Family Business Succession: Four Years Later

4 Apr

It has been almost  four years since Tim, my father, decided to let me, and my husband, take over running his company, Palo Alto Software. We had been working with my father for seven years when he decided we were ready to take over the business. He talked to me one day, and the next day, without much planning, or transition strategies, or anything, he told me and then he announced the change to the whole company. It’s amazing to me that we are reaching the four-year anniversary of that day. So, where is Palo Alto Software today?

  1. We have grown from 34 employees to 43 with four open requisitions.
  2. We have released three  new products.
  3. We have grown our Web traffic 30% per year for four years.
  4. We have survived the worst economic challenge since the Great Depression – without laying off any employees.
  5. We have positioned Palo Alto Software to be able to compete in today’s software world, releasing two Software as a Service (SaaS) offerings since 2007.
  6. We grew 6% last year, and should show double-digit growth this year.
  7. We hired some fantastic team players, including a great addition to our management team.

That gives you an idea of where Palo Alto Software is today. But of course what everybody really wants to know, is whether Tim actually let me and Noah (my husband and COO) run the company.  Does he actually let us make the decisions? What happens when he doesn’t agree to the decisions? What does he do now? The simple answer to the question is yes, Tim actually did back off, and stay true to his word. He truly does let us run the company.  What does that actually mean?

  1. We have all the fiscal  responsibility.  We create the forecasts and budgets, and we manage the finances in order to optimize cash flow and use the profits from some product lines to fund the creation of new product lines. We are responsible for making our numbers and for meeting payroll. Tim simply gets reports from us weekly, and monthly.
  2. We manage everyone in the company. Tim has no reports anymore. He does not manage any employees.
  3. We make product and technology decisions.
  4. We make all hiring and firing decisions.
  5. Tim still works, as our Chief Blogger, and resident business-planning expert. He is still involved in what we do and gets to focus on what he likes best – writing and educating people.

The last four years have been quite a ride. We have focused on positioning Palo Alto Software for growth, making sure that we continue to develop solutions and tools for entrepreneurs using the best technologies. We have had an opportunity to hire some incredible talent to help us get to the next level. We have struggled and survived the terrible economic downturn. It has been tough, and stressful, and all-encompassing. But is has also been exciting, and rewarding, and amazing.

And meanwhile, while growing Palo Alto Software, we have continued to also grow our family. In April of 2007 we had two boys, ages eight months  and almost three. Today we have three boys, ages six, four, and one.  We have faced the challenges of running a company and parenting three beautiful, but rambunctious, boys. My husband has had to be my partner, 50-50 in both the business and at home. Our third son was the only one of our children to be born after we started running Palo Alto Software, and let me tell you, having a baby while running a growing technology company is not an easy thing.  But throughout everything, if we had had to deal with my father in an adverse way, or if he had not truly let us take control, the situation would have exploded. I think this is a potential problem many family businesses face when they try to implement a succession strategy. Running a business is stressful enough – no one needs the added stress of not really being in control, or fighting about every decision made and every dollar spent. Tim could have been one of those fathers. But, thank goodness, he has had the wisdom to make a choice and stick with it. And to trust and respect the family members he chose to take his business to the next level.

That doesn’t mean that there is never any controversy between us. There are times when he thinks I am making the wrong decision. The best example of the friction that we can have came in November of 2008, almost 18 months into my reign as CEO. The economy was in a downward spiral. Consumers were not even in a panic, but instead in a state of paralysis. Our sales suffered in retail big box stores, who had little to no foot traffic coming in, and our sales suffered online with consumers not buying anything. My father (and mother for that matter- she owns the business with my father) were very nervous about our sales and wanted me to start laying people off. They had gone through a recession when the Internet bubble burst in early 2000 and had to lay off six people on the same day. They felt that in 2000 (I was not part of the company then)  they did not react fast enough and the business suffered because of it. I felt very adamant that it was not time to lay anyone off, and that there were things that we could do to manage the business through the recession without having to lay off people and lose resources we needed to keep the business running well. With Noah, I worked on a new business plan with a reduced forecast and reduced expenses (we focused on cutting costs to operations and infrastructure, not marketing and sales). I made a deal with my parents that if we made our numbers very month, they would let me implement my plan, and not look at laying people off. I talked to the whole company, and got everyone on board with the numbers we had to make. I let everyone know that we were in “do or die” mode. Our employees stepped up, and everyone worked hard to meet our goals. I am happy to say that every month we not only made our numbers, but managed to start beating them by wider and wider margins as the months passed by.

I feel like this experience helped me win even more leeway from my parents as Noah and I continued to run their company. They adamantly disagreed with my approach, but stood by their word to let me run the company. When the situation panned out the way I said it would, they were able to breathe easier, and feel like putting us in control was truly the right decision. And come on, let’s be honest, it was also fun to be able to tell my mom and dad:

“I told you so!”

Four years later, I have learned a few key lessons from the succession strategy (or lack thereof) that we employed at Palo Alto Software. I think succession worked really well for us because:

  1. We ripped the band-aid off quickly. Tim was swift and decisive in transferring the power of running the business.
  2. Having Tim involved in a strategic way, but without any fiscal or people responsibility, has worked great. He continues to add value, be involved in his company, but with a clear role that lets me run the business.
  3. There will still be some stress and some controversy as long as the first generation is still involved with the business. As long as the responsibilities are clear, and the process to deal with disagreements is clear, the family relationships can persevere,  and the business can thrive and grow under the next generation.
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3 Responses to “Family Business Succession: Four Years Later”

  1. Tim Berry April 4, 2011 at 1:26 pm #

    Not to belabor the obvious, but I should add 1.) Sabrina’s telling is very much the way I see it; and 2.) I’m proud of her and Noah and the company as it is now. I think I made a very good decision in 2007.

    The secret sauce may have been the natural safe harbor I found in my blogging, social media, speaking, and teaching. I would hate to retire. I love entrepreneurship and business planning. I don’t want to fish or stay golf. So you can find me blogging regularly and on twitter every day, judging business plan contests, speaking, teaching, and writing books. And not running Palo Alto Software.

  2. Kris Vockler April 4, 2011 at 1:45 pm #

    Sabrina, I’ve been reading your blog for a while and I’ve never commented but I kinda feel it’s time. Today’s post is awesome. I am sitting at the front end of what will be my “4 Years After” post, maybe 5 years from now. Congratulations on first, taking over the company, and second, staying strong through what was our depression. I’d like to be more active on your blog, we have similar issues. While I’m about to go through the transition with my folks, I’m also blogging and writing a book on family business. The things we’ve done to make it a success. If you ever are interested on contributing by writing a guest post or two, it would be an honor and I know my readers would find great value in your experience.

    All the best and to another 4 years of your wildest dreams happening!

    Kris

Trackbacks/Pingbacks

  1. Family Business Succession 4 Years Later: The Rest of the Story - April 5, 2011

    […] in Business Management,Family Business,Work Life Balance TweetThere I was minding my own business, watching my twitter flow, contemplating my next blog post, when what should appear in my twitter but … well you can see it here to the right, in the Tweetdeck version: mommyceo there is Sabrina Parsons, my second of five grown-up children, who has been running Palo Alto Software for the last four years. So of course I clicked the link to see what she wrote. We do talk a lot, of course, and we’re still in the same company, but I’ve been traveling, and I wasn’t aware of this one. She called her post Family Business Succession: 4 years later. […]

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