The topic of transition management is heating up in the agriculture industry. From production agriculture to agribusinesses, the baton is being passed from the baby boomer generation to the 18-34 year-old millennials. Members of the millennial generation will make up 50% of the workforce by 2020 and an astounding 75% by 2025. Many are the next business and land owners in an economic environment full of financial volatility, expanded technology, changing consumer trends, and uncertain public policy domestically and abroad. Let’s examine the upcoming management transition in greater detail, including possible suggestions as well as fatal flaws to avoid in the evolution of the business.
The Economic Flaws
The recent commodity super cycle’s record prices drew many young individuals to the industry. Unfortunately, prices reset and profits declined causing businesses to reconsider how to sustain an operation sizeable enough to accommodate these new employees.
As an old rule of thumb, either the new generation entering the business must generate $40,000-$70,000 of additional income or the senior generation exiting the business must reduce income draws by approximately the same amount. Failure to do so can cause significant disruption in both finances and family. Simply put, a business cannot sustain too many salaries for long without creating guerilla warfare.
Communication and Transparency
Another fatal flaw of any business is the lack of clearly defined jobs, responsibilities, and accountability measures. Too often, the senior generation will hire a chip off the old block, or an individual of the same skill set as the existing labor and management. Analyzing and aligning business needs with talent is critical for success. Additionally, attracting and retaining talent through a positive work culture will be imperative for the future of the agriculture industry.
Members of the millennial generation will also want communication and feedback concerning performance. This doesn’t mean a nod of the head or roll of the eyes as feedback, but rather constructive two-way communication. Consider the DISC personality profile test , which can be useful in determining an individual’s communication style. Knowing the most efficient method of communication maximizes workforce and management performance and, most importantly, allows for better overall communication and comprehension.
The new generation will also seek a work–life balance. Instead of living to work this generation is working to live, and highly valuing family and personal time.
Transition Planning, not Estate Planning
While the dividing of assets at death with an estate plan is critical, a transition plan is an ongoing process that will evolve depending on the external and internal business environments. Take time to develop written business, family, and personal goals for all key individuals and stakeholders in the business. The goals can be short-term goals for the coming year or long-range goals three to five years out. This component can be invaluable in assuring everyone in the business is in agreement on strategic objectives.
The Exit Plan
Avoid the temptation of thinking, “that will never happen” and plan for the unlikely. Initially, transition planning focuses on incorporating members of the younger generation into the business. However, the exit plan is just as important and will present its own significant challenges. In developing the exit plan, it is extremely important to discuss all aspects openly and then include all details in a written plan. There are several options to utilize in an exit plan including buy-sell agreements for all major stakeholders.
Note that sometimes agreements are necessary prior to a marriage or partnership, and in other cases agreements will be necessary after the event. Determine in writing how assets are valued and how they will be dispersed. Remember to include any deadlines or pertinent timeframes in the plan. Yes, this is a considerable amount of work but avoiding it will be like the old, infamous marketing slogan for FRAM oil filters, “You can pay me now, or pay me later!”
Another fatal flaw is focusing on urgent matters instead of important ones for the business’ future. If experiencing difficulty in getting the transition process started, sharing an outside source such as an article or attending a seminar can be helpful in stimulating discussion.
One direct approach is to conduct the “drop dead exercise” by gathering each of the business’ major stakeholders and putting each individual’s name on a piece of paper. Choosing from the pile, pull a name and presume that person is suddenly gone. As a group, walk through the process of what to do without input from the “dead” individual. This exercise can jump-start the process, but one should consider hiring a neutral facilitator that can address coming deadlines and commitments. Both the exercise and the third-party facilitation are good ways to avoid postponing the discussion.
Business transition can be fatal or it can position the business to grow to the next level. A well-developed transition plan addresses all aspects of the business from financials to job descriptions to deadlines and goals. Being proactive can be the difference between a disastrous event and the business’ success for years to come.