Early in his career, Jeff Braid recalls he was once told, “If you’re going to buy flooring, you want to buy it from someone you know.” In 1979, Braid had moved with his young family from Winnipeg to Saskatoon, and in 1986 he established a small flooring company with a couple partners. He took that advice about flooring and combined it with his strong interpersonal skills, and soon forged connections in the city’s open and accepting philanthropic community.

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Twenty-five years later, Braid Flooring and Window Fashions Ltd. had become a leading local supplier for commercial, residential, and retail customers. Its reputation has made the family name into something of a bona fide brand in the prosperous Saskatchewan city. Braid, however, began looking to ease himself out of the day-to-day operations in 2009 so one of his three sons could take the helm in the next few years.

In 2003, Braid and Brent Banda, a Saskatoon marketing and branding consultant, began developing a plan to transform the company so it would be less strongly linked in the public’s mind with Jeff Braid himself. The process has involved everything from management changes to a complete overhaul of the company’s marketing materials, website, and trademarks. “Now the name Braid is out there,” he says. “We’ve built on that. But it wasn’t ‘Jeff Braid.’ ”

Moving beyond the founder

Brand equity, as Jeff Braid learned through years of hard work, can be an invaluable corporate asset, with the potential to become the basis of a much larger enterprise. Indeed, when Ray Kroc, a multimixer salesman, found Dick and Mac McDonald’s modest but popular California drive-in in 1954, he leveraged their quick-serve business model, the image of their mascot and eventually the iconic arched M to build a vast corporate empire founded on powerful and instantly recognized brand elements.

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But while a strong brand may become a license to print money, it also needs to be protected and bolstered, especially during transition periods. So, for entrepreneurs like Braid, the business of orchestrating an orderly succession means figuring out how to fortify the brand so it survives. For many businesses, the founder is the brand: he or she has developed the original product or service, enjoys long-standing customer and supplier relationships, and has imposed their persona on every aspect of the way the firm functions.

The importance of that brand varies depending on the sector, of course. Graeme Deans, a transition expert at Ernst & Young, observes that in commodity businesses, potential suitors are far more interested in customer lists than brand equity. But in service-oriented companies, or firms that make a distinctive product line, brand equity can be critical to the continued success of the business.

In companies where the founder is a dominant presence, brand can be surprisingly vulnerable. Long-standing customers or suppliers may not automatically transfer loyalty to a buyer or next generation owners. Senior managers may flee at rumours of a sale, inflicting a body blow to the company’s reputation. “When we start digging in [during a succession process],” observes Banda, “we realize how fragile these relationships really are.”

Getting some distance

From years of experience dealing with entrepreneurs, Venture Communications Ltd. CEO Arlene Dickinson, a familiar figure on CBC’s Dragons’ Den and a veteran marketing consultant, says many business owners have never taken the time “to ensure that what’s in their head—the brand promise and the company’s DNA—is well articulated.” They’re doers, she adds. “They never stop and say, ‘Wait a minute: if I get hit by a bus tomorrow then what happens?’ ”

Succession experts urge owner-operators to begin the process of distancing themselves from the company at least a couple of years prior to selling or passing it on to their children. “Sometimes that can take three to five years,” says Deans, “and sometimes it just doesn’t happen.” Nor does the process end with a formal transfer; in many cases, the owner stays on after the transition under an earn-out agreement so they can help pass the torch smoothly.

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For the Braid clan, Jeff realized his 30-year-old middle son, Christian, had the networking skills to step into a leadership role, as well as a commerce degree and work experience outside the family business. When Christian expressed interest as a potential successor and joined the firm, Jeff realized he had to step back from meetings with senior staff and customers. “If you’re in the way and correcting someone in front of other people, they’ll never take them seriously.” He even relinquished his office: “That was a big deal. I had to give it up and I don’t have an office now.” But Jeff’s okay with the shift.

Building a brand promise

Dickinson says companies should use the succession period to firmly embed the owner’s brand in the company’s systems, training procedures, sales and marketing efforts, and relationships. In essence, the exercise is about finding a way to clearly articulate a corporate culture. “Branding is about defining those aspects of the business that must remain true in order for it to carry on regardless of who is at the helm.” And, she warns, “It can be really hard to do.”

She suggests owner-operator firms begin by articulating the so-called “brand promise,” which is not a business plan so much as a statement of purpose coupled to a crisp description of the firm’s culture and reputation in the market. While the owner needs to drive the process, Dickinson says an outside advisor can help firms come up with the final vision. “You need somebody who can ask those tough questions.”

For example, “we challenge business owners to define what makes their offering truly unique from others in the market, and whether that point of difference actually matters to their customers,” says Dickinson.

The process for developing a clear brand purpose begins with getting buy-in from senior management. It also entails getting input from major customers and suppliers, employees, and other stakeholders on the company’s value proposition. If a firm is looking for a buyer, Dickinson says it makes sense to give the potential purchaser a sense of the company’s culture—how it appears in policies, practices, and offerings. The feedback may not all be positive, but she says the process isn’t about reengineering the firm so much as articulating its values. And, she stresses, the exercise shouldn’t be delegated. “It should be owned by the top.”

The result—a single-page document known as the “brand foundation”—should lay out in easily understood language your core purpose and what makes the firm different from its competitors, says Scott Chapman, managing partner with Instinct Brand Equity Coaches in Toronto. He cites the example of Volvo and its positioning statement, “for life.” The brand position, Chapman says, is safety and the mandate to develop and build vehicles known for their safety animates everything the company does.

For owner-operated companies, the brand foundation should reflect the founder’s approach to running his or her business. Chapman advises his clients to train and educate employees to ensure they understand the brand promise and how it applies to their own jobs. “Brands are built from the inside out.”

Valuation of Brand Equity

As branding becomes an increasingly significant driver of long-term growth, many companies, especially those looking for suitors, are looking for reliable ways to quantify their brand equity. “Let’s face it: you don’t know the value of your brand until you sell it,” observes David Kincaid, president and CEO of LEVEL5, a strategic brand advisory.

  1. Secure intellectual property.

    Ask the company’s lawyers to ensure that the firm’s logos, slogans, trademarks, and patents have been secured.

  2. Analyze the market.

    Regardless of the brand’s intrinsic value, sell in a rising market or after the firm has inked a series of solid contracts or deals, says Graeme Deans, a partner and consultant with Ernst & Young’s Transaction Advisory Services group. “It’s always best to sell from a position of strength.”

  3. Assign a dollar value

    Jim Muccilli, a partner in the Business Valuation and Litigation Support

    group with Soberman LLP, a full-service public accounting firm, says there are several models for establishing the value of the brand, but most come down to how the brand affects cash flow.

    4. One common formula is to calculate the price difference between a branded good and a generic

    equivalent, and use that premium as a way of determining how much extra cash the brand generates for the company.

    For service or social media companies, the valuation process becomes more difficult because the company’s products are not tangible. In these cases, Muccilli says some other valuators might focus on calculating the additional cost to the company of building the brand. Although such methods tend to overvalue the firm, he warns.

    LEVEL5 partner Brand Finance relies on using a “royalty relief” formula. According to Kincaid, LEVEL5 benchmarks “soft” assets associated with customer research and brand strategy, estimating three key market drivers: intent to purchase, relevance, and loyalty. Next, LEVEL5’s valuation process calculates the return on a firm’s hard assets. All these metrics are fed into a formula that estimates expected royalty earnings if it licensed its brand to a third party.

    The valuation process can provide a glimpse of what may not be working when it comes to the crucial drivers of brand value. “If you’re failing in one of those areas, you know what you need to do to pull up your socks,” says Kincaid. “At the end of the day,” adds Muccilli, “for a brand to have value, a branded product or service must generate or have the potential to generate more cash flow than a non-branded product or service.”

Visit capitalmagazine.ca/how-tools for Brand Finance’s tool on how to quantify your company’s brand

Beware destabilization

Despite all the careful preparation, a protracted transition can destabilize the company, especially if the owner isn’t forthright about what’s happening. Becky Reuber, a professor of entrepreneurship at the Rotman School of Management at the University of Toronto, warns rumours can inflict tremendous damage to a small firm’s brand, especially if they prompt valuable managers to start buffing up their LinkedIn profiles. “For most companies, customers are the cash flow andyou don’t want to worry them.”

She cites one company’s approach for ensuring top managers hang around, used by The Ornamental Group, a Waterloo-based architectural mouldings firm. A decade ago, the company had almost 300 employees and a network of factories in Canada, the U.S., China, and Vietnam. But Bob and Paul Riedlinger, who earned their way into the company founded by their grandfather, were looking for new opportunities and decided to sell.

During the run-up period, Paul says, the Riedlingers bolstered their supply relationships with two major customers: Lowe’s and The Home Depot. They also got the company valued for internal purposes and then offered the senior managers a deal: if they stuck around, they would receive a share of the difference between the independent pre-sale valuation and the final purchase price. The offer worked like a charm, because it created a financial incentive for the four-member management team to not only stay, but also to add value to the firm as it sought suitors.

Competition can also cause destabilization. Take Saskatoon Funeral Home, a third-generation business owned and operated by the W.A. Edwards family. The company built by Edwards’ grandfather in 1910 and currently run by Bill Edwards, his brother David, and his sister Brenda Nissen, was in a period of flux during the early ’80s. Large multinational conglomerates began to consolidate the industry by buying up private family run businesses, eventually leaving them as the only locally owned funeral business in the market.

“It was during this time,” says Bill Edwards, “that we were also in transition mode because my father, Arnold, was nearing retirement and becoming less active in the business. I made a strategic decision to aggressively reintroduce the Edwards name as a more integral part of the brand with its obvious ‘local ownership’ differentiation. The entrenchment of this brand identity has proven very successful not only in meeting the challenge of our multinational competitors but also a number of new upstart local players.”

Transition focus

In the case of transition scenarios like Jeff Braid’s, where the business is being handed down to the next generation, brand advisors look for opportunities to sharpen the distinction between founder and the family reputation. “We put that family identity under a microscope and ask how it can be a source of value,” says Banda.

Visit capitalmagazine.ca/plus to learn how some of Canada’s best brands articulate their value.

In some cases, the family name may be synonymous with community involvement, so efforts to delineate the brand will highlight the elements that underpin the reputation. Banda cites the case of Saskatoon Funeral Home, which is well known for its philanthropic

support for community projects. As Edwards set the stage for an orderly transition to the next generation, says Banda, “That [reputation] became an important feature in its brand identity.”

“To us, Saskatoon Funeral Home is identified with betterment of our community and its people, on an economic, spiritual, and social level and involves personal volunteerism by ownership, management, and staff; financial and in-kind contributions to local projects; promotion of civic pride; and whenever possible, supporting local business,” says Edwards.

At the same time, the transition entails de-emphasizing the owner in the company’s marketing efforts, sales calls, and advertising. “Customers, suppliers, and even employees, tend to place a great deal of credibility on the ‘face’ of the company,” says Banda. To ensure a smooth transition, they have to dial down their own profile. “It’s very difficult for many of these people to step back from the spotlight.”(Learn how, see “Out of the Spotlight” below.)

Back at Braid Flooring, Jeff Braid, still president, now plays the role of the elder statesman, and has watched Christian pick up where he left off, taking on positions with the local chamber of commerce and networking with a new generation of potential customers who also want to buy their flooring from someone they know.

Indeed, eight years after he started the process of disengaging, Jeff is satisfied the family brand and the company’s reputation are fully intact, even if he’s only watching from the wings as a not-quite-ready-to-retire entrepreneur. “The work we did with branding was a huge part of this because it allowed me to slide into the background as quickly or as slowly as I wanted to.”

Out of the Spotlight

Brent Banda, president of Banda Marketing Group, suggests five considerations to address when preparing a branding strategy during a succession:

  1. Pick a new spokesperson, either the incoming owner or chief executive, or, as an alternative, a small group of senior managers with authority to represent the firm.
  2. Transfer key relationships with major customers, suppliers, and other stakeholders. “Many times a founder will serve on the board of an industry association or the local business association. The company’s new leadership must take over this responsibility and continue to build relationships in these organizations to ensure the company maintains its profile.”
  3. Keep the message consistent.
  4. Develop new approaches to promoting the business to direct attention to the company’s strengths rather than an owner’s departure.
  5. Ensure the outgoing owner transitions to a new type of role, such as mentoring younger managers and overseeing an advisory board.

John Lorinc is freelance journalist based in Toronto.

Photographed by Rob Waymen