Levinson (1978) and Kets de Vries & Miller (1984) suggest the theory of plateauing in connection with life stage development. The term connotes four conditions: First, the entrepreneur has reduced either the amount of time devoted to the business or the intensity of it. Second, the entrepreneur has increased either the amount of time or the vigor of efforts to non-business pursuits. Third, the entrepreneur shows little desire to improve business or managerial skills. Fourth, the entrepreneur accepts business performance that is significantly below the firm's potential.
Three business conditions are typical indications that the entrepreneur has plateaued: same products/same customers; same key employees; and too much cash. It was apparent that all these conditions prevailed at the A. C. Gilbert Company.
The same products/same customers condition suggests an atrophied marketing philosophy. The real danger lies in providing only the same product or service to the same customers, since few industries are so stable that requirements do not emerge over a decade. The same product and customer mix. may indicate that the firm is not recognizing the changes that are occurring in the marketplace. By the time the country was receptive to inexpensive, plastic toys, The A. C. Gilbert Company was firmly entrenched in expensive, elaborate, last-for-ever, metal toys.
When entrepreneurs first start out, they hire people who are approximately the same age and who grow with the company. Because of a sense of loyalty, the entrepreneur chooses not to cull or improve this cadre. The "same key employees" condition is not conducive to corporate rejuvenation. New products and business practices are not proposed; the company may have difficulty recruiting younger managers; more resourceful employees seek opportunities elsewhere. Inbreeding limits the firm's current performance, and inhibits the management succession that will determine the future of the business. Evidence of this is readily seen in the "Gilbert Spotlight" section of The Gilbert News, the bimonthly company newsletter which, among other things, cherished and touted employee longevity. A typical example appeared in the May-June, 1950 newsletter honoring Edward Anketell, 76-years old, who retired from the company after 35-years of service.
Entrepreneurs whose businesses generate too much cash often focus on creating ways to pay as little in taxes or interest as possible. A. C. was quoted in his book as saying, "But a business should grow and develop from its own resources. I hate like the devil to borrow money, even when I can pay it back soon. If there is a sensible way of avoiding it, I want to. It costs money, too, and reduces profits." In 1938, when American Flyer became part of the A. C. Gilbert Company, no cash or stock changed hands, even though its owner, W. O. Coleman, was asking $600,000 for the assets; Coleman had to settle for royalties on future sales. This was a wonderful business decision for A. c.; however, his stubbornness could have resulted in not getting American Flyer, which at one later point proved to be the salvation of The A. C. Gilbert Company. A. c.'s frugality was also evident in remuneration. Everyone was underpaid except the shop floor people. When left in charge of the company, while A. C. was recuperating from an illness, his brother paid out a stock dividend and was fired for his decision. In effect, these firms slowly transform themselves from operating businesses into passive investment companies.
Founder-level plateauing usually occurs with little evidence of any disaffection with the business. What is especially distressing about founder-level plateauing is that the founder is often unsuspecting of the cause of the problem. The founder works just as hard as he did in the old days, but he seems to have less to show for it in terms both of financial rewards and of personal satisfaction. The inability to show results for the hours expended breeds a sense of impotence and disappointment. Eventually, the founder chooses merely to extend the life of the business rather than make fundamental changes. What is often indisputable, however, is that the business has not changed much from its early years.
Successor-level plateauing is usually marked by comments that "Junior is nowhere near the kind of businessman that his father was." Many heirs are coerced toward the family firm as the result of years of being told how lucky they are to have the opportunity. Thus, the heir may begin a career in a business in which she or he has little intrinsic interest. The inclination for successor owner-managers to plateau and the form that the plateauing can take are affected by their degree of psychological ownership of the firm. To the extent that the successor has not made important and successful changes in the business, the successor is managing what is effectively still his father's business. Not only will the successor be reluctant to undertake necessary changes, but even if the business is operating successfully, the successor subconsciously knows that the success is due to his predecessor's deeds. Unless the family firm can meet the successor's need for personal and skilled growth, plateauing behavior is likely to result (Malone & Jenster, 1992).
The descriptions of the plateaued founder, A. c., and the plateaued successor, Al, are clear, and were corroborated through people who were personally intimate with the family and the business.