Many family businesses get tied up in knots with succession. They are either unfair about it, so that one favoured child gets the business; or too fair, with everyone getting it, setting the business up for the failure that comes from no one being in charge and no one really valuing it.
The problem stems from the idea that the business exists for the family, and that the children are entitled to it -- they just have to wait, and it’s theirs.
A business in Melbourne that’s celebrating its 100th anniversary this year, Warner’s Nurseries, has a simple and effective way around this: each generation buys the business off the previous one.
It’s not a unique strategy, of course, but it is surprisingly uncommon. Making the succession event a cash transaction is really the only way for the business to provide the retiring generation with superannuation while ensuring that all children are treated fairly, including the ones who want to do something else with their lives.
Also, the ones who take the business on get a clean start and value what they’ve got because they paid for it, usually taking on debt to do it.
Often parents don’t want their kids to start out with a debt, but perhaps they should think about it as a kind of family business HECS debt.
Thirty-two-year-old William Richard (WR) Warner emigrated from England to Australia in 1914 -- which was a pretty big year in Europe -- and six weeks later he was in business as a florist in Hawthorn.
He saw out the war there and then moved to Camberwell and started growing trees and shrubs as well as selling flowers, and gradually expanded to a paddock the size of five or six house blocks.
WR had four boys -- Jack, Geoff, Bob and Arthur -- who came into the business one at a time, plus one girl. In the 1930s WR Warner became Mayor of Camberwell twice and was largely responsible for the suburb being the leafy place it is today.
Eventually the four boys bought the business from him. Between them and their sister they had 17 children, but the rule was that only one from each family could go into the business. They were Max, Ross, Barry and Lewis and each of them had to buy a quarter of the business from his father, which happened over 20 years between 1951 and 1971.
In 1983 Barry sold out to his brothers so Warner’s became a three-way partnership and then Max’s two sons, Michael and John, bought him out, so they effectively have one-sixth each. Michael is managing director of the business and John is head of production.
Ross, 70 next month, is chairman of the board and his two children, Darren and Kelly, are in charge of dispatch and administration, respectively. Lewis, 60 and a director, also still owns his third and his two sons, Bill and Damien, work in the business as well.
So 100 years on, Warner’s Nurseries remains a true family business. Six great-grandchildren of the founder work in the business and the formal third-generation succession has begun with Michael and John buying their father’s stake. Darren and Kelly, and Bill and Damien, still have that in front of them.
As for the fourth generation… well, everyone except Bill and Damien has two kids, and they’re all too young to be in the business yet.
Maybe the Warners became a model of organised succession because of the business they are in: propagating plants from cuttings.
These days Warner’s is entirely wholesale, turning over about $5.4 million this year, and serving independent retail nurseries and landscape gardeners from a 15-hectare site in Narre Warren North on the outskirts of Melbourne. All of their stock is grown above ground in pots and all of it comes from cuttings of previous stock.
It’s a simple business with a deceptively simple succession philosophy that simply works.