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Passing the torch: prudent succession planning enabled The Limtiaco Consulting Group's next generation to take over gracefully and efficiently.

When Hawaii Business stopped by the Piikoi Office of civil/environmental engineering firm The Limtiaco Consulting Group (TLCG) in early August, John Katahira, one of four principals, revealed that the company was seeking new office space, as its lease is up in December. As he spoke, the distinctive sound of clinking golf balls could be heard from behind the glass block walls of the conference room. "Don't mind the putting. That kind of stuff goes on all the time around here," said Katahira. "In fact, that's something, we keep in mind when we're looking at new spaces. That ability to create a fun working office space is really important to us."

When you consider the average age of The Limtiaco Consulting Group's 10 employees--34-years-old--it's no wonder. The 7-year-old company is certainly not your father's engineering firm. Nor does it try to be. For example, on its Web site, alongside the multitude of noteworthy projects it's worked on, the company dedicates a page to an employee being recognized as baseball coach of the year, complete with photos of his Gatorade bath.

"This company isn't for everyone. We're known as being a really loose bunch of people, we try and make everything that we do fun and that's different from most engineering companies," says 34-year-old Katahira. But its youthful, unconventional approach shouldn't be confused with ineptitude. Since 1997, Limtiaco Consulting has amassed a growing client base of public agencies and private-sector firms, that has entrusted TLCG with some of its largest, priciest projects. "I find their energy to be engaging," says Nelson Lee, executive vice president of Haseko (Ewa) Inc., a longtime client of TLCG. "But also technically, I'm very confident in them, because they're highly competent."

That's true, admit Katahira and Cliff Lum, majority owners of TLCG. However, they are quick to point out there wouldn't be a Limtiaco Consulting Group today were it not for the foresight of the company's namesake and founder, Felix B. Limtiaco.

The trio crossed paths after working, at overlapping intervals throughout the late '80s and early '90s, for the engineering firm Barrett Consulting Group. Limtiaco, a former director of the Honolulu Wastewater Management Department, who earned his engineering degree from Stanford University, formed the Limtiaco Consulting Group in 1997 and soon after, Lum and Katahira became his first employees.

Business picked up quickly for TLCG, partly due to Limtiaco's steadfast marketing and his reputation as an innovative engineer. In just two years, the company doubled in size, outgrowing the 300-something-square-foot space it subleased from The Limtiaco Co., Limtiaco's wife, Ruth's, public Relations firm. Acknowledging the company's mounting success, Limtiaco gave Lum and Katahira equity in the company in 1999 (10 percent each), and began a search For a new office.

Back them Limtiaco was less concerned about finding a space with room for chipping golf balls than he was about chipping out a suitable succession plan, which he managed to do by the end of 1999. He had no way, of knowing then what a timely decision it was.

In October 2001, just two years after TLCG created its succession plan, Limtiaco died suddenly, at age 47, following complications from surgery to remove a cancerous liver tumor. His sudden death left the company grieving and triggered an overnight change in the leadership structure--a change that, for many small businesses, would have signaled a curtain call. In this case, however, Limtiaco's prudent planning set the stage for a fluid transition, enabling the next generation of owners to take over gracefully and efficiently.

FOR WHAT IT'S WORTH

Because Limtiaco was an owner in Barrett Consulting, he had some experience with succession planning, and he understood the importance of preparing for unpredictable circumstances that could have a crippling, if not devastating, effect on a small business. So, in 1999, the three principals of TLCG signed a buy-sell agreement, which is essentially a business partners' version of a prenuptial agreement. It triggers reactions to a variety of events, including the disability, retirement or death of a shareholder.

"Often times in a small business, the efforts come from one person or a few people, so even though you may have a really valuable business, if you don't make plans, that value can disappear at the time of your death or retirement," explains attorney Douglas Smith, of Damon Key Leong Kupchak Hastert. "In a big company, upon your death, you just sell your shares and there isn't a big impact. But in a small business, your shares are often times not marketable. So a buy-sell agreement makes a market for your shares by identifying a buyer and then making a plan so the buyer has money to purchase your shares." Which is exactly what happened at TLCG.

Under the buy-sell agreement, the company purchased term life insurance policies against each of the principals, and the company was designated as the beneficiary. The agreement stated that upon the death of a principal, the life insurance monies were to be used to buy back all the principal's shares of the company, thus deterring outside ownership. It also predetermined the value tit which shares were to be sold. "The key thing is that it allowed us, as owners, the opportunity to buy back the shares, and it afforded us the capital to grow the company," says Katahira. "Without it, it might have been a lot more difficult."

For that reason, Katahira says a buy-sell agreement is something no small business should be without. But, he adds, it's not the only reason. "Even in the best scenario, when nobody dies or becomes disabled, we just get old and start cashing out. Where does that leave the company, and everyone who isn't in the ownership picture?" says Katahira. "The company still needs to protect its cash from being drained when shareholders retire."

No doubt, a good buy-sell agreement is worth its weight in gold. If implemented early enough, it prevents unnecessary disputes resulting from emotionally charged decisions, and saves precious time for all involved.

GETTING BACK IN THE RING

With the financials squared away and funeral services behind them, Katahira and Lum began the next phase of their succession plan--client retention. As the founder, majority owner and marketer of TLCG, Limtiaco was the primary contact for the majority of its clients. "He left a huge void, because he was the visionary of the company," says Katahira. "With him no longer in the picture, things were pretty unstable. So we put a lot of energy into making it stable."

In the period immediately following Limtiaco's death, which coincided with 9/11 and the subsequent economic recession, revenues dropped substantially. In 2002, TLCG had $695,000 in gross annual sales, compared with $1.1 million the year prior. "Revenues decreased because a lot of our attention went from doing billable project work to making sure our clients didn't think about switching consulting firms," says Katahira. "So the week after Felix passed away, we scheduled meetings with all of our clients. First, we sat them down and explained what happened to Felix, because he was a good friend to all of our clients. After that, we tackled the business side. We wanted clients to know that although Felix was our main marketer, the man who made things happen for us, we could still deliver on the technical and engineering side."

Clients responded favorably to their sensitive, yet authoritative approach. "I remember John and Cliff contacting the company, and I was very impressed at how smoothly things went during the transition period," says Lee Mansfield, manager of Hawaii American Water. "The work they did for us wasn't impacted in any way, and they continued to provide the service we needed." Their forthright strategy even won over the most skeptical clients, such as Haseko's Lee, a longtime friend of Limtiaco's, who admits he initially stayed on mainly out of personal loyalty.

"We were one of Felix's earliest clients, and he was a good friend to me. After his parting, Cliff and the guys began to develop a working relationship with me," says Lee. "I'll be the first to admit, not everything went smoothly, but as we got to know each other, they provided a good level of confidence that they were capable of carrying on, and we developed our own relationship. 1 realized they're a young bunch of guys, certainly with a lot of energy to service the client as best they could, and I appreciate that."

Lee and Mansfield weren't the only the believers. After making the rounds with the company's dozen or so clients, Lum and Katahira didn't lose a single one. In fact, they've since increased their clientele to include several new private firms, the City, and County of Honolulu's Department of Transportation and the state Department of Hawaiian Homelands. Revenues followed suit. This year, TLCG is on track to bring in $1.5 million in gross sales--more than double its 2002 total.

FINDING A NEW VISION

Take all the effort they put into client retention and multiply it by 100. That's how hard they worked on retaining their employees. Since its inception, the company has had zero turnover (not including the office administrator, who left for a job at a major accounting firm, only to return three months later). It's something the company, which resembles a large family more than it does a hotbed of young engineers, proudly hangs its hat on. So following the loss of their father figure, the new owners moved quickly to comfort the close-knit group and reassure them business would go on.

"We knew that we needed to have everyone to board to make this company work. That meant we couldn't lose one or two engineers. It would've just added stress to our situation," says Katahira. For starters, the company held "strategic planning sessions" on a weekly basis. Lum and Katahira listened intently to employee concerns and were quick to address them. "We moved fast. Because if we dragged our feet and were slow to respond, people would've been more hesitant about our future," says Katahira.

Among the biggest concerns was growing the company. Limtiaco had run the company with the intent of growing it into a mid-size operation, with 30 to 40 employees. But weekly planning sessions revealed a common desire among employees to remain a smaller, more intimate firm. As a result, Lum and Katahira adopted a "team approach" to running the business. It deviated a tad from Limtiaco's style, but they knew they had to find their own style and vision. "Cliff and I certainly didn't want to try to step up and become Felix, or fill his shoes. It would've been hard for either of us to carry the load of the company," says Katahira. "Instead, we wanted to include everyone, and work off of everyone's strengths. And that kind of reformed the company, and made it even closer."

Their all-inclusive approach permeates every aspect of the business. Engineers, who at other companies typically remain indoors drafting plans, are encouraged to get face time and establish relationships with clients. Everyone, including admin, is invited to pursue ownership if they want it. (This year, the company made equity partners of two employees: Ian Arakaki, 30, and Jason Lau, 34.) And that's not forget the company's hunt for new digs. Recently, when it narrowed down its choices to two office spaces, all 10 employees were invited to walk-throughs of each place.

"We all went down and checked everything out together, then we came back to the office and got everyone's feedback," explains Katahira. Although they haven't made a final decision, there is a clear favorite.

One space is highly convenient, with easy access to the freeway in both directions, while the other, although not as well situated, offers something much more attractive to the engineering firm's young principals: 23-foot-high ceilings. "You know what that means," says Katahira. "... Basketball!"

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Author:Youn, Jacy L.
Publication:Hawaii Business
Geographic Code:1U9HI
Date:Oct 1, 2004
Words:2217
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