeah, we’re not, I mean, I don’t know whose job it is to do that, as I said, I went to a business school and got an MBA in entrepreneurship, that’s pretty uncommon. Perhaps it’s the SBAs job, but really they’re just there to provide business assistance and loans and support the banks and making difficult loans that banks wouldn’t necessarily wanna commit to. So I think there are a number of independent entrepreneurial academies that provide this type of education but they’re not widely available to everybody or widely known.

– Okay, another thing that you talk about Jonathan is a playbook, business issue run by a playbook. What do you mean by that?

– So I think that there’s a set of standard practices that businesses should employ to be able to run better. I’ll take an example. Businesses should have teams of people that are meeting on a regular and frequent basis so that they can solve issues that are coming up and not just always solve them through what I call, got a minute interruptions with the executive next door, they should be solved, they should be discussed. And then there should be processes and systems put in place so that these things are prevented. And so one best practice in my playbook is that you have a series of regular meetings. They start from a daily huddle to a weekly meeting, to a monthly meeting, to a quarterly planning session. And these are pretty standard among business coaches, but these types of best practices aren’t always understood. And so the playbook that I have is a series of best practices that are put together. In my playbook I have seven Ps, just a convenient thing. And it’s like the first P and it’s not in any particular order is that you need to figure out what your purpose is. Why are you in business? And what are the values that you stand for? And so those things should be widely known. And planning is another P and that should be something that is done on a regular basis. So you’re not just firefighting or executing on what you think is the plan or chasing a bright, shiny object, which is a common problem for entrepreneurs. They come back from a conference with a great idea and they like, let’s do this. So really important that they have a plan and that they have a process for making decisions around that. And so a playbook is basically like an operating system that you input into your business, which is a series of best practices for the main areas of your business, which are people, which are execution, getting things done, which are like cash and financial and record keeping and management systems and then strategy type stuff, marketing, sales, messaging, all that stuff. There should be, I think a playbook around how to manage the growth of a scaling up business.

– When you’re a startup business, let’s say you’re about a, what? 2 million, just moving out of the 1 million group category. What can people, should people, could maybe is the better word, anticipate in terms of the rate of scaling in your experience?

– Yeah, so one friend put it this way and I think it’s interesting. So to build a $1 million business, typically you could be one leader with 10 helpers. To build a $2 million business, you need maybe two leaders with 20 helpers. So to scale up, if your business is pretty labor dependent, let’s just say, so you’re not a technology company and it scales proportionate to the number of people that you have, you need to recognize that if you’re gonna scale to 100 people, then you’re gonna need to have 10 leaders that each have 10 helpers. And so while all your job before was to get these helpers in line doing the right thing. Now it’s a very different thing, now you need to train the trainers, train the leaders so that they are leading those people. So you need to do most of your work around making sure you have the right people that are in your company, the right people will outtrump any marketing strategy that another company will have, right? The right people will make good decisions, the right people will outtrump any systems or processes, but eventually you have to become a systems dependent business, as I said earlier. So what a scaling company can expect is that if you wanna grow at, let’s say 24% a year, your business is gonna double every two years. So if you’re doubling every two years, you’re gonna out your people, you’re gonna maybe outgrow your leadership capabilities, you’re gonna out maybe outgrow your skills, you’re gonna outgrow your space, you’re gonna maybe outgrow your capital. So these are all things that you need to be preparing for if you are going to scale up and the smartest move, I think you can make are none, is to hire and surround yourself with the right people that are as smart or smarter than you and that compliment your skills so that you can build a company of 10 leaders that have 10 helpers and get to 100 and then some, does that make sense?

– Oh, it makes wonderful sense. And I think it’s one of the things that you wake up to, I think often as a small business, you go, oh my goodness, I’m growing now, what do I do? And at that point, it’s late to be coming up with that. I think the other thing we don’t talk about enough, Jonathan is right from the beginning training that next layer of leaders. So you’re training the leadership group that you’re with, but you know that they’re gonna be moving on very quickly if you’re gonna grow at a rapid rate, you gotta train that next level down. And maybe even the next level down from there. And so it’s a mindset that’s different than what many of us have grown up with.

– Yeah, I’ve been a coach for 30 years now, Lois or a coach and a consultant for 30 years, actually a coach started in 2004, so it’d be 17 years. And all my coaching and consulting was pretty much only done with the CEO or the business owner. And then they would sometimes hire me to work with their next generation family member. And it was only as I started to do more team coaching, which was about five or 10 years ago that I started to see the importance of being able to get down to other levels in the coaching organization. And one of the operating systems that I’ve worked with which is called EOS has done a really good job. It’s called the entrepreneurial operating system. They’ve done a really good job of developing books that speak to the mid-manager and below and people in the organization so they can really understand what the operating system and or playbook that is trying to be put into this company. And I applaud them in their efforts for doing that because it really does require training. And so you have to train people on this skills in the company, you have to train them on soft skills. There’s also some compliance training, of course. And then you have to train them on what’s the operating practices that we follow in this business, so that are the best practices that are gonna drive us so that we’re always leading the industry with our best practices. It’s a challenge, it’s a lot of work.

– It is a challenge and it’s fun when you see it working, isn’t it?

– Very much.

– Jonathan, our time is almost up, what have we missed that we should have covered?

– Gosh, I can’t think of anything that we’ve missed. I mean, we could go on for hours, I’ve enjoyed this so thoroughly and I’ve nursed my way through a sore throat on this call. But yeah, I think we’ve covered a lot of ground here, Lois.

– You know what Jonathan? I appreciate so much your perspective and your experience. I think in our consulting world we’re hungry for consultants that have wisdom that comes from experience. So thank you for that, I appreciate it.

– Thank you so much.

– Yeah, thank you for being with us today. And for those of you who are listening to our podcast today, thank you for being with us. And we will have information about Jonathan and his company and how you can get ahold of him in the show notes. So please, please visit him and if you have questions please feel free to contact him. So again, Jonathan, thank you so much for being with us today.

– Lois, thank you very much too, appreciate it.

– You are welcome.