How to succeed in succession

The men in my family were builders and shared a business, just like Michael Renwick's family. If things had been different I may have been a competitor and had my own succession dramas.

Michael Renwick and I were born a year apart to fathers running family businesses in home building, and the reason I’m writing about him today instead of competing with him in Melbourne’s south eastern suburbs is that his dad’s business went broke about a decade later than my dad's did.

By the time I was old enough to do an apprenticeship, my father’s business was no more and I went into journalism instead; when Kevin Renwick hit the wall in the 1970s, his son Michael was already in the business and his fate was sealed – he was a builder. 

Another difference between us is that I was third generation and Michael is second: my dad and two uncles had already taken over their father’s building firm and changed the name to Kohler Bros; Michael’s succession drama in the firm KG Renwick was ahead of him.

And what a drama it was – unlike what happened with the Kohler family firm. My dad Ern, and his two brothers simply took over the business when my grandfather retired through ill health in his mid-50s (he passed away soon after); Michael and his brother Chris had to buy their father out, acrimoniously, and Kevin then used the money to set up another business. (Kohler Bros went bust in the recession of 1962, when I was 10 years old, and my dad had to get a job, so there was no business for me and my cousins to inherit).

Michael Renwick came to my attention through a press release he sent out last week headed: “Top tips for succession planning from a franchise perspective”, which I thought might make an interesting story for our family business series.

Little did I know the lessons he was passing on were burned into his soul through bitter experience.

KG Renwick began in Deniliquin in 1953 - the same year Michael was born – and operated successfully in that town for 20 years, building everything from houses to shops and offices. Kevin Renwick was a hard working and ambitious builder, but he grew a bit too fast and around 1973, the business hit the wall and was actually bought by his auditor 18 months before being put into receivership.

The receivership released Kevin and Michael from working for their auditor so they, and Kevin’s other son Chris, set up in business again and a few years later moved to Melbourne to build housing commission homes. They had bought a shelf company which happened to be named Hotondo, and thus Hotondo Homes was born – Australia’s largest home building franchise operation, with a rather weird name. 

Michael moved to Bentleigh, just up the road from where my parents lived (I had long moved out) and Kevin moved to Essendon, on the other side of Melbourne. The separation was a sign of things to come. 

Anyway, the business did well and in 1993, Kevin had the brainwave of moving into franchising.

Michael says: “It was crap to begin with. I’ve never met anybody who has started a franchise business and who hasn’t stuffed it up entirely to begin with, and then fixed it up – or not.”

It sounds a bit like Kevin Renwick’s early franchise model was more a buying co-operative than a true franchise.

Nevertheless, the business ended up going well, with both Michael and Chris working for Kevin in the family firm, building homes themselves and helping other builders with their materials.

But things got messy in the family. As Michael tells it, Kevin would often say he was going to retire and leave the business to his sons, but it never happened.

There was even a Kirribilli Agreement, like the one between Paul Keating and Bob Hawke 10 years earlier. Kevin and Bob both reneged.

Like Paul Keating, Michael Renwick grew increasingly frustrated. Family discussions turned into shouting matches. Michael says they went through seven different mediators, and finally one of the mediators negotiated a price for Michael and Chris to buy out Kevin and their mum. It was $1.5 million.

Here’s where I sit and reflect on this event. The key moment in any family business succession is the patriarch’s retirement (it’s usually the patriarch).

Somehow the retirement years have to be funded. If money doesn’t change hands, then the father has to hang around as major shareholder receiving dividends until the children inherit his shareholding when he and his wife die. Alternatively the children borrow to buy him out and send him off with cash. If he doesn’t spend it all, they’ll inherit what’s left.

In many families I talk to the first situation works well because they all get on and the children value the father’s input in the business. That wasn’t the case with the Renwicks: as with Keating and Hawke, the older man’s failure to live up to their Kirribilli Agreement meant that relations broke down. There are two sides to every story, of course, and Kevin’s, like Bob’s, is different to Michael’s and Paul’s. Today’s story is about scion. 

Actually I think a buyout can often be a good way to go, even if everyone gets on well: borrowing against future earnings and handing over cash, rather than paying out dividends for years to a retired parent who still controls the business, gives the next generation a clean break and full control.

As it happens, Kevin Renwick was a fit and healthy workaholic when Michael and Chris bought him out and he used the money to set up a new business across town rather than become a grey nomad. He’s still running that business at 81 (the same age as my ageless new boss, Rupert Murdoch).

Hotondo Homes, under Michael’s leadership, hasn’t built a house itself for four years – it’s purely a franchise operation now, with 90 franchisees using the Hotondo name around Australia.

It took him a while to get on top of the business: “We had 170 members and we were going broke. Now we have 90 and we’re making good money.” The joining fee is $75,000 to $100,000 and there’s an annual fixed fee of $13,000 plus a 1.5 per cent royalty and 1.5 per cent marketing fee.

It’s a good business, with happy franchisee builders all dealing with their own succession issues in their own ways, and Michael Renwick is now a comfortable 59-year-old still living in Bentleigh – the second generation running the family firm, with the troubles of the past now just lessons to be passed on to others.

And me? Well, I’m not a builder – I’m writing about Michael instead.

By the way, here are Michael’s “Top tips for succession planning from a franchise perspective”, and remember his story as you read them:

1.    Ensure you are ready to step aside from the business – remembering this can be years in some cases.

2.    Be fully committed to a successful handover.

3.    Speak to other franchise owners who have been through the process – head office should be able to help provide this detail.

4.    Identify the person you would be willing to work with to take over the business; remembering this is a business transaction.

5.    Speak to head office in great detail with the person identified, as the incoming franchisee will need to be approved by the franchisor.

6.    Seek sound accountancy and legal advice before embarking on the succession journey.

7.    Put together a detailed timeline of what is required of both parties during the process of the franchise changing hands. Both parties must be in full agreement on all of the terms laid out.

8.    Ensure involvement in the business until well after the changeover of ownership has occurred to ensure the incoming franchisee has a full grasp of the franchise system.

9.    Remain available as a mentor to the new franchisee so you can see the business you successfully owned continue to flourish. 

10.    Look for the next challenge.

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