Extraordinary challenges and timelines face succession plans

Although it happened nearly five years ago, Jonathan Goetz clearly remembers the day that Oak Contracting President Doug Eder appeared unexpectedly on a job site that Goetz was managing.

“He said he was there to take me to lunch and that we needed to talk,” Goetz said. “Of course, I was immediately on edge, thinking oh boy what did I do now.”

The lunchtime discussion, however, revolved not around a problem, but an opportunity. Eder and his partners had been discussing their eventual retirement and a succession plan. He wanted to know if Goetz would be interested in stepping up into a leadership and ownership role.

Over the next four and a half years, Goetz, who is currently Oak’s Director of Business Development, gradually assumed greater responsibilities within the company, learned new aspects of the business and participated in countless open-door, open-book discussions with Eder. This summer, Oak announced that Goetz will succeed Eder as president on New Year’s Day 2024.

Planning and completing a succession plan is one of the most complex tasks a construction company can tackle. Successfully completing that transition requires extremely long-term planning, farsighted talent development practices, and solutions to thorny questions about the valuation, branding and future of the company. A well-executed succession, however, is critical to a company’s survival and a challenge that will face growing numbers of businesses in the near future as Baby Boomers age out of the workforce.

Value, brand and other hurdles

“This activity is not for the faint of heart,” said Brandon Jones, CEO of Delbert Adams Construction Group. “It becomes very, very complicated with a lot of legal issues, tax issues, branding questions and other topics that are over the heads of many general contractors and business owners.”

Chairman and Partner Delbert Adams put the company’s current succession plan into motion about seven years ago when he began talking to Jones, an employee since 2008, about possibly becoming a partner. The ensuing three years of planning “was a long road with a lot of conversations and it was all very delicate and very sensitive,” Jones said.

A core and challenging topic was resolving “how much is the company worth,” Jones said. “One can say it’s worth four times EBITA. Someone else can say it’s worth nothing without the founder. Someone else might say it’s worth the value of its trucks. This is a tricky question for any construction company.”

To navigate valuation and other challenges, Delbert Adams Construction Group retained a corporate advisor which specialized in mergers and acquisitions. On January 1, 2018, Jones became the third partner in the company, freeing Adams to retire but not for several more years.

“I have had the good fortune of having spent so much time here and incrementally elevated myself in this business. I had been put into positions where I was a department head, I ran business units, I took on a client-facing leadership role, and I learned about how the financials work and how taxation works for the company,” Jones said. “We have been able to take advantage of a long overlap to build up a knowledge base.”

Yet the succession would require Adams to remain active in the company, although at a gradually diminished level, while Jones and others assessed how his departure would impact the company’s brand and operations, and developed plans to address those changing conditions.

“I am looking at marketing metrics, looking at where our leads and opportunities come from, and what is the volume that comes from our marketing efforts versus the volume that comes from calls to Delbert’s cell phone,” Jones said.

The succession process, he added, would also need to address fundamental and looming changes in the marketplace — such as how shifting demographics are changing residential construction trends, changes in the way clients want to interact with contractors and the evolution of construction processes and marketing standards.

“The world and the industry are going to be different in 10 years,” Jones said. “For succession planning to be a success, it has to be forward-looking and consider what the business looks like in the future and how we will operate in the future.”

The power of continuous learning

Furthermore, succession plans can’t exclusively focus on C-suite positions. After weathering some staff challenges brought on by retirements, Cole Roofing expanded its succession planning to cover a broader range of positions.

“We are dealing with succession at all levels of the company – estimators, project managers, controller, lead mechanic, field supervision,” said Jim Layman, Vice President of Construction. “The more specialized the skill set you are trying to replace, the earlier the planning and the search for a successor needs to start.”

Cole’s human resources department helps determine that schedule by conducting yearly engagement conversations with all employees. For some of those employees, they take the opportunity to identify and discuss their likely retirement dates. Increasingly, Cole’s succession plans involve training up-and-coming staff to eventually advance into those positions. 

For higher-level positions, such as controller or vice president, “you want the person who is going to take over to have a decent amount of time with the person currently in that role,” Layman said.

Although he is at least 10 years away from retirement, Layman has already identified his second in command and started activities that will help that person learn the vice president’s job. Those include creating a “playbook” for the job that describes duties, responsibilities, reporting requirements and key business analytics. The process also includes giving the would-be successor added responsibilities, including them in some executive activities and holding one-on-one meetings every other week.

In addition to training skilled successors, the process of promoting from within gives Cole an advantage within a highly competitive labor market, Layman said.

“When people see there is personal job growth potential within the company, that makes you a more attractive employer,” he said. “Even having conversations with the people you have identified as the second in command in different departments will give them assurance that they haven’t hit a ceiling.”

At Oak Contracting, that process of continuous learning and helping employees advance their careers has been key to the company’s succession planning, said President Doug Eder. As he prepared to become president years ago, Eder embarked on a process of learning the less-familiar operations of the company.

“I asked questions of everybody: the accounting staff, project managers, marketing people, owners, architects, competitors, my partners. I became a real pest to some employees but they shared their expertise and intuition with me,” he said.

Supporting that open communication and continuous learning throughout the staff has helped Oak develop and retain great talent, easily identify key successors and avoid one hazard of succession, namely an abrupt change in operations or culture post-succession that can damage a company, Eder said.

“If your company is going to continue to succeed, you don’t want to bring in strangers to run your company,” he said. “Jonathan and his partners have been with Oak for 15 years or more. They know what Oak is, how we do things, what our philosophies are. That continuity of Oakies running this place will be good for this company.”