Plan ahead for the successful transition of business when founders leave
SHERYL S. JACKSON
There is nothing more exciting than starting a business and growing it from an idea and a skill to a growing, thriving pest control company that promises to support family members for generations. Unfortunately, the reality of a family business transferring from generation to generation is a difficult transition, with multiple reports that only one-third of family businesses last beyond the founder’s generation, while only about 12% of businesses make it to the third generation.1
ScherZinger Pest Control, founded in 1934, is a family-owned business that is beating the odds. While Steve Scherzinger, the third-generation owner of the company, serves as CEO, his sons, Kurt and Eric Scherzinger are the fourth generation of the family. Kurt Scherzinger serves as president of the company and Eric Scherzinger serves as vice president of procurement and marketing.
Both men had plans to pursue other careers after college but realized that the business in which they had worked summers and had known their entire lives was where they wanted to be. Kurt Scherzinger pursued a degree in finance and worked several internships to prepare for a career in the financial industry. “I managed client campaigns for a financial advisor and also worked with a landscape company, but I did not see myself starting from scratch in another company—not when we had a thriving family business,” said Kurt Scherzinger.
Eric Scherzinger was still in college studying agriculture economics when he decided to enter the family business. “My friends couldn’t believe that I started taking entomology classes as electives rather than the easier classes that most students chose as electives,” said Eric Scherzinger. “I also worked with Dr. Michael F. Potter on his bedbug research while still a student.”
To prepare his sons to assume leadership of the business, Steve Scherzinger insisted that they begin as technicians and not report to him. “Until we moved into our current roles, we always reported to supervisors, then as we moved in management, we reported to a president who was not a family member,” said Kurt Scherzinger.
This “working their way up” was beneficial in many ways. “When I moved into sales and supervisory roles, I was able to relate to technicians, and they knew I understood their job,” said Eric Scherzinger. “I started as a technician with Kurt when he opened the Dayton office but was moved to a downtown Cincinnati route that was one of our most intense routes,” he said. “With this being one of the most intense routes, I encountered multiple situations that I would not have seen on any of our other routes—a great learning experience.”
“We are respected by others in the company because they saw us learn the business,” said Kurt Scherzinger. “We have one employee who I rode with during my training, and she often points that out to other employees.”
Zac and Justin McCauley of McCauley Services also learned the business from the ground up and started at an early age. “Dad was big on us learning every aspect of the business and started our training early. At 4 years old we had our own uniforms and rode along with him to make sales calls,” said Justin McCauley, CEO. As they got older, they took on other jobs and both held their own pest routes while in college—building them from scratch into full-blown routes. After running their routes for a few years, both moved into the administrative side of the business and worked as inside sales, CSR, and routing coordinators for a couple of years before managing and running a service branch. “This gave us a tremendous understanding of what it takes to manage and grow a pest control business. It also gave us a ton of confidence to be able to know that we have been in every team member’s shoes at some point in our careers and we can relate and understand the challenges they may face in their roles.”
Set parameters for family involvement
In addition to the informal “rule” that family members must work their way up in the business, there is also a rule that spouses cannot work in the company. “I know of companies that don’t have this rule, in fact, one company has 30 employees and 28 are family members,” said Eric Scherzinger. This scenario may present many different types of conflicts and misunderstandings that affect not only business but also family relationships, he added.
“You do have to plan for siblings who may not want to participate in the business,” said Kurt Scherzinger. “We have a sister who is not in the business, so our father will have to determine how she is treated when he passes away.” While some family-owned businesses gift part ownership to all family members, even those not working in the business, he cautions against the practice. “This sets up the company to have owners who want a say in how the business is run without understanding the business.”
According to research, only 34% of family businesses say they have a robust, documented, and communicated succession plan in place 2 but now that fourth-generation family members are in the business, the Scherzingers are taking steps to formalize plans. “It is important to plan for everything, including the death of a family member or the decision to leave the business,” said Eric Scherzinger. “Put it in writing and describe the right of first refusal to buy one another out, or whatever options you want to include.”
“The three of us attended the Next Generation Institute for Success Planning offered by the University of Cincinnati’s Goering Center for Family and Private Business,” said Kurt Scherzinger. “It has taken a couple of years to create a formal understanding of how the business will move forward. One of the commitments we made to each other is that if the business gets in the way of our personal relationships, we will ask the question: Is this still the right way to go?”
Since Steve Scherzinger does not come into the office every day, Kurt Scherzinger calls him about three times a week while driving home. “I let him know what’s going on so that when we’re all together as a family, he can focus on grandchildren and others rather than talking with Eric and me about business.”
Look ahead to the next generation
When it became clear that the McCauley brothers were ready to run the business, they and their father worked together to develop a plan together for the transition and a timeline. They purchased the business from their father and included their lawyer and financial planner in the process to make sure the decision was best for all three. “We had learned from friends in the industry about their experiences with transitions, so we were far ahead in terms of our clarity and expectations,” said McCauley.
As he and his brother evaluate the next generation, McCauley recommended asking three simple questions:
1. Do they get it?
2. Do they want it?
3. Are they capable of it?
The answers to these questions will lead to decisions about hiring someone from outside the company or promoting from within to run the business with family members on a board of directors or selling the company, said McCauley. Positive answers to all three questions are essential for the next generation of leaders, he added.
“I think it’s important to have a plan and work that plan over time. This isn’t something that happens overnight,” said McCauley. “You want to make sure that everyone involved in your plan is on the same page and understands the same timeline. Also, be flexible, your timeline might be able to move quicker than planned or it might need to slow down to make sure the transition is successful.”
1. PwC. 2019 Family Business Survey by PwC.
2. PwC. 2023 US Family Business Survey.