Third-annual forum addresses challenges in critical business issueEditor’s note: This story is drawn from a Nov. 6 Business Journal conference that focused on how La Tortilla Factory planned for and accomplished an internal transfer in leadership using external resources. The conference included La Tortilla Factory’s Chairman Carlos Tamayo (keynote speaker);  Jim Andersen, partner at Andersen & Company CPAs; Bill Schrader, president of Exchange Bank; Jeff Menashe, CEO of the Demeter Group; and Dan Cohn, partner at Farella Braun & Martel, as moderator.

NORTH BAY – It took five years and a lot of work and soul searching, but La Tortilla Factory of Santa Rosa has a plan in place to keep the 31-year-old “dream” in the family.“Our parents had sacrificed so much to get us in the business, and I wanted to keep it for them, to honor our parents,” said Carlos Tamayo, currently the company chairman.

Though today it has 175 employees and $30 million in sales, La Tortilla Factory “began as a dream” – the vision of his parents.

It was succession planning by the Tamayo family and company executives that is giving that dream the best hope of staying alive.

Mr. Tamayo was the keynote speaker for the third-annual business succession forum hosted by the Business Journal, along with Andersen & Company, an accounting firm in Santa Rosa.

La Tortilla Factory and its recent successful succession efforts took center stage as a group of experts talked about the importance of having a good plan as well as the struggles that are inherent in the process.

Mr. Tamayo opened the event with his succession plan story and a history of the company.

Open since 1977, the mom and pop company grew to become a leader in its industry.

“We have always been a company that promotes learning and knowledge as part of our culture,” said Mr. Tamayo. “Our strategic culture is being a learning organization.”

Steps were made along the way to ultimately help out in the succession process. In 1987, the family hired a business psychologist to come in and help the team to listen and manage their feelings, to assist them in learning to negotiate and compromise and to work together but have space.

When they thought of selling the business an important step for the Tamayo family was to determine what everybody wanted for the family legacy, which is how they ended up deciding to keep it in the family.

The family members developed a buy-sell agreement in 2003, completed their strategic plan two years later and in 2006, hired an executive coach.

This last step proved to be an important factor in the process, allowing for more open communication between family members.

A major obstacle that can add to the difficulty of creating a family succession plan is emotions.

Mr. Tamayo spoke about how some of the issues that have to be considered – strengths and weaknesses of family members – are not always what you want to think about.

“It is emotional, too, for the person stepping down,” said Mr. Tamayo. “Because as an entrepreneur, he is the guy who does everything. You are directing and telling people what to do.”

This year, Mr. Tamayo stepped out of the CEO role to remain as chairman. A non-family member was named to the top post to prepare to pass the company to the next generation of the Tamayo family.

The panel discussing the issue included Jeff Menashe, chief executive officer of the investment banking firm the Demeter Group in San Francisco; Bill Schrader, president of Exchange Bank in Santa Rosa; Jim Andersen, founding partner of Andersen & Company; and moderator Daniel Cohn, a partner with law firm Farella Braun & Martel in San Francisco.

Mr. Cohn, a 20-year veteran of the firm, asked questions of the panelists in a roundtable fashion, bringing their ideas together to give a broad understanding of succession planning to attendees.

The succession plan needs to be thoughtfully staged over a period of time, said Mr. Schrader.

“You can’t expect a person to go from putting in 110 percent to zero,” he said.

He added that apart from the business acumen, balance sheet and technical side, there are the interpersonal skills at the core of the franchise value.

There are key relationships to consider, Mr. Schrader went on. And there are operating costs associated with them.

“A business leader may get certain terms from a supplier because of a long relationship. They may not feel the same way about junior when he takes over,” he said.

Mr. Andersen stressed that whether the framework for the succession plan is to turn the company over to family or key employees, several things must be done.

Surrounding the successors with qualified advisers, people who have been in the company for a long time and understand the issues related to the business, is key.

“The old guard needs to make sure they have adequate people on board,” Mr. Andersen said.

And questions must be asked of the family. Are the children truly qualified, do they understand and have the skill set to run the business?

“What you have to do to level the emotional issues is you need upfront communication. You have to tie in your whole family and estate planning so everyone understands their role,” he said.

And he added, if there are going to be arguments, “it is good to have them up front and not after the parents die. That is when it all can end up in litigation.”

Mr. Menashe looks at the whole process from the perspective of an adviser who helps businesses when they want to sell.

“Now is not a good time to sell, and the story is more than the credit crisis. It is about a shrinking wallet and declining consumer confidence,” he said. “Companies are being valued at 30 percent less than they were six months ago.”

He said this is a time when people should be doing a much deeper level of strategic planning, which is typically not done in a small family-owned business.

But whether it is the time to sell or not, whether a business is just thinking about succession or is almost finished with the process, the overwhelming recommendation is for strong, honest communication.

“It’s been almost six months, and it feels really good,” Mr. Tamayo said. “I can tell you that I am very proud of the team we have put together. It doesn’t hurt as much as I thought it would.”