Bruce Werner talks about helping private and family-owned businesses owners achieve their objectives.
CCBJ: For starters, what led you to start Kona Advisors?
Bruce Werner: I spent the first part of my career in our third-generation, 80-year-old family business, Werner Ladder Company. We had a good run. But our markets changed in the late 1990s and we decided to sell it. We made the right decision, at the right time, for the right reasons. When I left the business, I took some time off, did some entrepreneurial things and, one day, I got a call from a corporate attorney friend of mine. He said, “I’ve got a client with a problem and I don’t know what to tell him. I’m a little bit embarrassed. I need to do something to help him. Would you have lunch with the guy?” And I said, “Sure.”
I listened to his problem and said, “Well, that’s not very hard. I can solve that for you.” And he hired me. I printed up some business cards, set up a website, and became a consultant. It took off from there. I look for interesting problems to solve, while working with people worth spending time with. Almost all of my business comes from warm referrals. Almost all of it is through attorneys, primarily corporate attorneys and to a larger extent estate attorneys. Some referrals also come from bankers and accountants. But most of my work comes through the legal profession.
Why don’t we backtrack a little bit and talk about your family business and how your role in the company contributed to your consulting expertise.
I’ve been out of the business for 20 to 25 years and I’ve seen hundreds and hundreds of other companies. And what I’ve come to realize is I was fortunate to have a great family business. It was the perfect training ground to learn how businesses run. The example I always give is when people think about what makes a business great, they think about its functional silos. “They have a great sales guy” or “a great marketing person” or “a strong CFO.” I had a lot of assignments that required me to work across functional areas, and I determined that a business is like a house. It has bricks and mortar and everyone looks at the bricks, which are the functional areas—sales, marketing, engineering, HR, finance—but it’s really the mortar that holds everything together. And if you don’t understand how the mortar works, things fall apart.
So, to get really big things done in business, you have to be able to connect the dots. We were an engineering-intensive company and I’d sit in a board meeting and we’d have a conversation about the properties of certain plastics that we used to engineer parts. And the cost of the plastic. And the product liability issues of a plastic part versus a metal part. You had to be able to stitch all that together to know what was going on. So, when I say it’s really all connected, it was that experience which gave me that lens, that point of view.
Now when I look at business situations, I look at what’s being presented by the client, “I have a sales problem, I have a capital problem.” But I also look at what’s around it and how it all gets stitched together because if you really want to move the needle for the client, you’ve got to look at the whole situation. If you don’t ask the right questions, you can’t get the right answers. Clients usually start with a narrowly defined problem. The nature of the things I work on impact the entire enterprise, not just one area. My most common question is “how do we double the size of your business?” So, if we push in one area, like a little bubble of mercury, you need to anticipate and address the implications of that push for other parts of the business, because if you don’t you’re not going to achieve the true objective.
Having a highly effective board is important. But dovetailing with that is a directors’ understanding that their role is governing, not running, the company.
There’s a couple of pieces here. Let’s break it down. First, let’s distinguish governance of a family-owned business from governance of businesses generally. If it’s a family-owned business, you need a family governance system that’s separate and apart from the business governance. Without that, the business side doesn’t get clear direction; family issues complicate the business issues and the two need to be decoupled. Family governance is a whole area of work in itself, so let’s leave that one aside for the moment. On the business governance side, the key rule for board members is “noses in, fingers out, sensors on” which means, you ought to be sticking your nose in to ask insightful questions to reveal issues, but you don’t put your hands in to fix the problem. “Sensors on” means you should be looking for areas of trouble before the trouble starts.
As a director, you’re not part of the executive team, even if you got there because you were a successful executive who could run a P&L. There’s a necessary transition from being a great CEO to being a great director. It’s a different skill set, a different persona. And if you’re used to driving a P&L it feels very unnatural to do the analysis, arrive at an answer—and then purposely sit on your hands and do nothing. I do a lot of work educating boards and staffing boards. Picking people who can make that shift is important. There’s a whole art and science to how to recruit directors. But it can’t be ignored because for a board to be effective, it needs to be staffed right.
Good boards are good by design. It’s not, “I’m going to pick my three best friends.” It’s, “What do we want this board to achieve? What are the skills and experiences required to do that?” Each seat should have a designated purpose. We need a marketing person, an M&A person, a tech person; that’s the typical nomenclature. Then it’s the responsibility of ownership to say, “Here’s what I want you to work on.” Good boards work on issues that are three to five years out. If you’ve got a crisis, of course you’re in crisis mode. But otherwise, the board should be anticipating what’s coming and plan accordingly.
Oversight, strategy, capital structure, management succession and risk management are the five things boards do. The management succession piece is particularly important as it takes a few years to groom successors, not just for the CEO, but also their direct reports, which requires thinking one or two layers down because as you move people up, you create a vacuum. And we all know that nature abhors a vacuum. So boards are in large part about the future.
What is your advice for owners or organizations considering forming their first board?
I do a lot of work with people forming their first board. Often times it starts with owners just being a little bit stumped about some issues and their friends say, “Hey, you ought to go form a board” and they decide they need one, but don’t really know what it is. While that’s a normal way of getting started, it’s not the most effective way. I often explain about designing a board, and setting ownership directives, or “What’s ownership concerned about?”
For private companies, the owner and the CEO are often the same person. But those are two different hats. So which hat are you wearing when you make a decision? Let’s use your owner hat. The business is an asset. You own this asset to achieve certain goals in life. Yes, you need to pay the bills and put the kids through college. But bigger than that, what’s your ownership strategy? This is something I talk about in my new book. What do you want to achieve in your life because of your business? Consider also that you can always make more money but you can’t make more time. When you’re younger or the business is newer and you’re struggling to survive, that’s not a relevant question. But I see owners, usually in their early 50s and maybe they’ve been in business for 20 years—who, having achieved some measure of success—start asking life’s bigger questions.
They still have decades ahead of them, but it’s more than just paying the bills. So I go back to, “Well, what do you want this business to do for you?” And the four key components of ownership strategy are how do you want to spend your time, achieving financial security, defining your legacy (because one day you’re going to sell or leave the business) and taking care of the people who made you successful.
Companies ordinarily start to think about a board when they’re in the 25 to 30 million dollar revenue range. They’re growing and so they can see the problems ahead, but they have a fairly small management team without the necessary depth, and they need more help than can be provided by another 60-hour-a week employee.
Boards are well suited to provide that advice and experience. If you want to have a really effective board, you begin by connecting the dots. You have to start with, “What do we want to achieve? Where’s the business? Where are the owners in their life cycle? What are the key issues? How do we design and staff the board accordingly? How do you run the board to stay on point for solving those issues?” If the owners don’t really know what they want, then you have to start there before moving forward. Because to just get a bunch of smart people in a room without clear direction isn’t a good use of time.
Tell us about your book!
The name of the book is Your Ownership Journey. You can find it at www.brucewerner.com. (Not very surprising there.) When I started consulting 20-plus years ago, a friend said, “If you’re a consultant you have to write a book. That’s what consultants do.” And I thought about it and said, “Well, it seems like a lot of work and I don’t have anything to say so I’m not going to do it.” Of course my friend was right. Fifteen years go by, I accrued more experience and started to have things I wanted to say, so I started writing columns to find my voice. I write a column for forbes.com and another, targeting the legal profession, for financial poise.com.
I’ve been doing that for five or six years. The more you write, the more things come into focus. I started to form opinions and theories about the ownership journey and things having to do with owning private and family businesses. One day I said, “You’ve written 40 or 50 columns, what do you have?” I took all these columns, spread them out on the table, shuffled them around, found I had the arc of a story and said to myself, “Well maybe I have a book in me after all.” And so the book came to be, with the help of a great publisher and editor who specializes in working with consultants.
The book focuses on the issues a private company owner faces over the life cycle of ownership. It starts out talking about ownership strategy and how that leads into developing a business strategy. Once you know what you want as an owner, you then need a business strategy to help you achieve your ownership strategy. And once you have a business strategy, you need capital and talent to drive the business strategy. There’s normally some M&A involved. There’s certainly conflict management, and there’s questions of governance for your business, hence the board work. A lot of private company owners never buy or sell a business until they sell their own business. So they actually don’t know how the game is played. So we talk about M&A.
There’s a chapter on family business. And towards the end of the book, I talk about how, as you move through the life cycle, you think about the fact that eventually you’ll die or retire, and that you get to choose one but not the other. So as people start to think about the latter part of their career, it comes back to what do I want to do? How do I want to live? What should I do with the business?
The last chapter is about life after selling a business or passing it to someone through succession planning. I have seen too many people with great business careers who walk away with a ton of money but then they’re unhappy because their whole identity was wrapped up in the business. They don’t have a lot of hobbies and may struggle to get out of bed in the morning. That’s no way to spend the last decade or so of your life. So I talk about getting ready for the last chapter of life, because that takes a couple of years to prepare for. It’s about spending your last years with “no regrets” and how you plan ahead for that. The book walks through all of that, with lots of real-world examples. (The names, of course, have been changed to protect the innocent and the guilty.) I’ve gotten some nice feedback from readers, so that’s appreciated.
Published January 12, 2023.
