“Succession planner 2nd Generation focuses on its own ranks”

Nashville Business Journal, by Janel Watson, February 10, 2006

2nd Generation Capital, a Nashville-based merchant banking firm named for its focus on succession planning, is using its expertise to ensure its own survival after its partners retire.

Mike Collins, CEO and managing member of 2nd Generation, says a year ago, while reminding the firm's members of the mandatory retirement age, he realized "there wasn't a single partner in the group that could finish out the next 10 years."

"We made the conscious decision that we wanted 2nd Generation to be a true business enterprise and continue on after us," he says. "I gave everybody 18 months to find their own replacement."

The last of the replacements were added Feb. 1, when 2nd Generation merged with Brentwood-based Phoenix Partners, employing its founder Dana Holmes and partner Paula Joyner.

Denise Yennie, Celeste Wilson and Jim Farris also joined 2nd Generation during the past six months. Collins says which members the successors will replace has yet to be announced.

Laura Campbell, president and CEO of business growth advisory firm Laura Campbell & Associates, says addressing the issue of succession long before it happens might just be what helps 2nd Generation survive.

"It seems that type of approach would improve or increase the client retention rate when the changes with that business are occurring," she says.

She says succession planning has become an issue for investment firms both locally and nationally and the reason behind the trend is simply demographics.

According to data from the 2000 U.S. Census, the oldest baby boomers - those born just after the end of World War II - were the fastest growing population in the 1990s. And according to the Bureau of Labor Statistics, 45- to 55-year-olds make up 24 percent of the work force.

2nd Generation exceeds the statistics. Collins says all of the partners were in their mid-50s before the replacements were brought on, with his oldest member only two years away from retirement.

Campbell says 2nd Generation's approach to succession is "wise" but only feasible for firms whose structure fits with gradual turnover.

"(Venture capitalists) usually pool their money into 10-year limited partnerships. So that would mean if a firm is raising money right now for a fund that they would need to be actively involved. It would be a long-term commitment," she says.

And because some firms will exit the market along with their baby-boomer owners, Campbell says there's likely to be a follow-up trend of firm formations in the coming years.