Next in Line: Grooming a Successor
Amanda Hair and Bob Steele, sequential owners of Bob Steele Salon in Atlanta.
In her early 20s, Amanda Hair was managing a Bebe clothing story, when a stylist from the nearby Bob Steele Salon ducked in for some items to use in a photoshoot. Admiring Hair’s look, the stylist asked if she’d ever consider modeling for the salon. Thinking it would be fun, Hair agreed, later modeling for a future shoot and meeting Steele and his team. Attracted to the salon’s energy, Hair became a client as well as a model.
Soon after, Hair went on vacation with her future husband, and the two had a long discussion about their future. At the time, Hair was on track to become the next district manager for the store—a future she’d glimpsed while training and realized its frenetic pace and extremely long hours were not conducive to starting a family. Making a personal decision, she returned from vacation and gave Bebe a long notice, with enough time to train a replacement.
Coming on Board
Like many clients do, Hair shared her decision with her stylist, who in turn told Steele, who was looking for a floor manager. Steele invited her to interview.
Taking a cut in pay but improving her lifestyle, Hair accepted the position as the salon’s personnel manager in 2001. She immediately began studying the salon’s operations and looking for areas she could implement some of the systems she’d learned from retail. “Amanda was very mature for her age and had great management skills—she was good with people and they liked and respected her,” Steele remembers.
A team shot from Bob Steele Salons in Atlanta.
At the time, Steele was in his 50s, and was part of Vistage International, a business networking organization that helps CEOs and executives grow their businesses. One of the other members was a consultant who helped CEOS and business owners plan exit strategies.
Steele knew selling a salon can be tricky. “Your greatest asset is your people, and they can leave the salon at any time,” he says. “Clients often have more loyalty to the stylist than they do to the salon. Selling a salon or the transition from one owner to another can be disastrous if the current employees don’t stay with the new owner.”
Nevertheless, he began to plan an exit strategy, knowing that far too many owners wait until they’re burned out, and then it can be too late. Knowing he wanted to keep Hair engaged as a manager of the salon, Steele started envisioning a strategy that involved her buying him out slowly and gradually.
Another issue with selling a salon is finding someone with the money or collateral to pay for it. “Banks do not look favorably on the salon industry because of the failure rate and lack of marketable assets to use as collateral,” Steele says. “Therefore, they don’t want to loan money to anyone without a lot of personal collateral, and most young people, like Amanda, have not had time to build up their net worth. This meant that I would have to be the banker until she retired the debt she owed me.”
The Deal is in the Details
The two began working with a consultant, who asked what they both would want out of the deal. Hair also went through a thorough interview and testing process to determine if she was a good candidate for the ownership role. The consultant also helped them determine the value of the salon business.
In 2004, Steele and Hair signed the first deal, which involved him selling her 49 percent of the salon over the next five years. Steele says, “The money for purchasing the 49 percent of the salon included a few components—direct pay from Hair for the appraiser’s lowest legal amount; salary reduction with the reduced amount going to Steele for part of the money; and a part of the profit—Hair had the option to pay any or all of her share of the profits to reduce the debt.
“It was definitely an exciting time for me,” Hair says. “But I was a little naïve in thinking it would be an easy transition. I had to come up with a down payment, then take a salary deduction to make the monthly payments.”
Steele too had to learn to step back and start letting Hair lead. “The team would come to me with a question, and I started pointing them in Amanda’s direction, telling them to get her opinion.”
Their transition was complicated by the fact that right after Steele and Hair signed the papers, they began to expand their salon operations. They merged with another local salon in the area, but learned after assuming that salon that the culture was quite different, making for a rockier transition. Simultaneously, they were working on opening a new third location. They also opened a salon support office, which housed a call center for all three locations, and moved their own offices there. “It was a lot to change at once, and we paid for it—it was tough for a while,” Hair says.
In June 2008, Steele suffered a stroke. “One of the first things the neuropsychologist asked me was what I did for a living. When I told him I owned a hair salon, he said, ‘You must be pretty worried about it right now.’ But honestly that was the first time I’d even thought about it. The doctor told me that was very unusual. He’d never had an owner not be worried about their business in that situation.”
Steele decided to speed up the second stage of the sale, and in June of 2009, he sold Hair the remaining shares of the company over the next five years. Similar to the first phase, Steele now received a direct payment and consultant fee for the transition period and he officially retired.
With her systems in place, Hair streamlined her operations and cut costs to weather the tough economy, and has continued to grow the salon by recently adding a fourth new talent location called The Verge. Hair and Steele continue to own the corporate office together, and they still meet regularly, often over lunch.
Looking back, Hair recommends that others in her position look at the company as its own entity and make decisions that are best for the company, removing your own emotional connection. And, find a partner who has core common values. “Bob and I are extremely different people, but our core values are aligned—I don’t think our succession plan would have worked if we hadn’t,” she says.
For her own succession, Hair has her eye on her 10-year-old daughter. “Although it’s early yet, I hope that one day, she’ll be ready to jump into the role,” Hair says.