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On Thursday, April 26, 2012, Michael S. Blake joined Family Business Radio co-host Meredith Moore to discuss the benefits of performing a business valuation on family owned businesses. As director of valuation services for Habif, Arogeti & Wynne, LLP, Michael has 15 years of experience helping business buyers and sellers through proper valuation. Michael also is co-founder of StartupLounge, a non-profit, grassroots organization that serves the startup ecosystem in Atlanta and Georgia.
Why Pursue a Business Valuation?
Not only does the value of a business affect estate planning, buy outs and succession planning, but in a thorough valuation process, the owner will also learn how to add value to the business. Most homeowners don’t hesitate to seek an appraisal before selling a home. If businesses are worth so much more, why hesitate to get a formal valuation before placing them on the market?
In the case of a home sale, the market is easy to see. When a business is put up for sale, the market is less apparent. A business valuation (or appraisal) makes the market visible to the owner. In addition, a good appraiser is a teacher, helping the business owner understand what makes the business valuable in addition to what the actual value is. Armed with this knowledge, the owner can work to increase the company’s value, whether or not the owner foresees an imminent sale.
What Determines Value?
Michael explained that many business owners believe that value is based on EBITDA: earnings before interest, taxes, depreciation and amortization. Actually, for many businesses, profitability is secondary as a value driver. For example, in the professional services industry, revenue is seen by buyers as more important than profitability (thought it is still important). The buyer will acquire the client accounts but apply those accounts into its own cost structure, with the goal of making those accounts profitable after being acquired. In that case, if the appraiser focused only on profits instead of growth, the concluded value of the business would be misleading.
Michael proposed a theoretical case where a large firm, Cisco, purchased a firm with $1 million in annual revenue and $100,000 in annual profit for $50 million. Cisco has a value multiplier around 20, so an investment of $1 today could yield $6 in the future. They can afford to pay more for a company because their cost of capital is much cheaper than it is for the startup.
In a case like this, Michael says that some business owners will accept the offer gladly, while others will think a large company should be able to pay even more than first offered. Michael described two potential outcomes without a proper business valuation. First, the owner may sell the company too cheaply, leaving money on the table. Second, the owner could try to over-negotiate and lose a good deal because there was no independent, fact-based assessment of what the company was worth or what was driving value.
Three Approaches to Business Valuation
Michael highlighted the basics of three approaches to valuation, though he noted that each is comprised of many specialized techniques.
First is the income approach, in which value is a function of the potential of the business to generate cash in the future.
Second is the market approach, in which relative value is established. This is similar to looking at comparables when placing a home on the market, but the process is difficult and time-consuming for a business. The appraiser finds similar companies, considers implied pricing multiples and draws inferences based on comparables.
The third approach is the asset approach, generally used for very early stage companies or holding companies. This approach assumes that the value of the business entity is equal to the sum of its parts.
Appraising Family-Owned Businesses
When performing a valuation for a family-owned business, the same approaches are used, but the valuation techniques may be applied differently. For example, when the owners of a family business pay family members more than they would make for performing similar jobs in the open market, the appraiser cannot assume that a buyer would continue to employ all family members or to pay them the inflated rate. Taking those family members off of the payroll or reducing their salaries will probably increase profits and make the business more attractive to buyers. However, family members will lose jobs and/or income. In this case, if the owner’s priority is to provide secure income and employment for the family members, the business may be worth more to the owner than to an objective third party buyer.
Michael says this type of situation is a common issue for family-owned businesses. While it’s a difficult job to tell family members (or owners) they are overpaid, he says that it’s better for an owner to hear the news from an appraiser when adjustments can still be made prior to a sale than to hear it from a buyer. Appraisers will provide data, including salaries paid for similar jobs in similar companies, to help business owners make informed decisions.
Standards of Value
As in the case of the family business that is worth more to its owner than a buyer, the value of any business depends on perspective. According to the industry code of ethics, an appraiser should talk with a business owner at the beginning of the appraisal process about the appropriate perspective – or standard of value – and fact patterns involved in the valuation.
One standard is the fair market value, which Michael calls a 1959 artifact from the IRS. Typically used for reporting obligations, the fair market value includes discounts for lack of marketability (a recognition that it’s hard to sell an interest in a closely-held business) and for lack of control when business decisions are made by shareholders. These discounts may lead to a valuation of 5 percent to 35 percent from the undiscounted (calculated) value, depending on state specific laws and how the firm’s corporate governance is organized.
Sellers are generally more interested in market value or investment value. Market value is assigned from the investment banker’s perspective and is based on the highest price a rational person might pay in the best circumstances. Market value allows the appraiser to consider synergistic value of the firm; however, it does not consider “crazy value,” which is a random amount a rich investor might pay on a whim or error in judgment. (Michael notes that many observers have commented that the recent Instagram purchase might have demonstrated a “crazy value”, while his blog post argues that the Dodgers purchase could credibly be considered a fair value price.)
Investment value represents the value of the business to a particular buyer, usually the owner. This is often the value figured in a family business that is the owner’s primary source of income, and the value is generally higher for the owner than for someone else who might buy it. For example, with a sole practitioner, when the owner is removed, the business no longer has value.
Fair value is more often associated with the buyer’s side of the transaction. Fair value reflects the price that ought to be paid assuming either the buyer or the seller is free to follow through on the transaction or walk away. Further, fair value presumes that each party to the transaction has equal opportunity to understand all of the relevant facts about the business. The definition of fair value varies by state. Fair value can be difficult to assess because the fair value standard is based on conditions that rarely occur in the field. However, the fair value standard is often used as a starting point for buyers (who may then chose to pay greater than fair value for strategic purposes), and it’s also used for legal reasons. For example, in a divorce case, shareholder dispute or shareholder exit, fair value is often used. The fair value standard ignores any synergies in the business, and usually ignores the fair market value discounts discussed. When applied in a dispute-related context, the standard fair value is designed to benefit the hypothetical seller.
Why is Business Valuation Important to Estate Planning?
Because the IRS says it is, according to Michael. Family business owners are allowed to transfer interest in their estates at fair market value, which is often the standard which produces the lowest conclusion of value because of the allowed discounts. Proper valuation is important from both the entry and exit perspectives. At entry, transfers up to $5 million are exempted from taxes (the exemption will drop to $1 million in 2013).
Business value is also important when an event or distribution causes an owner to exit the business. In the case of a nontaxable event, such as the death of a spouse, the IRS invokes a step up in basis. If the business goes from $0 when it was founded to $2 million in value and is being taxed at a 55 percent rate, the owners could save more than $1 million in taxes for the investment of a valuation process (usually between $10,000 and $20,000 at Michael’s firm).
In the event of an exit, if the transfer is not spouse to spouse, the IRS requires a valuation. If not provided, IRS agents will perform the valuation themselves, and the government appraisal is used for the final estate tax return. While Michael says that the IRS uses the same valuation methods as private appraisers and many IRS agents are themselves professional appraisers, it’s still generally in an owner’s best interest to have a private appraisal performed. The agents apply the same valuation principles, but their main goal is to protect the government from people taking advantage of the system. When questions arise about an appraisal, agents will generally ask intelligent questions and respond to reason, data and documentation.
Including Valuation in Buy-Sell Agreements
As a general rule, family-owned businesses should establish buy-sell agreements stating what will happen in the case of one owner’s exit. Often, buy-sell agreements will include a formula for determining the value of the company if a sale is forced and the agreement is implemented. Michael says that formulas used in these agreements are almost always incorrect in determining the value. If the formula undervalues the business, an owner may look for a trigger to force the sale of the business to him or herself. If the business appears overvalued by the formula, the shareholder may look for a trigger to compel his partner to buy him out. No matter how the sale comes about, the use of a formula almost always leads to litigation, according to Michael.
Instead of a formula, Michael recommends that buy-sell agreements identify and rank a list of appraisers, set the definition of value that will be used (ie, fair market or fair value), and set the conditions under which the appraisal will be conducted. Those conditions should include (1) having the appraiser follow a set of professional standards, such as the Uniform Standards of Professional Appraisal Practice (2) preparation of a comprehensive appraisal report, and (3) the appraiser’s agreement to recuse him or herself from doing business with either the buyer or seller for the next three years. The last condition minimizes the appraiser’s financial incentive to benefit one party or the other.
Some buy-sell agreements require the board of directors to set the business’ value once per year. Michael says the problem with those agreements is the threat of litigation if even one person disagrees.
Timeliness of Valuation
Technically, a new valuation should be performed every time there is a transfer or gift of shares. However, Michael says if a series transfers or gifts is made in a relatively short time, a valuation would stand for three to six months, unless there were an obvious material change in the business. For wealth management purposes, an annual valuation is appropriate for private businesses. The valuation will not only give the owner the dollar value of the company, but also explain how the company came to have that value and what can be done to increase the value in the future.
Selecting an Appraiser
Business appraisers face minimal regulation and no licensing requirements, so business owners should be careful as they’re seeking a professional appraisal. While there is some overlap with the abilities of CPAs, some appraisers are not CPAs and some CPAs are not qualified to perform appraisals. Michael encourages owners to look for the following in business appraisers:
Effect of Pension Protection Act (2006) on Valuations
Though the Pension Protection Act has many purposes, its effect on the business valuation industry relates to valuation for tax purposes. It establishes appraisers as a quasi-fiduciary position. If an appraiser causes a taxpayer to significantly underpay taxes, the appraiser faces penalties, ranging from fines to being barred from practicing before the IRS. Penalties may also be incurred if an appraiser causes a taxpayer to significantly overpay.
Michael Blake’s Three Tips for Family Business
Contact Our Guest:
Michael S. Blake
Director of Valuation Services
Habif, Arogeti & Wynne, LLP
Five Concourse Parkway
Suite 1000
Atlanta, GA 30328
Phone: 770.353.8373
Email: Michael.Blake@hawcpa.com
Website: www.unblakeable.com
Twitter: @unblakeable
Visit with Michael through StartupLounge. He hosts “office hours” at no charge from 4 p.m. to 7 p.m. on the fourth Thursday of each month at the Taco Mac at Ashley Crossing. StartupLounge is hosting a Startup Spring Fling on Friday, May 4, 2012. The event will take place from 4:30 p.m. to 10:30 p.m. in Avondale Estates. Guests will enjoy games, live music and a food truck park. A $10 ticket purchases two drinks and two food items. Entrepreneurs and investors will meet in a fun, laid-back environment.
What value would you place on your family owned business? While you may consider it priceless, there are many advantages to pursuing a formal valuation. Michael S. Blake, Director of Valuation Services at Habif, Arogeti & Wynne, LLP, works with families every day as they consider how the market views their businesses. He will visit Family Business Radio co-hosts Meredith Moore and Dwayne Samples at 1 p.m. on Thursday, April 26, 2012, to explain the valuation process and discuss how it can help your family owned enterprise.
About our guest:
Michael Blake
Michael’s background includes transactional roles in investment banking and venture capital. He has 15 years of valuation experience, and the bulk of his practice is involved with helping clients buy, sell or raise capital for closely held businesses. Michael also helps resolve business disputes, from helping manage shareholder buyouts, to serving as an expert witness in commercial litigation cases.
Michael earned his Bachelor’s degree, cum laude, in economics and French from Franklin & Marshall College and his Masters of Business Administration from Georgetown University. He is co-founder and president of StartupLounge.com, an online podcast and forum resource for entrepreneurs and private company investors. He has received many community accolades, including recognition as a nominee finalist for the 2009 Turknett Foundation Leadership Character Award and Nominee Finalist for the 2009 TechAmerica Spirit of Endeavor Award. He was named to the Atlanta Business Chronicle’s 2009 Up and Comers List for the top 40 executives under the age of 40. His personal blog, Unblakeable covers topics where sports and business overlap and his Twitter handle is @unblakeable.
Michael S. Blake
Director of Valuation Services
Habif, Arogeti & Wynne, LLP
Five Concourse Parkway
Suite 1000
Atlanta, GA 30328
Phone: 404.892.9651
Email: Michael.Blake@hawcpa.com
Website: www.hawpca.com
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On Thursday, March 22, 2012, family business consultant Stephanie Brun de Pontet joined Family Business Radio host Dwayne Samples to offer tips to next generation family members preparing to enter the family enterprise.
As a senior associate of The Family Business Consulting Group, Inc., Stephanie often helps family enterprises through important transitions, such as the on-boarding on new family member employees. She has experience working with sibling teams, establishing governing structures for growing enterprises, and developing training programs to educate next generation family members. The 20 advisors of The Family Business Consulting Group, a Chicago-based firm, help families in business unify their values and goals while guiding them in the development of structure around the different systems of ownership, management and family. They work with family businesses and families who have shared wealth in the U.S. and internationally.
Stephanie came to work with family businesses after spending time both in the corporate world and as an entrepreneur. She grew up as part of a family business—though her immediate family did not work in the business daily—and she married into a family business. She became passionate about the world of family enterprises and added a PhD in psychology to her business degree so she could work better with both the business structures and the family dynamics unique to family-held firms.
As Stephanie shared with Family Business Radio listeners, she based her comments on an article she co-wrote with colleague Carol J. Ryan. Published by The Family Business Advisor®, a Family Business Consulting Group, Inc.® Publication, the article is entitled “Should I call you DAD? And other perils of working for your family business….”
Stephanie says that entering the family’s business is a paradox, with the good things about working with family also leading to challenges and pitfalls. Like many of the questions that arise when a new family member arrives in the business, the issue of how to address other family members at work is “it depends,” according to Stephanie. The important thing, she says, is for the family to think through the issues, have conversations, and plan for the best ways to handle situations. There will be tradeoffs with any answer, but it’s helpful if all family members are “on the same page” from the outset.
Living under a microscope
New employees who are also related to the company founder will be more carefully scrutinized by coworkers than another new hire. Even with young family members who have summer jobs, other employees watch for special treatment and mistakes. Stephanie pointed out that all employees mess up sometimes, but with family members, other people remember those gaffes longer.
To handle living under the weight of coworker and family scrutiny, Stephanie says that employees have to set higher standards for themselves. It’s also important for the parents to set clear expectations. She says parents shouldn’t make working in the business too difficult, but give the newcomers an opportunity to succeed. If they mess up now, employees will remember a long time, and it will be more difficult for them to succeed in a leadership position later.
Another means of offsetting the hard scrutiny is to have the coming-of-age family member work two to five years in another company before joining the family business. Stephanie says this is one of the few recommendations her firm makes universally, and she says many family businesses actually require the young family members to prove themselves by earning a promotion at another business before joining the family enterprise.
The benefits of taking that first job outside the family business include the opportunity to make common, early career mistakes in a more forgiving environment and the establishment of the family member as a successful professional in the eyes of other employees. Perhaps most important, the family member who has proven himself outside the family business will be more confident. Mistakes may still occur within the family business, but they will be less likely for the more seasoned professional who is less self-conscious.
Water-cooler talk and the family member
Just as a family member’s actions are scrutinized carefully, so are the comments family members make. Stephanie has observed in many next generation family members, particularly those ages 25 and under, the concept of privacy and confidentiality has developed differently than in generations that didn’t grow up with the openness of social media. Yet family member employees are learning more than their counterparts as they are preparing to become owners of the business. They have to be careful about what information they reveal. Also, if they happen to make disparaging remarks about their supervisors, other employees or family members, those remarks carry more weight than similar comments made by non-family members. Going out to Friday happy hour with fellow employees carries a different burden than it does for non-family members.
Stephanie says the key here is to be deliberate. Think ahead about the situations that may arise—questions, remarks about the family and wealth, potential romantic relationships with employees—and consider how those will be handled. Stephanie says the family member needs to think “three steps ahead” about how anything he or she says will be received. She admits this is a lot for someone of any age to handle, but particularly for young family members.
She shared a story from one family business in which the family wanted to help a young member avoid some of the pitfalls of being a new employee with the family name. He went to work in a store outside of his community, under an assumed name. While he did avoid some of the scrutiny he might have encountered early on, the solution was not perfect. He still faced the same issues when he returned to work in the home office under his given name. He also faces the concern about revealing the deception later, when he assumes a leadership role in the company and his former coworkers realize what occurred.
Living up to the family legend
“Living up to expectations” can be hard for any of us, but when a second generation family member enters a business where employees and even the community have profound admiration for the business founder/parent of this person, it is a special burden. Next generation members often feel pressure to live up to those high standards, and may be compared to their parents by employees. In many cases, the adult children themselves also admire their parents and look forward to working with them and emulating them.
However, Stephanie says that founders, next generation members and other employees alike need to remember that the business is growing and changing. Second generation family members most likely need different skill sets than the founders to keep the company going. Rather than trying to be just like the founders, they need to apply their unique personalities and leadership qualities in a different way. Parents need to understand that different skills are needed as the company changes, and children need to understand that doing things in a new way is not disrespectful to their parents.
As an example, Stephanie explained that company founders are generally entrepreneurial. They’re outgoing by nature and have excellent sales capabilities, qualities that were needed in the early days of the business. She says the parents may be concerned that the next generation members are not as gregarious. However, she often points out to them that as the company has grown, it needs more structures and systems. A more introspective leader may be just the kind of person to build those systems and take the company to the next level.
Next generation family members also sometimes look at the progression their parents made in the company and wonder why their own rise to the top is taking longer. Again, Stephanie points to changes in the company itself. For example, she says that the company may have had only 40 employees when dad became a plant manager at 30. However, by the next generation, it may have 200 employees. Management is more complex and requires more development on the part of leadership before these management roles are assumed.
Stephanie points out that the legend of the company matriarch or patriarch can be a unifying factor for future generations. The sense of pride in the family gives future generations a psychological attachment to the company, and it can motivate them while also building a sense of commitment and stewardship. Having a “legendary” founder available as a resource is also a bonus for family members. The founder can help siblings learn to work together, for example, as they may be more willing to give up some of their autonomy in the service of the greater goals of building on the legacy of their forebears. While there are perils to working for the family business, many next generation members look forward to the opportunity to work side-by-side with older generations.
Relating to non-family member employees
Stephanie says that many founders build their businesses based on family values that employees share. From an early age, family members need to be taught how important the employees are to the business; working members should always speak positively of employees so younger family members learn to respect and appreciate them. When next generation family members come of age, they’re more likely to be humble, appreciative of employees and ready to pull their own weight as they enter the business.
Stephanie discussed two extreme cases of family members relating to employees. In the first, family members might try too hard to fit in with employees. Stephanie says this is probably a case of the family member being unsure of him- or herself and not quite ready to be part of the business. Yes, everybody is watching, but family members should still have the confidence to be themselves. This might be a situation where the family member should work outside the company first to gain confidence, feel they’ve earned a place in the company and become truly ready to work and collaborate.
At the other end of the spectrum are family members whose attitudes scream, “Do you know who I am?” These are people who are driven by entitlement, and Stephanie says this attitude is the single most toxic poison for a family business. Sometimes, the symptoms are more subtle. Stephanie gave the example of a young third generation family member who had recently had a child. The family had accommodated her by allowing her to set her own schedule, but she still was consistently late to work. Her non-family member supervisor had to watch her carefully and couldn’t rely on her to be there for the schedule she had set for herself. She then complained to her grandmother—the wife of the company founder—that she should be allowed to come in whenever it suited her best, as long as she got the work done. Her actions not only put her supervisor in a difficult situation, but also demonstrated that she doesn’t have a full understanding of her responsibility. While technically she could complete the work at odd hours, the family leaders want her to understand the responsibility that comes with her position in the family. Stephanie says that situations like this are part of a difficult journey, but provide life lessons that will serve the family member well in and outside of the business.
She also used the story to illustrate the importance of carefully choosing supervisors for family members. Ideally, she says, family members will be supervised by non-family members. If that’s not possible, they should not be supervised by siblings or parents (let parents be mentors, not bosses, she says). Non-family members who supervise family members should be trusted by the family and should be people with the courage to stand up to family members. Likewise, they should have the assurance that family leaders will support any difficult decisions or actions they may have to take in regards to the new family member.
Another issue in relating to other employees is understanding that people may assume family members have more information than their non-family member counterparts. Sometimes this will not be true, and other times, the family member may have information that can’t be shared. Stephanie recommends that family members think through situations that may arise and how to handle them, even practicing responses through role playing. For example, think about how family members might respond thoughtfully to comments that might be considered rude.
Realizing that other employees and even people in the community expect family members to have information about changes in the company, Stephanie says family leaders in the business should arm family members with information and appropriate responses shortly before news gets to employees or the public. They might do this through a phone call to family members the night before something happens, alerting them to the change that’s about to take place and telling them what to say if questions are asked. Knowing appropriate responses is particularly important in matters that could have legal ramifications, such as the firing of a key employee.
Managing family relationships inside the business
Once a new family member joins the business, expectations should be set about how and when to communicate with other family members. For example, if a family member employee is having a problem with his supervisor, should he go talk to Dad about it? And if he does, how does Dad handle it? Though the instinct may be to fix the problem right away, that action may cut the authority of the supervisor. Again, Stephanie says it’s important to think through such situations, set expectations, and act thoughtfully.
While family member employees will probably have some access and training their non-family member peers do not have, families may want to set policies to ensure access and training occur at appropriate times and frequencies. For example, will the family member go out to lunch with the patriarch every day and enjoy unlimited access? Or will they set up routine monthly or bi-monthly lunch dates, possibly also with key non-family member employees, for mentoring? Stephanie encourages families to think about balance and think about what other employees see and feel.
Stephanie says it’s also important to think about the relationships between family members who work in the business and those who have ownership but are not employees. Working members will naturally have more knowledge, and it’s important for them to communicate well with those who aren’t working so they understand what’s happening. As a possible solution, Stephanie gave the example of a company where the working family members are forming the habit of writing regular mini-summaries of what’s happening in the business for the benefit of non-working family members. These are similar to reports the company sends lenders and investors. While the working family members need to get in the habit of communicating regularly, the non-working owners must take the responsibility of reading the summaries and learning about the business, according to Stephanie.
Compensation for working and non-working owners
Stephanie says that roles of ownership and management are often blurred, especially in the second generation. However, family members should understand the difference in compensation for work and ownership. Family members who work in the business should earn a market-rate salary for performing their jobs and also get the dividends that other owners receive. All family members should have a clear understanding of the difference. Stephanie says that on these issues, as on the other situations that might arise, it’s helpful if the family thinks through policies in advance before the onset of problems, whether on their own or with an adviser.
Stephanie Brun de Pontet’s Three Tips for Family Businesses
Contact our guest:
Stephanie Brun de Pontet, Ph.D.
Senior Consultant
Family Business Consulting Group, Inc.
Phone: 678.773.1675
Email: BrundePontet@efamilybusiness.com
Website: www.efamilybusiness.com
When your last name is on the door, joining the family business can bring both special perks and potential pitfalls. Stephanie Brun de Pontet, Ph.D., will visit with Family Business Radio cohosts Dwayne Samples and Meredith Moore on Thursday, March 22, 2012, to offer tips to next generation family members preparing to become employees.
Our Guest:
Stephanie Brun de Pontet
Stephanie Brun de Pontet is a senior associate of The Family Business Consulting Group, Inc., where she helps family enterprises through important transitions. Stephanie has extensive experience working with sibling teams, establishing governance structures for growing enterprises, and developing training programs to educate next generation family members.
In addition to her consulting, Stephanie is the Executive Editor of the Family Business Advisor and a sought-after speaker. She recently co-authored a book with Drs. Pendergast and Ward, titled: Building a Successful Family Business Board, which was published by Palgrave in 2011. Brun de Pontet currently lives in Atlanta with her husband and two daughters.
Stephanie Brun de Pontet, Ph.D.
Senior Consultant
Family Business Consulting Group, Inc.
Phone: 678.773.1675
Email: BrundePontet@efamilybusiness.com
Website: www.efamilybusiness.com
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Alpharetta, Georgia attorney John Cleveland (“Cleve”) Hill visited the Family Business Radio studios on Thursday, March 15, 2012, to discuss operating agreements, exit strategies and more for family-owned enterprises. Cleve joined FBR co-host Meredith Moore to share information on the types of agreements that can be used in business to provide a smooth transition between business partners, whether they be family members or third parties.
Expertise in Family Business Matters
Cleve is managing partner of Bettis, Hill, and Vann, LLC, a boutique law firm specializing in estate planning, probate, and business law for families and individuals. Cleve often assists families in preparing documents to handle moving business assets to the next generation, key employees or a third party.
Cleve works with Phill Bettis, who specializes in commercial and residential real estate and mediation. Currently in his 32nd year of practice, Phill also has considerable experience in estate planning and probate matters. Cleve’s law partner, Caroline Vann, assists business owners through her tax expertise. Together, they offer family business owners comprehensive experience and counsel.
Operating Agreements
Owners of Limited Liability Companies, or LLCs, generally establish an operating agreement to govern their company. In this document, the owners, referred to as members, agree on how the company will be operated; who will make decisions; how profit, loss and tax matters will be allocated; how votes will be taken; and how disputes will be resolved.
Other types of businesses will have similar guidelines in their by-laws, shareholder agreements or partnership agreements. In the absence of any type of governing document, businesses fall under the default rules established in Georgia Code.
Cleve says that when he reviews a company’s operating agreement, he looks for several key components. The first area is taxes. The operating agreement should specify how taxes matters are allocated, the company’s accounting method, the company’s tax election, how profits and losses will be allocated, how the company will get tax advice, and how taxes will be paid. In many cases, owners file self-employment taxes and don’t get W-2 forms as typical employees do. The operating agreement may need to specify how the company will help the owners avoid a large payout on April 15. For example, the company may set up a hold back account, which would be similar to typical tax withholdings.
A second component Cleve reviews is the area of dispute resolution. The operating agreement should provide a structure and orderly process for resolving disputes to help owners avoid litigation costs and stress in the event of future disagreements. While no owners intend for disputes to happen in the future and rarely expect them to occur, dispute resolution clauses help owners to think through the best ways to handle things before the stressful situations arise.
An operating agreement should also define the roles, obligations and rights of the involved parties. For example, the agreement should define what issues owners can vote on and what matters the managers will control. LLCs will sometimes divide the ownership into different classes with one class controlling the management decisions while also receiving profits/losses and the other class being merely “investors” and not having a say in the operational decisions of the company. Cleve says that many companies opt to form an LLC because of the flexibility in setting up the classes. For example, in the case of a family business, the matriarch or patriarch may pass the voting share the next generation but still receive the businesses’ profits or losses.
A fourth element in the operating agreement is the buy-sell provision, governing how the transfer of ownership will occur. This provision helps owners establish the business with the end in mind, helping them plan their exit strategies in the case of different contingencies.
Buy-Sell Agreements
Cleve says the buy-sell component of an operating agreement should protect the company and its owners in the case of circumstances that may seem far away or unlikely when a company is first formed, but still should be considered before they happen. Buy-sell agreements should address what will happen in the case of an owner’s death, purchase by a third party, the disability of an involved member, divorce of a member, or in some cases, even the moral turpitude of a member that negatively affects the company.
In the case of a member’s death, for example, the operating agreement may specify that the other partner will pay the first partner’s estate for the value of his or her shares. If there’s a redemption provision, the company would have the right of first refusal on the shares and could bring them back in, rather than having those shares go to other owners.
If a third party offers to buy out one or more owners, the operating agreement may give the other owners the right of first refusal so they can purchase shares themselves. Third party offer provisions might also include a “drag along” clause, saying an owner who sells to a third party will require other owners to sell with the same terms. Or they might include a “tag along” clause, in which one owner can sell to a third party only if the buyer purchases the other owner(s)’ shares, too.
Disability provisions should also be included in the buy-sell component of the operating agreement. The agreement should state how shares can be purchased if an involved member becomes disabled. The provision may force the sale if the member is not able to return after a reasonable amount of time.
In businesses that are tied to the reputation and moral character of owners, a buy-sell agreement might also contain a moral turpitude clause, governing what will happen if the actions of one of the owners negatively impacts the business.
It’s also important to protect the company in the case of one member’s divorce or, if a husband and wife own the company together, in the case of their divorce. In some cases, husband/wife teams will stipulate that the one who files for the divorce automatically moves from a management class member to an investment class partner. Sometimes, shares may go back to the company as a member is going through a divorce, at least temporarily. When ownership is being passed to a new generation, membership units may be held in trust to protect from creditors, including a divorcing spouse.
Ensuring Liquidity, Valuation in Case the Worst Happens
In many of the buy-sell contingencies, it’s imperative for either some of the owners or the company itself to have enough liquidity to purchase shares from the parting partner. Sometimes, especially in the death of an owner, the surviving owner might pay over time with a promissory note. Buy-outs may also be funded through company-owned, key man life insurance or disability insurance policies.
Cleve says that business partners will often buy insurance on each other. Partners should be aware of the tax consequences of having life insurance on yourself and others or of moving life insurance policies when a partner leaves. Family business owners should work with a team of advisors – lawyers, tax professionals and insurance professionals – to guard themselves against unexpected expenses.
To be fair to all members, the company should be properly valued, and the operating agreement should set up a method of regular valuation. Many companies annually agree on the company’s value by looking at assets and liabilities. Other companies may use a formula that also includes intangibles such as goodwill and intellectual property. A more expensive route is to hire a professional business appraiser. Agreements may call for annual book valuations then a professional valuation in the event of a dispute or death. The agreement should also spell out who will be responsible for paying for the professional valuation and any attorney fees associated with the transfer of ownership.
Key Issues Business Owners Might Miss
In addition to not thinking through liquidity issues, businesses may not seriously consider how things will be handled if a partnership goes bad. Agreements are often drafted in the “honeymoon phase” of a partnership, and owners may not think through changes that could occur.
Cleve gave the example of a successful business formed by five men. One owner got out of the hands-on aspect of running the company, but he continues to maintain his membership and receive a portion of the profits. When their agreement was drawn, the owners didn’t foresee a time when they might want to expel a member, so they went against the advice of their counsel and removed the clause. If they had been open to looking at worst case scenarios, they would have had established steps for handling the partner’s departure.
Cleve also says that businesses should revisit their operations agreements every one to two years or when a major change occurs (including new managers, new marriages, or great increase in the value of the business, for example). Corporations are required to hold annual meetings, and many take the opportunity to review their agreements then. The document should grow and change with the company.
Changes in state laws may also warrant a review of existing agreements. For example, Georgia has recently changed its non-compete laws. Previously, the courts would strike the entire agreement if one provision was invalid. Now courts can change provisions. The law also sets the number of years presumed reasonable for a non-compete agreement and the reasonable geographic regions. Existing agreements and anticipated new agreements should be reviewed in light of these new laws.
Cleve Hill’s Three Tips for Family Businesses
Contact Our Guest:
John Cleveland (“Cleve”) Hill
Managing Partner
Bettis, Hill, and Vann, LLC
1815 Lockeway Drive, Suite 106
Alpharetta, Georgia 30004
Phone: 770.475.8041 or 1.866.916.3590 (Toll Free)
Email: chill@bhvlegal.com
Website: www.bhvlegal.com
On Thursday, March 15, 2012, Family Business Radio will explore operation agreements and the best ways to draft a buy-sell agreement for your family-owned enterprise. Co-hosts Meredith Moore and Dwayne Samples welcome special guest John Cleveland (“Cleve”) Hill, managing partner of Bettis, Hill, and Vann, LLC. Mr. Hill’s specialties include small business entity formation, business succession planning and estate planning.
Our guest:
John Cleveland (“Cleve”) Hill
Cleve Hill began his law practice in 2004 at Powell Goldstein LLP (now Bryan Cave), one of Atlanta’s oldest and largest law firms. Since 2007, he has focused his practice in the areas of estate planning, including wills, trusts, special needs planning, powers of attorney, health care directives, probate and estate administration, conservatorships and guardianships, small business entity formation, and business succession planning.
A native of Cherokee County, Georgia, Mr. Hill attended Sequoyah High School before attending Oglethorpe University in Atlanta, where he received his B.A., magna cum laude, in 2001. Mr. Hill then attended the Mercer University Walter F. George School of Law in Macon, Georgia, where he obtained his J.D., cum laude, in 2004.
Mr. Hill resides in Canton, Georgia, with his wife, Allie, daughter, Olivia, and puppy, Reagan. The Hills attend Woodstock First Baptist Church. Mr. Hill remains active at his alma mater where he serves as President of the Oglethorpe University Alumni Association for the 2011-2013 term and as a Trustee on the Oglethorpe University Board of Trustees. Mr. Hill is also a member of the Rotary Club of Windward.
About Our Guest:
John Cleveland (“Cleve”) Hill
Managing Partner
Bettis, Hill, and Vann, LLC
1815 Lockeway Drive, Suite 106
Alpharetta, Georgia 30004
Phone: 770.475.8041 or 1.866.916.3590 (Toll Free)
Website: www.bhvlegal.com
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Bill, Bob and Alan Holman joined Meredith Moore and Dwayne Samples on Thursday, March 1, 2012, to discuss with Family Business Radio listeners the transition of their business to second generation owners. Holman and Company is an Alpharetta-based insurance brokerage and risk management firm, founded by the Holmans’ father in 1983.
Holman and Company gets its start
Penn Holman began his career in the insurance industry in 1963 as a direct sales representative for Liberty Mutual Insurance Company. In 1972, he joined a partner to form an independent company, Holman and deVarennes & Co. The partners parted ways in 1983, and Penn formed Holman and Company. He lost his accountant in the split, so he brought his wife in to handle the company’s books.
Though it started in Chamblee, Holman and Company has since moved to Alpharetta. The firm offers a full line of insurance products, from commercial to personal, ranging from employee benefits and casualty to homeowner and auto insurance.
Welcoming the brothers
Bill, Bob and Alan Holman don’t remember being involved in the family business as they were growing up; rather, they remember just a general awareness of what their father did. Like most children, they saw him as “dad,” coming in from work in the evenings, spending time together on the weekends.
One-by-one, the brothers graduated from high school, then went to the University of Georgia. Bill, the oldest of the four children (they also have a younger sister), wanted to become a stock broker. Black Monday hit in October of 1987, and he decided against the career. With his dad’s encouragement, he earned a degree in finance with no specific insurance classes. After graduating in 1990, he immediately joined Holman and Company, where Penn trained him in the insurance business. He started by making cold calls for personal insurance products. He made some customer calls with his father on commercial accounts, and gradually moved to focus more in that arena.
When middle brother Bob attended UGA, his father also encouraged him to earn a degree in a broader background, not specifically in risk management. Upon earning his finance degree in 1992, Bob went to work for Merrill Lynch at a new Jacksonville, Fla., mutual fund processing office. Within a year, he realized that wasn’t what he wanted to do for a career, and he joined the family business in 1993. Holman and Company had always been there as an option for him, but Bob says he wanted to try something outside first. His father encouraged him both to try something different and then, when he wasn’t completely satisfied there, to join Holman and Company. Like Bill, Bob started at the family business by making cold calls regarding personal insurance products.
Alan says he followed almost the same exact path, earning a finance degree from the University of Georgia. Upon his graduation, he worked two to three years in the accounting department of a Roswell company that owned several technical schools around the country. In 1996, his dad approached him with a sales opening at Holman and Company, pointing out Alan’s greater opportunity for growth there than in his accounting position.
As the brothers joined Holman and Company, each earned a small base salary and was expected to earn commissions through sales, though no specific goals were in place. Each was given general product training, and each was also trained by going along with the elder Mr. Holman as he made calls on customers. Bill and Bob started in personal insurance then moved to commercial. In Alan’s case, Mr. Holman had identified a niche industry – automotive risks – for Alan to focus on and build. While he worked in other areas, too, the niche gave Alan a jumpstart into the business.
Bill says the agency had about six or seven employees when he joined in 1990, including two or three producers in addition to his dad. The brothers agree that non-family members were given similar training and also made sales visits with their father, though they probably did not receive quite the same level of mentoring simply because of the nature of the relationships.
Meanwhile, the brothers say their sister had no interest in joining Holman and Company. They noted that she is in a completely different industry today and is very successful in her career.
Brothers, sons and business partners
Bill, Bob and Alan are close in age, all three born within a five year period. Now that they are also business partners, they are still close. They get together regularly at their parents’ home. At those times, their conversations generally center on casual topics rather than business.
Other than these family get-togethers, the brothers don’t generally socialize outside of work. They live in different neighborhoods, and each has his own family, friends and activities. They keep up with each other at the office, though they are often going in different directions. In fact, they admit to times when they won’t see one another for a few days, only to learn that the “missing” brother has gone out of town for work or vacation. They agree they work together well without getting in each others’ way.
Joining the staff at Holman and Company also gave them a different perspective on their father. The first big change for each brother was learning to call their father by his first name, something he asked them to do.
Penn Holman remains very involved in the company. In fact, though the brothers purchased most of the stock in the company just over a year ago, they say that Penn is still very involved with the business. Mrs. Holman, who had run the accounting aspect of the business since the doors opened in 1983, retired at the end of 2011. Replacing her with a non-family member was a key concern of the business. The company had always had an involved family member keeping an eye on the books, and finding the right person to take over the task was a primary focus. Once they found the replacement, she spent four months working alongside their mother to learn the job thoroughly.
Changes in the industry
The brothers report that the commercial insurance industry has experienced a buyers’ market for the last eight years or so, with customers expecting pricing to continue to fall. Recently, however, prices are starting to transition up, and the brothers say this means different types of conversations with customers. While the transition from buyers market may indicate a slight improvement in the economy, many of their clients are not feeling the improvement significantly yet and are discouraged by price increases. The Holmans differentiate themselves in the market through their extensive knowledge of the industry and the products. One way they have demonstrated their knowledge is through acquiring professional designations.
Changing roles, business practices
When the Holman brothers began working for their dad, there were no set sales goals or other means of governance in place. Over a decade ago, they began working with a consultant to bring an outside perspective to their business, help them set goals, and facilitate quarterly meetings among the four Holmans. While it’s different from the way things had been done in the past, the brothers say their dad supports the effort and recognizes that something needed to be done to help them organize and hold each other accountable. They say he saw the effort as neither good nor bad, just different.
At these quarterly meetings, the facilitator helps the owners to stay on track as they review budgets, set goals for the agency, assign tasks, and hold each other accountable. While each brother is responsible for his personal production, their additional roles in the company are now more defined. Bill focuses on the financial aspects of the business; Bob manages the office, IT and human resources functions; and Alan oversees sales and mentoring of sales staff. As for Penn, he still owns some stock, he maintains his clients, and he serves as a resource for others in the company. He has an office and is welcome in the business as long as he wishes to remain.
Holman and Company works with mid-market commercial businesses, many that are also family-owned. Like Holman and Company, many of them are welcoming their second and third generations, and owners will often ask questions related to family business transitions in the course of their business with the Holmans. The brothers believe that this commonality – the idea that many of the businesses they serve are mirror images of their own business – will help them keep these clients into the future.
As they look forward, the Holmans see growth and the addition of more sales team members who are not family members. As their dad gradually transitions out of the business, he brings another person with him on client meetings so clients will become accustomed to working with others in the company. Because the agency owns the policies that are written (not the individual sales person), the transition will be easier from a business standpoint when Penn leaves the company.
As far as bringing the next generation into the business, the brothers say it’s too early to tell. The oldest member of the third generation is only 13. Of course, the family business will be open to third generation members if it’s the career path they choose, and the brothers say they are more prepared to help the next generation enter the business because of their own experiences. For example, they will require that each family member work somewhere else first, something Bob and Alan did and Bill wishes he had done as well.
The Holmans’ Tips for Family Businesses
Contact Our Guests:
Bill Holman
Bob Holman
Alan Holman
Holman and Company
3655 North Point Parkway
Suite 425
Alpharetta, GA 30005
Phone: 770.992.4760 or 800.229.2465
Website: www.holmanandcompany.com
Bill, Bob and Alan Holman are the second generation to own their family’s Insurance Brokerage and Risk Management firm - Holman and Company. They will join Family Business Radio cohosts Dwayne Samples and Meredith Moore in the studios at 1 p.m. on Thursday, March 1, 2012. The brothers will discuss the ins and outs of working not only with each other, but also with their parents. Dad and company founder, Penn Holman, is still active in the business, and mother Mary Holman worked in the business office until recently.
About Our Guests:
Bill Holman
Holman and Company was founded in 1972 as Holman and deVarennes & Co. Penn Holman bought out his partner in 1983, establishing Holman and Company. The brothers joined the business one-by-one from 1989 through 1993. They purchased the business from their father at the end of 2010, and the family is still transitioning into the new ownership. Still located in Alpharetta, the agency provides insurance solutions to help companies and individuals protect the assets they’ve worked hard to build.
Holman and Company
3655 North Point Parkway
Suite 425
Alpharetta, GA 30005
Phone: 770.992.4760 or 800.229.2465
Email: bill.holman@holmanandcompany.com
Website: www.holmanandcompany.com
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John W. Yopp, III, visited with Family Business Radio co-hosts Meredith Moore and Dwayne Samples on Thursday, February 9, 2012, to tell listeners about his family’s 100+-year-old publishing company. Through his trade publications, Mr. Yopp has a close view of the funeral home and cemetery industry, one of the largest sectors in the family-owned business industry, as well as sharing his involvement with the beginning of the packaged ice and cold storage industry and discussed the trends that are affecting those businesses.
From Ice to Funeral Directors
In 1907, Mr. Yopp’s grandfather, John W. Yopp, Sr., was an entrepreneur who saw a growing industry: ice and refrigeration. At the time, condensers and air conditioners were just being developed. Companies earned money by delivering blocks of ice to businesses and residences, where the blocks would be stored in wooden ice chests for refrigeration.
Mr. Yopp was interested in the industry, and he started a publication to inform the ice manufacturers and distributors and to help them network. The tabloid-style publication was produced 13 times a year or every fourth Monday and mailed around the nation. For content, he relied on the industry groups, advertisers, subscribers and others pertinent to the ice industry including the Southern Ice Exchange which is celebrating their 123rd anniversary this year. With the growth in refrigeration, the elder Mr. Yopp changed the name of the publication to Refrigeration Magazine in 1912. The new name expanded the magazine’s reach.
In 1919, several friends of Mr. Yopp’s approached him about starting a magazine for funeral directors and the funeral industry. Although Mr. Yopp knew very little of the funeral industry,he did know something about publishing. Within a few months of discussions and reassurance from his peers in the industry, Southern Funeral Directors Magazine was launched with a similar mission of helping members of the industry connect. Both magazines offered informative articles pertaining to their businesses along with features on the business themselves, convention and conference summaries and pictures along with a number of advertisers and a section for classified ads.. They relied on a combination of the ad sales and subscriptions for revenue. Refrigeration Magazine continued to have a national audience, while Southern Funeral Directors Magazine focused on 16 Southeastern states, with limited distribution to the remaining 44 states.
All printing was outsourced, as it is today. Until relatively recently, the job of laying out the magazine for print was a labor-intensive task of literally cutting and pasting images and copy. An old machine equipped with metal plates and pins was used to manage circulation. The metal pin would be inserted in the plate to mark the month when the subscription expired and would trigger the machine to print or skip an address.
Family Transitions
Mr. Yopp, Sr., died suddenly in the 1930s. His young wife, Beatrice O’Keefe Yopp, took over the publications. Previously, she’d been involved in Atlanta real estate, where she purchased, repaired and re-sold residential homes. She took over the magazines with little understanding of the business and ran them for several years. Eventually, she wanted to get back to the real estate business, and she leased the magazines to another editor.
Meanwhile, in 1943 John W. Yopp, Jr., was beginning his college education at Georgia Tech. He paused his college career midway to fight in World War II in the Air Force. When he came home from Germany in 1946, he attended the University of Georgia and earned his degree in Journalism. His mother wanted him to work in a different industry before coming to the magazine. So he joined Trust Company Bank (now SunTrust) for several years before coming in as publisher and editor at the family business. Mr. Yopp, III, says the time at the bank helped his father understand “what to do and what not to do” in the management and financial side of running the family’s enterprise.
Mrs. Yopp had managed the business directly or indirectly for 20 years before her son came to work. When he took over in 1953, the business had seven employees in three departments – editorial, advertising and circulation. Mr. Yopp, Jr., started a third publication, Southern Cemetery, which was produced bi-monthly. That publication is no longer produced, as it was combined in to the funeral magazine.
Mr. Yopp, III, remembers that when he was about 8-years-old his father drove him to a typing class on Atlanta’s Spring Street each Saturday morning. Following his class, the weekly reward was a trip to the nearby Varsity restaurant to celebrate. He recalls sitting at an old typewriter to type cards with subscribers’ addresses, not understanding that he was beginning to help learn and edit the magazines’ circulation.
The younger Mr. Yopp graduated from Northside High School in 1975 and enrolled at UGA and majored in Journalism with a minor in Business. Even though he would attend funeral industry conventions during the mid-70’s, he officially started working for the family business in 1979 along with his sister, Mary Yopp following her college education at UGA. Ms. Cronley focused on the editorial side of the business, while the two Mr. Yopp’s traveled together to network with advertisers and cover events at different state funeral and ice associations.
Mr. Yopp, III, worked with the magazines for about 12 years before leaving in 1989 to work for a funeral home acquisition company. In the 1990s, Mary Yopp Cronley and her husband purchased the business from her dad through a 10-year buyout plan. Mr. Yopp, Jr., was still visible, continuing to network with advertisers. Meanwhile, Mr. Yopp, III, kept working in the funeral home acquisition and consulting worlds. His sister gave birth to a son and, two years later, to triplet sons. In 2006, she called her brother and said she was too busy and either the magazines or the boys had to go. With that, Mr. Yopp, III, returned, leaving the door open for sister to help if needed.
Mr. Yopp says that technology had changed the publishing industry tremendously from his departure in 1989 to his return in 2006. With the changes, the publishers can get more precise and more timely material to their subscribers and readers. Mr. Yopp says the magazines give producers of products and services an opportunity to speak directly to industry leaders through articles they submit, paid advertising, and classified ads. Some articles are online, but subscribers in both industries have made it clear they want hard copies of the magazines to keep for referencing certain articles, business features, advertising information and pictures from certain state and national meetings.. Generally, they don’t even throw them away when the next edition arrives. It is not uncommon to find some businesses that will keep the issues going back 20-30 years.
Future of the Family Business
Mr. Yopp says the door is left open for any of his nephews–who are still fairly young—or for either of his three daughters to join the business. His daughters are young adults with, but they have not yet expressed an interest in coming to work for the magazines. Still, Mr. Yopp says he is ready to welcome any of them should they want the opportunity.
Mr. Yopp says the publishing industry and seems to have stabilized, with numbers trending better than normal compared to a year ago at this time. He says the need for trade publications is still there—people still have products and services to sell, and magazines are their avenue for telling people why they should buy them.
Family Business and the Funeral Home Industry
The two largest industries in the family-owned business world are agriculture and funeral homes. Mr. Yopp reported that there are 19,670 funeral homes in the U.S., many of them owned by families. From 1985 to 1998, there was a tremendous amount of consolidation of funeral homes and cemeteries. You had small regional companies that would acquire 50-100 properties, then they would be acquired by the larger publicly traded funeral home companies. Because of the large number of broker houses and venture capital groups in the U.S., acquisition funds were plentiful and led to extremely high multiples on purchase prices, thus allowing independent owners to sell at a much higher price than originally anticipated.
Unfortunately, many of these large acquisition companies were unable to make their shareholders happy. Lawsuits, mis-management, loss of business and other losses followed. Wall Street monies dried up and they started demanding that acquisition companies stop buying the funeral homes and begin to effectively manage what they had acquired. Already having overpaid for many of their deals, pro forma’s, budgets and heft goals fell way short of their projections leading to a tremendous slow down in the acquisition market. Today, there are a small number of publicly traded companies and a few regional acquirers that are in existence. Firms are still acquired, but in smaller volume with more realistic purchase prices being paid.
About 10 years ago, the buying slowed down. Families that weren’t ready to sell during the frenzy are now looking at selling within their families or to key employees rather than a larger corporation. In other cases, non-compete clauses are expiring. Families that sold out during the 80’s and 90’s and invested their money well, are considering getting back into the business for themselves or the next generation. Many were able to sell high and are re-purchasing at lower prices. Being locally owned and operated is still a big advantage in the industry.
The cost to start a new funeral home in the current market is well more than $100 per square foot, with about a 7,000 to 8,000 square foot facility needed at the outset. With equipment, furniture and other incidentals, the cost to enter the business is about $1.2 million.
Mr. Yopp says there aren’t many children of current funeral home owners who are choosing to carry on the family enterprise. Because of the high cost, it’s difficult for key employees to purchase the funeral homes. A couple of lenders have emerged that are willing to concentrate more on cash flow lending than asset lending.
Another trend in the funeral home business is a move to more cremations. Georgia once had only one or two crematories, and now there are about 75 in the state. With greater availability, people see them as more of a memorialization option. Cremation is often chosen for economic reasons, too.
While South Georgia’s funeral practices are still largely based on the traditional burial—even to the point of choosing a funeral home based on family tradition—the transient nature of Atlanta means that more families are choosing cremation. Other than the metropolitan cities in the southeast, the region is still known as “the Bible Belt” and lends itself to more traditional burials where you have a service, casket, vault, cemetery plot and bronze marker or upright granite/marble headstone. Similarly, the many retirees who have settled in Florida and in coastal towns are sometimes disconnected from family or have no family remaining. They will often choose cremation. For funeral home directors, the challenge is to help families memorialize their lost loved ones in new ways.
The case of Ray Brent Marsh, the man who accepted bodies for cremation but then buried them on the backside of his property, impacted the funeral home industry primarily in the diligence required to make sure bodies are handled properly. The funeral homes were not at fault in these cases, but they now are more careful about their liability and verify each step in the cremation process. Georgia’s laws and policies now require stricter documentation, too.
Another challenge for today’s funeral home directors is maintaining and growing market share. The death rate generally remains at 1.2 percent of the population, so funeral homes have to market their firms and services in more effective ways to the families of their communities. One means of servicing families is pre-need arrangements, in which individuals and families make funeral arrangements long before they expect to need them. They pay for the arrangements over many years, establishing a long-term relationship with the funeral home. Georgia laws allow the funeral home to either trust a 100% of the monies paid in or use an insurance product to insure the final funeral costs.
More so in the last 10 years, as an additional service, many funeral homes have expanded into pet loss care. They may provide cremation, a burial ground, and even memorial services for the beloved pets. This is another means of expanding markets.
Changes in the Refrigeration Industry
Mr. Yopp reports that the refrigeration industry also went through a period of acquisitions and consolidation. He witnessed similar events as those in the funeral home industry, where acquisition companies overpaid for the plants, couldn’t operate them efficiently and closed many. There is now one major family-owned company and two struggling publicly owned companies in the industry.
Preparing for Mergers and Acquisitions
Part of Mr. Yopp’s business now is to consult with companies on succession planning and mergers and acquisitions. He says the first order of business for family business owners is to have a plan in place. Next, especially if you think you might want to retire in a few years, go ahead and start running the business as if you’re selling tomorrow. That means cleaning up the financial statements, balance sheet, buying smarter, correcting areas where revenue is soft, and adjusting prices. All of these steps will not only make the business more attractive to lenders, but also increase the value of the company and profitability.
Mr. Yopp plans to continue helping families through his magazines and his M&A consulting. He enjoys helping families find financing, create plans together, then grow as a business and a family. As mentioned earlier, he’s excited to have found some new lenders this year who are making loans based on cash flow. That means key employees in funeral homes may have the ability to purchase. The lender looks at cash flow, call history, recurring business, stability and the potential buyer’s role in the business. Mr. Yopp is optimistic about the opportunities these new loans present for the creation of more family businesses.
John W. Yopp, III’s 3 Tips for Family Businesses
Contact our Guest:
John W. Yopp, III
Publisher and Editor
Southern Funeral Director Magazine and Refrigeration Magazine
President and Owner
Extreme Marketing Group, LLC
P.O. Box 768152
Roswell, GA 30076
Phone: 404.513.9405
Email: johnyopp3@aol.com
Website: www.southernfuneraldirectormagazine.com
www.refrigerationmagazine.com
Family Business Radio co-hosts Meredith Moore and Dwayne Samples welcome John W. Yopp, III, publisher and editor of Southern Funeral Director Magazine and Refrigeration Magazine. The third generation family publications were started by his grandfather, John W. Yopp, Sr., in 1919 and 1907 respectively. John will discuss his family’s enterprise with Family Business Radio listeners at 1 p.m. on Thursday, February 9, 2012.
The Yopp family’s magazines were edited and published by the senior Mr. Yopp’s wife, Beatrice O’Keefe Yopp, from the time of his passing in the 1930s until her son, John, Jr., took over the business in 1955. During the 1990s, Mary Yopp Cronley purchased the business from John, Jr. She ran it until 2005, when John, III, became publisher and editor.
In addition to running the family’s publishing business, John is also president and owner of Extreme Marketing Group, LLC, where he provides marketing, business succession, M&A, and capital procurement for small to medium sized privately held businesses. Born and raised in Atlanta, he attended the University of Georgia, where he majored in journalism and business. In addition to working with his family, John has been associated with several major and publicly traded funeral home acquisition companies in their corporate development departments. He also has worked with ReMax of Atlanta and Cigna Individual Financial Services.
About Our Guest:
John W. Yopp, III
Publisher and Editor
Southern Funeral Director Magazine and Refrigeration Magazine
President and Owner
Extreme Marketing Group, LLC
P.O. Box 768152
Roswell, GA 30076
Phone: 404.513.9405
Email: johnyopp3@aol.com
Website: www.southernfuneraldirectormagazine.com
www.refrigerationmagazine.com
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In support of their “From White Castle to the White House” tour, Family Enterprise USA President Ann Kinkade and White Castle Vice President Jamie Richardson visited the Family Business Radio studios on Thursday, January 26, 2012. They shared with co-hosts Meredith Moore and Dwayne Samples the history and purpose of both Family Enterprise USA and White Castle, while stressing the benefits of family businesses joining together to support each other and have their voices heard regarding public policy.
Family Enterprise USA, the First Nonprofit for Family Businesses
A national advocacy group for family businesses, Family Enterprise USA focuses on the public image of family enterprises and the public policies that affect them. Founded in 2009, Family Enterprise USA aims to create an identity for the family business industry—an industry that many inside and out don’t realize exists.
The first nonprofit organization to represent family businesses, Family Enterprise USA (FEUSA) represents a broad group. There are no size limitations, but businesses all have the common factors of multigenerational ownership and the desire to continue for future generations.
According to Kinkade, FEUSA is getting the word out about family enterprises in three primary ways. Their first effort is a general public relations campaign to raise awareness about family businesses, their contributions and the unique ways they are affected by public policies. Already, they have had stories appear in Forbes magazine, the Wall Street Journal and in The Hill, a Washington, D.C., publication.
Second, FEUSA is focusing on conducting and sharing research. They are currently conducting their second survey of family businesses. National in scope, the survey asks family business members at the C-level and above to identify the issues that are most important to them. Among the issues that may be identified are those surrounding estate taxes, capital gains, dividends, healthcare, and tax deductibility of contributions to family foundations. Any current or proposed regulations that impact family businesses could be identified through the survey and addressed through FEUSA’s work.
The results of FEUSA’s first and second surveys verified the need for the organization. The second survey asked respondents if external or internal factors were a greater threat to their long term continuity. More than 80 percent identified external factors. When asked if their trade associations understand the issues that differentiate family business, 40 percent responded “no,” and 16 percent said they are not members of an association.
The FEUSA team surmised that external issues are indeed a threat to family businesses, and their interests are not adequately represented. That’s where FEUSA comes in with their third and final role, advocacy.
Kinkade says advocacy takes the form of both education and lobbying. Education involves getting the word out about the important role family enterprises play in the American economy. Many policy makers simply don’t think about family enterprises or take time to understand how policies might affect them, leading to what Richardson (who is also a FEUSA board member) calls the “law of unintended consequences.” FEUSA hopes to keep the importance of family enterprise top of mind for decision makers.
This year for the first time, as part of their educational efforts, they will take a group of family enterprise owners to Washington, D.C., in May to share their own voices and learn about the decision-making process in our nation’s capital. As a relatively new organization, FEUSA has done no lobbying yet.
Family Enterprise Contributions
As the FEUSA staff members and board members educate family enterprise owners and policy makers about the industry, they demonstrate the impact of family-owned businesses on the economy:
Kinkade asserts that the nation’s economy can’t move forward without considering and including family enterprise.
More family business facts illustrate the stability these organizations bring to communities. For example, family enterprises are less likely to lay off employees during a recession. They also are less likely to incur debt, making their businesses more adept in tough times. Kinkade says that family enterprises are more likely than other businesses to invest in “patient capital.” That is, rather than meeting quarterly or annual goals, they tend to look at long-term objectives. Many family enterprise owners have told her they could make more money or make money faster, but they don’t want to compromise the organization’s ability to survive the long term for future generations.
White Castle Illustrates Family Enterprise Values
As a fourth-generation family member at White Castle, Mr. Richardson shared that the values typical of most family enterprises are also present in his family’s 90-year-old company. White Castle started when Billy Ingram and Walt Anderson began selling hamburgers out of window in 1921. Inspired by Mr. Ingram’s visit to Chicago’s Water Tower Building, the pair chose the company name to represent cleanliness (White) and strength and permanence (Castle).
Cleanliness was an important issue because Upton Sinclair’s classic novel The Jungle had exposed problems in the meat packing industry a decade or so previously, and people of the time really didn’t eat hamburger meat. White Castle used 100 percent beef and sold their burgers for 5 cents. The idea caught on, and the company grew. The partners had borrowed $700 to get the company going. They paid it back in 90 days, and White Castle has been virtually debt free ever since. Remaining debt free is one of the core values that drive the business.
Quality has also remained vital to White Castle. They never franchised so they could maintain consistency, and they even opened their own bakeries and meat plants to maintain control. In the 1940s, when laundry costs were high, they opened a factory to make paper hats, launching the craze of the 1950s. The biggest change came 25 years ago when they became the first to sell hamburgers and cheeseburgers in the grocery store freezer aisle. They have two manufacturing plants to produce the products, which they sell throughout the country. They also sell burgers through vending machines.
Richardson says that White Castle put people first from the beginning, and treating people right is another of their core values. Founder Billy Ingram used to say, “We have no right to expect loyalty except from those to whom we are loyal.” The saying now has become, “Happy employees make happy customers.” The idea is the same. If employees are loyal and secure in their jobs, they will serve customers well and help to build a loyal customer base.
Those loyal customers are called “Cravers,” and they enjoy not only the taste of the burgers, but also the experience that comes with White Castle. When White Castle invited customers to submit their stories, they learned about weddings self-catered with their burgers and a home decorated with White Castle décor each Christmas. They recognize each year’s top 10 Cravers by inducting them in the Cravers Hall of Fame.
But how does White Castle engender loyalty in employees? The company has offered employees health insurance since 1924. They also give employees a profit-sharing plan and a defined benefit pension plan. While such plans are uncommon in today’s environment, they have allowed White Castle employees who may have held one position their entire careers to retire as millionaires.
Billy Ingram bought out his partner in the 1930s, and White Castle has been a family enterprise ever since. Now run by the third and fourth generation members, the company holds family ownership as an additional core value. Family meetings are held each summer, and much of the focus now is on the 26 members of the fifth generation.
Ranging in age from 4 months to 26 years, many of the fifth generation members fall between the ages of 8 and 12. They are learning about the business and its values. They also are learning basic business principles. Last summer the 5th generation members made cookies and sold them at the home office. They thought they had made a lot of money, then they had to pay for typical items like ingredients and taxes. Richardson says exercises like this are helping them get ready for the future.
“From White Castle to the White House”
While White Castle’s model clearly demonstrates the entrepreneurial spirit and the values that are common to most family businesses, their interest in FEUSA comes about because they have found their company greatly impacted by regulation.
In fact, they have staff members dedicated to determining how regulations will impact the company. With the proposed healthcare changes, for example, one part of the law says if the portion the employee pays for a healthcare premium is greater than 9 ½ percent of his or her household income, the company can be fined $3,000 per employee. White Castle staff leaders have determined this could cost the company 55 percent of their net income on an annual basis.
Richardson says White Castle had to speak up. While he says he believes the law, like most policies, was well intentioned, it did not consider the impact on family-owned businesses. Representatives from White Castle actually met with President Obama’s Healthcare Czar, and a new ruling takes their concerns into account.
Speaking out and joining with other family enterprises is now a priority for White Castle because regulations can threaten the long term survival of the company. But Richardson says he approaches meetings with the idea that “politicians are people, too.” He says that thought leaders on both sides of the aisle want to understand the impact of their ideas, and they may not know if family enterprise owners don’t speak up.
In an effort to get more family enterprises involved, Richardson and Kinkade are traveling around the country presenting “From White Castle to the White House.” Richardson shares some of White Castle’s efforts, and the two talk about the value of working together to be heard. They also tell the FEUSA story and how the organization is there to fill an unmet need for this important segment of the economy. Finally, they encourage others to get involved and take action.
The speaking tour has been hosted by many types of organizations throughout the country. University-based family business centers, such as the Cox Family Enterprise Center at Kennesaw State University, have hosted about 12 of the seminars. A recent appearance in Seattle was sponsored by two family enterprise owners, and an owner will also host an upcoming engagement in Florida. In Grand Rapids, MI, the Chamber of Commerce sponsored the visit.
Kinkade says this process is creating connections and grassroots energy. As an illustration of interest, Kinkade says their Facebook page had 60 fans in May of 2010. It now has more than 10,000 fans. Business owners are saying they’re excited that someone is finally standing up for family enterprises.
FEUSA Moving Forward
Kinkade says FEUSA will work toward its tagline of facilitating “Enterprising Families Working Together.” FEUSA is looking for people willing to speak as experts in the field. FEUSA is still forming platform so the group can form a collective voice.
Kinkade also hopes to continue learning more about family enterprises. For example, many of them use the word “integrity” or similar sentiments in their values. She would like to know more about how integrity is implemented and what drives decision making in family enterprises.
FEUSA will continue to drive policy questions. The organization is bigger than the solving of just one issue, but will stick around to make sure people in decision-making roles view regulations through the eyes of family businesses.
FEUSA is also collecting stories about family enterprises. During the “From White Castle to the White House” tour, Kinkade and Richardson are conducting interviews and creating videos to form a quilt of stories to place on the FEUSA website.
Meanwhile, FEUSA invites family enterprises to participate in the survey found at www.familyenterpriseusa.org. The survey will be live through January 31, 2012, with results to be released in February.
Three Tips for Family Enterprises
Contact Our Guests:
Ann Kinkade
President
Family Enterprise USA
1110 Harmon Place
Minneapolis, MN 55403
Phone: 651.962.4170
Email: akinkade@familyenterpriseusa.org
Website: www.familyenterpriseusa.org
Jamie Richardson
Vice President
White Castle
555 West Goodale Street
Columbus, OH 43215
Email: jamierichardson@whitecastle.com
Website: www.whitecastle.com
Ann Kinkade, president of the non-profit Family Enterprise USA , and Jamie Richardson, member of the Family Enterprise USA board of directors and executive at family-owned White Castle will visit the Family Business Radio studios on Thursday, January 26, 2012. Ms. Kinkade and Mr. Richardson will share their insights into general family business practices with FBR co-hosts Dwayne Samples and Meredith Moore. Mr. Richardson will also tell listeners about the important role non-family member, key executives play in family-owned businesses.
Ann Kinkade
Ms. Kinkade brings over two decades of business experience, working exclusively with business-owning families in a variety of contexts for over a decade. In 2009, she launched Family Enterprise USA, the nation’s first non-profit advocacy group dedicated to addressing family enterprise public image and public policy issues. Since committing to the family enterprise field as a vocation, Ms. Kinkade has attended, presented and led numerous conferences and educational seminars. Her expertise in family enterprise includes governance, leadership, succession planning, communication, interpersonal and family relations, and other topics. Ms. Kinkade holds a Master of Business Administration and a Bachelor of Arts in psychology from the University of Wisconsin-Madison.
Jamie Richardson
Mr. Richardson is an “Ultimate Craver” who took his love of White Castle hamburgers to its logical extreme, joining the White Castle home office team in 1998. He serves as vice president, corporate relations, responsible for government affairs, shareholder relations, public relations and community relations. Previously, he served as director of marketing. Mr. Richardson serves on a number of boards, including Family Enterprise USA, the Conway Family Business Center and the National Council of Chain Restaurants, among others. He is a graduate of Siena Heights University where he majored in business administration and Ohio Dominican University where he earned his MBA degree.
About Our Guests:
Ann Kinkade
President
Family Enterprise USA
1110 Harmon Place
Minneapolis, MN 55403
Phone: 651.962.4170
Email: akinkade@familyenterpriseusa.org
Website: www.familyenterpriseusa.org
Jamie Richardson
Vice President, Corporate Affairs
White Castle
555 West Goodale Street
Columbus, OH 43215
Email: richarit@whitecastle.com
Website: www.whitecastle.com
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Neil Sapra joined Family Business Radio co-host Meredith Moore in the studios on Thursday, January 19, 2012, to discuss the family business that bears his name, NitNeil Partners. Founded by his father and named for Neil and his younger brother Nitesh, NitNeil Partners is a regional real estate investment firm with a focus on self storage properties.
From Side Business to Family Business
Neil’s father immigrated from India in the late 1960s and settled in Huntsville, Ala., where he worked as a professor at Alabama A&M University. In the late 1970s, he began investing in real estate as a side business. Neil says what started as an investment in a duplex gradually grew to investments in larger properties and finally in single-family lots, townhome development and land speculation. Over the years, the company experienced what Neil calls, “patient growth.”
Real estate remained a side business until 2004 when the elder Mr. Sapra retired from teaching. Neil says his father had wanted both him and his brother to establish their own careers and did not plan for them to join the real estate investing company he named after them. Neil worked with an investment firm that grew through the 1990s technology boom. Though he had resisted his father’s business when he was younger, he found himself back in real estate for more “tangible” investments. He then worked with a European private equity group focused on real estate investment in the U.S. Meanwhile, younger brother Nitesh established a career in multi-family real estate.
Ultimately, with a little help from their mom, the brothers convinced their dad that their joining the company would not only help them advance their careers but also bring resources and skills the company didn’t have. When Neil joined NitNeil in 2006, the firm had a solid investment portfolio, but business protocols were not established. Neil spent his first year taking the opportunity his father had created and working with his dad and other employees to create more opportunities and openings for future generations. Nitesh joined the company in 2008 when the position best suited for his skills became available.
Conservative Investments Lead to Inc. Magazine’s Fastest Growing List
NitNeil Partners chose to invest in self storage properties for several reasons. First, both Neil and Nitesh had backgrounds in multi-family real estate, and the industries are similar. The self storage industry is fragmented, with 90 percent of properties owned by independent “mom & pops,” but it’s going through a time of consolidation. The opportunity was there for NitNeil Partners to assemble a large portfolio through the development and acquisition of these properties. With the current inefficiencies in the industry, NitNeil could bring efficiencies through economies of scale.
NitNeil Partners also realized that demand for self storage is insulated from economic times, so it represents a conservative investment class. It fits into the company’s policy of being a net buyer and selling very little. They build net worth and equity through cash flow, asset appreciation and paying back debt. Their conservative approach helped them get through the recent adverse real estate market conditions. The company currently has $50 million in assets. Self storage represents $35 to $40 million, and the remainder is apartments and land. For the last two years NitNeil Partners has been named to Inc. Magazines’ list of 5,000 fastest growing companies.
Adding Value in the Day-to-Day
NitNeil started out developing storage properties, but over the past few years they have acquired existing units. Now they are looking at converting an old office warehouse building in Atlanta’s Inman Park neighborhood as an adaptive reuse project.
The process of acquiring real estate for self storage begins with feasibility analysis to determine the cities and submarkets where storage facilities are in demand. That demand is driven by people in transition, so clients are usually military families, couples going through divorce, college students, retiring baby boomers and small business owners. By focusing on demographics and population density within a three-mile radius of the proposed property, the partners can assess the demand for the units.
Once the right cities and submarkets are located, the NitNeil staff members begin a grassroots effort to locate potential sellers. They use brokers and the local self storage associations for leads, but many of the self storage owners don’t engage brokers. NitNeil staff members do a lot of personal networking to find the sellers.
Once a property is under contract, the company performs due diligence and works toward closing. One of Neil’s roles is to secure financing. Once an existing self-storage facility is purchased, it is rebranded “The Storage Neighbor” and handed over to NitNeil’s management company by the same name. Here, it falls under Nitesh’s role of overseeing the management and day-to-day operations of the self storage facilities. Neil says that the investments’ value is extracted through these day-to-day activities, and Nitesh’s skill set is best suited for their oversight.
Working Together as a Family
Neil says his father, who is one of the three partners along with Neil and Nitesh, is semi-retired, but he still has his “finger on the pulse of the company.” One challenge the trio has tried to overcome is splitting personal and work time. One way they’ve improved in the area is by establishing regular meetings. Each week, they have a 15 to 20 minute conference call in which each partner takes about five minutes to update the others on things he’s working on. Once a month, they have a two hour, in-person meeting with a prepared agenda. They hold a slightly longer half-to-full-day meeting once a quarter, when they review quarterly financials. The process not only helps them keep business talk out of family dinner conversations, but it also instills accountability.
Neil, Nitesh and their dad represent different generations, philosophies and lifestyles. At times they realized their decision making processes and growth strategies were misaligned. By discussing issues, they’ve come to agreement.
As part of that process, they have taken skills and personality tests. These tests help them determine how best to work together and which roles are best suited for each within the company. The tests are also used as a tool to recruit and retain employees. They find the process works best when they hire for a fit with the company culture, then train on the skills.
The current partners are all family members, and the 18 additional employees are part of the business’s family-style culture. In fact, NitNeil has listed both family and community among its core values. The community ties are especially important in The Storage Neighbor division of the business, where the company relies on local areas for support.
NitNeil Patners in the Future
Neil believes that the self storage industry is stable because people are always collecting things and because people move more—are in transition more—than in past generations. He foresees a focus on growing the self storage part of the business but also looking for growth in other areas of real estate. He says the partners will continue their conservative approach to growth and invest in ways to preserve capital.
NitNeil will also look to expand outside of its current North Alabama and Atlanta markets. To facilitate growth, they may align with an outside investor who shares their core values and strategies. Such an investor would likely assume a limited or passive role in the management of the company.
Finally, the partners are focusing on ways to displace themselves from the critical functions of the company so it becomes self-sustaining. This will allow the partners to focus on strategies and growth opportunities.
Neil Sapra’s Tips for Family Business
Contact Our Guest:
Neil K. Sapra
Principal
NitNeil Partners
Silhouette Midtown
1447 Peachtree Street, Suite 470
Atlanta, GA 30309
Phone: 678.701.9305
Email: neil@nitneilpartners.com
Website: www.nitneil.com and www.storageneighbor.com
Neil K. Sapra joined NitNeil Partners in March 2007 and is responsible for acquisitions and finance as it relates to the expansion of the company’s real estate portfolio in the Southeast. Mr. Sapra has overseen the acquisition of 350,000 SF of self-storage in Alabama and Georgia and established The Storage Neighbor property management subsidiary. Prior to joining NitNeil, Mr. Sapra worked as Vice President for Westplan Investors, a Dutch company dedicated to equity investment products for the real estate industry. During his tenure at Westplan, Mr. Sapra structured over $150 million of equity for multifamily developers. Mr. Sapra earned an MBA from Goizueta Business School at Emory University in Atlanta, GA and holds a Bachelor of Engineering degree from Vanderbilt University in Nashville, TN.
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When Alexis Scott visited Family Business Radio on January 12, 2012, she treated listeners not only to her wisdom about family businesses, but also to an important journalism history lesson. The newspaper she publishes as a third generation family member, the Atlanta Daily World, was the nation’s first black-owned daily newspaper in the 20th Century. As publisher and printer of 40 newspapers across the Southeast and beyond, the Atlanta Daily World played an important role in the modern Civil Rights Movement from its earliest days.
Nation’s first black-owned daily paper, first syndicated reporting
Ms. Scott’s grandfather, William A. Scott, II, was born in Mississippi. He earned a two-year degree from Jackson State College, then he came to Atlanta to attend Morehouse College. Afterwards, he worked one year as the only black clerk on the Jacksonville, Fla., to Washington, D.C., rail line. Family lore says that the white clerks would not speak to him, so he rode in silence for the full year. During that time, he realized that black people didn’t know a lot about black-owned businesses and whom to call for services. Mr. Scott published a Jacksonville, Fla., business directory to help them find each other in 1927. In 1928, he did the same for Atlanta.
While Mr. Scott had plans to publish similar directories around the region, some black Atlanta businessmen convinced him that an alternative newspaper was needed in the city. The Atlanta Journal and Atlanta Constitution—separate newspapers with separate owners in those days—operated under the “cultural mores of the time,” according to Ms. Scott, and covered little positive news about the black community. Mr. Scott founded a weekly paper, the Atlanta World, in 1928. By 1932, it had grown into a daily publication. As the Atlanta Daily World, it became the nation’s first black-owned daily newspaper in the 20th century.
But Mr. Scott did not stop with Atlanta. He also published the Birmingham World and the Memphis World. He employed his Atlanta printing press to produce 40 other weekly newspapers as well, spanning as far north as New Jersey, as far west as Texas, and into the Midwest as far as Michigan. Mr. Scott used each city’s local news for the front page of each paper, then consolidated the information on the inside, helping cities to share news. Because of this practice, he is credited as the first publisher, white or black, to syndicate content.
In 1934, shortly after returning from a trip to Havana, Cuba, where he planned to start a newspaper, he was killed in what would be called a drive-by shooting today. The family says he also had with him the paperwork to start a radio station, evidence that he was looking toward the future for ways to get news out to the nation’s African-American community. At the time of Mr. Scott’s death, Alexis Scott’s father was just 11 years old. Her father’s uncle, C.A. Scott, took over publication of the paper at the age of 26. He published the paper until 1997, when Alexis Scott became publisher.
A family affair
Through the decades, the Atlanta Daily World benefited from the involvement of many family members. Ms. Scott says the tragedy of her grandfather’s death pulled most of her grandfather’s eight siblings into the business to keep it going. One of the brothers held multiple Ph.D.’s and was more academically inclined than interested in the business, but even he wrote occasional columns for the paper. Other brothers helped with production and the presses, and the sisters also became involved.
Ms. Scott’s great-grandmother – the founder’s mother — came to work as a cashier and office manager. Ms. Scott’s grandmother was divorced from her grandfather at the time of his death and had worked for the Birmingham paper, but even she moved to Atlanta to help the business survive. Ms. Scott’s father grew up and was drafted into World War II, then returned to work for the paper as well.
After the founder’s death, shares of the business were split among his mother and siblings. As they passed away, they split their shares among their children. When Alexis Scott took over as publisher in 1997, the business had 25 shareholders.
Atlanta Daily World and the changing society
When blacks started going to World War II, black media highlighted the involvement of African-Americans and their support of the U.S. war effort. Ironically, black soldiers were fighting for rights abroad that they did not enjoy at home. The Pittsburgh Courier led the “Double V Campaign,” calling for victory abroad and at home. The idea was that blacks would help to secure freedoms overseas then come home and secure them here.
Ms. Scott says the movement during and following WWII was a precursor to the modern Civil Rights Movement. When the GIs returned from war, they were eligible for educational assistance. She says her father applied at Georgia Institute of Technology, knowing he would not be admitted, but testing the system. Blacks found other ways to test the system while continuing to pursue equal opportunities through court cases. They led voter registration drives. In the early 1950s, ministers in Atlanta organized a bus campaign. Blacks fought for equal access to public parks, equal pay for teachers and many other equalities. All of the efforts were reported on the front pages of the Atlanta Daily World.
Through these peaceful times, the Atlanta Daily World continued to do well from a business standpoint. However, once mass demonstrations began, advertisers threatened to pull their business if the demonstrations didn’t stop. Publisher C.A. Scott used his influence to try to stop the protests not only in the interest of his business but also because he thought the demonstrations were dangerous and people who were arrested would be negatively affected in the job market later. Of course, the movement was much larger than Atlanta, and the protests continued.
After desegregation, the Atlanta Daily World continued to serve the black community. Though strides were made in mainstream coverage, Ms. Scott says it took many years for the larger papers to see the value in covering all groups. Advertisers, however, were not as eager to spend money on a niche paper because they said the mainstream media now reached everyone. Many Atlanta Daily World reporters left the paper, too, seeking bigger audiences and more opportunities for advancement.
The paper had begun publishing only six days per week during WWII to save paper. Now, in 1970, it went down to five days per week, then four. The printing press, which was the same machine used in 1928, was closed in 1970. By the late 1990s, publication had diminished to two days per week. In 1999, when they introduced their website with daily content, the paper went back to weekly print editions in 2003.
Atlanta Daily World
Ms. Scott says she always had some involvement with the family business. Her dad was circulation manager, and she often went with him on Saturdays to collect money from the newsboys who delivered the paper.
She also was always aware of her family’s important role in the Civil Rights Movement. During her childhood, says the papers always published a spread during Black History Week. It would feature Frederick Douglass, Booker T. Washington, Carter Wilson, Abraham Lincoln, and her grandfather. The underlying message to her was that she was part of something big.
Ms. Scott attended Barnard College, a women’s college at Columbia University in New York City. She later become a journalist for the Atlanta Journal-Constitution. A cousin once said when strangers asked her father why she didn’t come to work with the family, her father replied, “She’s in training.” However, he never said as much to her. It was after his death that she made the decision to join the family business.
Meanwhile, Ms. Scott moved from journalist to vice president of community affairs at the Atlanta Journal-Constitution. In her role, she met weekly with all department heads at the paper. Each gave an update and asked questions of the others, so she learned about all aspects of the business. Later, she worked four years as Cox Enterprises’ director of diversity. She traveled around the country overseeing diversity training and management development training as she sought to increase the hiring of women and people of color in Cox Enterprises businesses.
About five years after the death of her father, when her Great-uncle was failing in health, her cousin called and asked her to help the family business. The business had been incorporated in 1983 (previously being run under her grandfather’s estate). There was an informal board of directors, but there were no other formal business systems in place.
One of the first things Ms. Scott and her cousin did was to visit the Cox Family Enterprise Center at Kennesaw State University. Through the classes, she learned how to introduce business practices into the family arena. She also had outside experience, which she learned through seminars at the Cox Family Enterprise Center was a valuable asset.
Before joining the Atlanta Daily World, Ms. Scott said she was aware of some tensions and issues at the paper. She knew there was work to be done. The paper still looked the same as it had 30 years before. She learned that the advertising rates had not been raised in at least 10 years. The paper was still put together in the old-fashioned paste-up method.
After the board of directors named her chairman, she was able to institute more changes. Within two or three months they modernized the layout process. It took two or three more years before they got the software for full electronic production. Ms. Scott says her Great-uncle toured the facilities about a year before his death and was pleased with the changes in the way the paper looked (color had been added) and he “marveled” at the computers and modernization.
Ms. Scott says the decision to move from her role at Cox Enterprises into the family business was a big one. However, she knew the family strength that had come out of the tragedy of her grandfather’s death. She recognized their commitment to maintaining the newspaper, and she realized she would not be all right with it if she didn’t help.
Atlanta Daily World now and into the future
The Scott family now holds annual shareholders meetings, and the board of directors meets quarterly. Currently, the board is composed of family members representing two generations. Three of the five board members are in the business.
The paper still serves Atlanta’s black community, though Ms. Scott says that newcomers to Atlanta don’t know the story behind the paper. Black residents are not a separate community anymore, and have great representation in local political offices and in high-profile places such as sports and business. The Atlanta Journal-Constitution also provides coverage for the black community.
However, Ms. Scott says the paper still plays a significant role in Atlanta media. Last September, she and her family were inducted into the inaugural class of the Hall of Fame for the Atlanta Press Club. It’s an honor they share with local media greats such as Ted Turner and Henry Grady. She says it’s good to get recognition for her family’s legacy.
While she says the newspaper industry faces a “scary” future, the Atlanta Daily World is looking into potential strategic alliances in terms of new media so they can help their advertisers get more exposure. As with other newspapers, they still garner more money for print advertising than online advertising. They face the challenge of maintaining and growing while reader habits are changing.
They have found one new revenue stream through the licensing of their name for three news stands at Hartsfield-Jackson Atlanta International Airport. The stores carry the newspaper’s name, and the paper gets paid licensing fees based on the stores’ proceeds. In addition to the additional funds, the partnership also exposes consumers to the Atlanta Daily World brand.
Alexis Scott’s tips for family businesses
Subscribe to the Atlanta Daily World:
Visit www.atlantadailyworld.com. Subscriptions are $52/year.
Contact Our Guest:
M. Alexis Scott
Publisher/CEO
Atlanta Daily World
3485 N. Desert Drive
Suite 2109
Atlanta, GA 30344
Phone: 404.761.1114 ext. 18
Email: publisher@atlantadailyworld.com
Website: www.atlantadailyworld.com
Atlanta Daily World’s Alexis Scott to Visit Family Business Radio
Family Business Radio greets 2012 with a look back into the 20th century. Guest Alexis Scott is publisher of the Atlanta Daily World, the nation’s first black-owned daily newspaper. She will join Family Business Radio co-hosts Meredith Moore and Dwayne Samples to discuss the history of the newspaper, its impact on the nation and the Scott family, and the satisfaction and challenges that come with any family-owned business. Ms. Scott will kick off the new year for Family Business Radio with her visit at 1 p.m. on Thursday, January 12, 2012.
As publisher of the Atlanta Daily World, Scott is responsible for overall editorial content and general management of the paper, which targets metro Atlanta’s African American community. Founded in 1928 by W.A. Scott, II, the newspaper became a daily in 1932. It now publishes weekly and can be accessed daily online. Before joining the family business in 1997, Ms. Scott enjoyed a 22-year career with the Atlanta Journal-Constitution and Cox Enterprises, Inc., where she worked her way up from reporter to vice president/community affairs at the Journal-Constitution and then director of diversity at Cox.
In addition to her work at Atlanta Daily World, Ms. Scott also is a regularly featured commentator on “The Georgia Gang,” a week-in-review program on politics broadcast on FOX 5 in Atlanta. She is also a member of the Board of Directors of the Atlanta Life Financial Group. She is active in several nonprofit organizations, serving on the boards of the High Museum of Art, the Historic South View Cemetery Preservation Foundation, the Atlanta Convention and Visitors Bureau, and Central Atlanta Progress.
About our Guest:
M. Alexis Scott
Publisher/CEO
Atlanta Daily World
3485 N. Desert Drive
Suite 2109
Atlanta, GA 30344
Phone: 404.761.1114 ext. 18
Email: publisher@atlantadailyworld.com
Website: www.atlantadailyworld.com
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Two of Chick-fil-A®’s third-generation family members, James Cathy and Brent Fielder, joined Family Business Radio co-host Meredith Moore in the studios on Thursday, December 15, 2011, to discuss the family and business dynamics of one of Atlanta’s most prominent family-owned businesses. James and Brent shared about Chick-fil-A®’s beginnings, its corporate mission, and the efforts of the second and third generation family members to balance family membership and business involvement.
S. Truett Cathy and the beginnings of Chick-fil-A®
James, who is grandson of Chick-fil-A® founder S. Truett Cathy, relayed the story of how his grandfather and great uncle, Ben Cathy, started The Dwarf Grill near the Ford plant south of Atlanta in 1946. A typical 24-hour diner serving breakfast, lunch and dinner, the restaurant was open 24 hours a day. The brothers alternated 12-hour shifts. They closed on Sundays so they could rest.
Several years later, Ben Cathy died, and Truett Cathy continued running the restaurant. He often brought his three children in to help out–or even to dress as dwarfs and sing for customers. From the beginning, his goal was to provide customers a pleasurable and memorable experience.
The Cathy’s mother had run a boarding house, and Truett learned to cook from her. He experimented with a way to provide a chicken meal for Ford employees, one that could be prepared and consumed during their 30-minute break. Once he learned that chicken cooked much faster without the bone, he began to perfect his secret recipe, relying on his customers for reviews.
Initially, Truett was going to license the product for other restaurants to make and sell, but he found that the licensees didn’t prepare the chicken as well. He then decided to start his own chain, Chick-fil-A®. His sister owned a store at Greenbriar Mall in Atlanta. At first, the mall management didn’t want him to open a restaurant in the mall because they worried customers would leave trash around the facility and they were concerned about the smell of cooking food wafting through the mall. He overcame their objections by convincing them customers would spend more time and money in the mall if they could also eat there.
Through the first restaurant at Greenbriar, Chick-fil-A® became a pioneer for restaurants in shopping malls. The company’s early growth paralleled the growth of malls until the early 1980s, when the company experienced a decrease in year-over-year same store sales for the first time.
Defining a Corporate Purpose
Brent, who is married to Truett Cathy’s granddaughter, explained that this first dip in sales came when the country was experiencing an economic recession. At the same time, Chick-fil-A® was building its corporate offices in Atlanta, and interest rates were high. Plus, other restaurants began introducing chicken sandwiches on their menus, creating the company’s first direct competition.
In order to re-focus, the executive team and family members went away for several days. At that meeting, they wrote their corporate purpose: To glorify God by being a faithful steward of all that’s entrusted to us and to have a positive influence on all who come in contact with Chick-fil-A®.
Though this was the first time the words had been penned, the concept had been an integral part of the Chick-fil-A® corporate philosophy from the beginning. From the children singing in the restaurant to treating everyone with honor, dignity and respect, the Chick-fil-A® and Dwarf House experience had always focused on the customer.
Employees over the years also benefited from the Cathys’ unique perspective. Because the restaurants close each Sunday, workers know they can always plan to take that day off. The practice of closing on Sundays started as a practical decision because the founding brothers needed rest. Continuing to do so even now illustrates Truett Cathy’s assertion that he sees no issues between Biblical principles and good business practice.
Branching out to freestanding locations, extended marketing
In the mid-1980s Chick-fil-A® began building its first freestanding restaurants, instituting the drive-through model that is vital to today’s quick service restaurant industry. Brent and James praised the foresight of the family and key executives to make the move when malls and food court restaurants were still thriving. Now, their freestanding stores outnumber mall stores nearly four to one.
In 1995, Chick-fil-A® introduced their award winning Eat Mor Chikin marketing campaign, featuring the famous Chick-fil-A® cows. The Richards Group, a marketing firm out of Texas, continues to manage the 16-year campaign. Dan T. Cathy, James’ uncle and current president of the company, has said they will continue using the campaign as long as it is garnering results (or “until the cows come home”).
Chick-fil-A® continues to reach out to new markets through sponsorship of college athletic events. The approach gives them a national presence and highlights their scholarship opportunities. The primary venue is their involvement in the college bowl games through sponsorship of the Chick-fil-A® Bowl (formerly the Peach Bowl then the Chick-fil-A® Peach Bowl) in Atlanta.
Giving back to the community
In the 1980s, Truett Cathy took a tour of Berry College in Rome, Ga., with the university president. She pointed out several abandoned buildings on the campus and asked Truett if he had any ideas for using them. Using those buildings, he started WinShape Foundation, an organization focused on “shaping winners” out of young people. It started as a summer camp and scholarship program and now includes seven different ministries and reaches more than 32 countries.
Generation 3 Plus enters the business
James says that 90 percent of family businesses don’t make it past the third generation, so the family is paying special attention to building unity and developing structures that set up expectations and leave no one behind.
Generation 2 for the Chick-fil-A® family includes Truett Cathy’s three children and their spouses. Generation 3 includes 12 grandchildren and (so far) seven spouses. They call themselves Generation 3 Plus. Several Generation 3 Plus members operate Chick-fil-A restaurants or work for the company the WinShape Foundation.
Among the efforts to build family unity are annual vacations to Florida. All family members are invited, but no business talk is allowed. The week is an opportunity to build relationships and shared experiences. Truett Cathy also hosts monthly family waffle dinners at his home, giving him the opportunity to do something he enjoys–cooking waffles–and share family time.
In 2001, Generation 2 members attended the Harvard Family Business program and began setting up structures for the family. They meet as a group several times a year, and they bring the family together at different times to let members know what’s going on in the business, whether the family members plan to join the business or not.
One expectation they’ve developed is for family members to work at least two years outside Chick-fil-A® before joining the business. This not only gives individuals an opportunity to explore the possibilities and determine whether or not they want to join the business, but also to learn things to bring into Chick-fil-A. For example, one Generation 3 Plus member spent two years working at a five-star resort. His experience has helped Chick-fil-A® as it implements its second-mile service concept.
James spent three years working for another restaurant and years as a manager for Lanier Parking Solutions. He says the experience of serving customers and greeting them each day gave him practical experience in customer service, in addition to the management experience he gained. He now works as a Financial Return Innovation Analyst for Chick-fil-A®. He works with a team to find areas throughout the chain where the company can be good stewards through cost-reduction and value-added practices.
Brent joined the family when he married Angela, Truett’s granddaughter. Her mother, Trudy (Truett’s only daughter), was directing the summer program at WinShape in a year when Brent worked on summer staff. He and Angela met through the camp. Angela worked with a WinShape partner, Connect Ministries, for several years before becoming a full-time mom. Brent continues to work with WinShape as the Associate Director of Staff Development. As an outsider coming in to the family, he has observed that the family is committed to having time intentionally devoted to family activities and separate time intentionally devoted to business.
Learning best practices
Members of Generation 3 Plus are pursuing educational opportunities to learn more about managing a family business. James expects to graduate from Kennesaw State University’s Executive MBA for Families in Business program in May 2012. He, Brent, two other family members, and a key non-family member executive attended a week-long session at the Harvard Family Business Program in the fall. The Kennesaw program focuses on both typical MBA topics and family dynamics, while the Harvard program looks primarily at family involvement.
James says one of the things he took away from the Harvard Family Business Program is that family business issues are cross cultural. Chick-fil-A® was one of only three U.S.-based businesses in the program, and they all were dealing with the same decisions and processes no matter the language they spoke. They spent much of their time learning from case studies from other family businesses.
Brent brought back the concept of a family business member’s role as illustrated in a three-circle Venn diagram. Each person in the family is either a family member, an owner or a manager in the business, but sometimes the circles overlap. It’s helpful to recognize which circle you are in or should be in when making a decision.
Partially as a result of their involvement (and Generations 2’s involvement) in these programs, Generation 3 Plus now holds monthly conference calls. They update each other on personal matters, and then discuss business matters as well. They often linger after the call is over to exchange ideas with other family members.
They also hold Generation 3 Summits, in which they discuss business and bring in outsiders to speak and inform them. In February, they will play some roles in a seminar for owner/operators. They realize that people working for a family business like to see family members active and involved. It creates excitement and makes them feel more confident about the future of the company.
Members of Generation 3 Plus are not in decision making roles yet, so they are focusing more on learning about the business, figuring out how to work together, and studying family business in general. They also are working on determining how best to use the time and talents of their members in the family and in the business. They have appointed a five-member family council to organize their efforts.
All of the family members come together for cross generational meetings twice each year. One of these meetings even includes Generation 4. Together, all of the generations currently include 38 people.
Chick-fil-A® moving forward
Chick-fil-A® is currently in 39 states, and plans call for expansion into more of the U.S. Truett has always wanted to pass a debt-free company to his children, and Chick-fil-A® is approaching that point, perhaps in the next year.
James’ and Brent’s Three Tips for Family Business
Contact Our Guests:
James D. Cathy, Financial Return Innovation Analyst
Chick-fil-A®
Email: james.cathy@chick-fil-a.com
Brent M. Fielder, Associate Director of Staff Development
WinShape Camps
Email: bfielder@winshape.org
James D. Cathy and Brent M. Fielder, third-generation members of one of Atlanta’s most famous family businesses, will join Family Business Radio co-hosts Meredith Moore and Dwayne Samples at 1 p.m. on Thursday, December 15, 2011. James and Brent will discuss the challenges of keeping a business in the family in the third generation while planning for the fourth generation. They also will share the importance of continuing Chick-fil-A® founder S. Truett Cathy’s passions of personalized service and giving back to the community through the WinShape Foundation.
Our guest:
James Cathy
A grandson of Chick-fil-A® founder S. Truett Cathy, James Cathy remembers going to the Dwarf House with his father, Don M. (Bubba) Cathy. He was squeezing lemons, working the drive-thru and running the cash register before he was tall enough to see over the counter. James earned a Bachelors of Science in Hotel, Restaurant and Tourism Management from the University of South Carolina. He worked for an outside company for several years before becoming office manager at the West Columbia (S.C.) Chick-fil-A®, then moving back to Atlanta to join the corporate staff. Today, James is a Financial Return Innovation Analyst. He also is enrolled in the Cox Family Enterprise Center of the Coles College of Business at Kennesaw State University.
Our guest:
Brent Fielder
Brent Fielder is the Associate Director of Staff Development at WinShape Camps, where he oversees the recruitment, hiring and development of more than 425 college students each year. Started by S. Truett Cathy in 1985, the WinShape Foundation’s goal is to “shape winners” out of young people. From its beginnings as a summer camp and college scholarship program, the Foundation has grown into seven different ministries operating in 32 countries and impacting thousands of lives each year. Brent began working with the WinShape Foundation in 2003 as part of the summer staff at WinShape Camp for Boys in Mount Berry, Ga. He is married to Angela White Fielder, granddaughter of S. Truett Cathy. Previously working with the WinShape Camps for Communities day-camps, Angela has recently become a full-time mom to 8-month-old son Michael.
Contact Our Guests:
James D. Cathy, Financial Return Innovation Analyst
Chick-fil-A®
Email: james.cathy@chick-fil-a.com
Brent M. Fielder, Associate Director of Staff Development
WinShape Camps
Email: bfielder@winshape.org
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Gaia Marchisio, Ph.D., assistant professor of management at Kennesaw State University, informed Family Business Radio listeners about the unique challenges and opportunities of next generation family business members when she visited the studios Thursday, December 8, 2011. In a conversation with FBR co-host Dwayne Samples , she focused on entrepreneurship and burnout in newcomers to family businesses.
Family Business Upbringing and Education
Born in Northern Italy, Gaia grew up in a family business that her mother and grandmother managed together. The business did a variety of things over the generations–including becoming among Italy’s first car dealers after WWII. Although Gaia had the dream to become a medical doctor, she decided to study business to prepare her to become the successor in the company run by her grandmother. Before she earned her bachelors degree in business administration though, her family decided to sell the business. At that point she had developed a stronger interest in learning more about business, above all when she found out that in college there were professors who were actually studying family business, which was just a way of life for her. To her, it was good to know there were other businesses out there like her family’s, and there were people there to help.
After Gaia earned her BBA, she decided to continue her education and completed a doctorate program in family business, while working as a professor of management. During these years she met Cox Family Enterprise Center Executive Director Joe Astrachan and Director Kristi McMillan. Because the Cox Family Enterprise Center is well respected as a leader in the worldwide field of study, once she finished her DBA, Gaia accepted their offer to come to Kennesaw to teach and research as a dream opportunity.
Family Business Research Topics
Gaia’s research into family business has evolved over time. When she began her studies, she focused on the topic of succession and the best training and experience to get before a next generation family member joins a family business.
As she researched, she learned that preparing to enter the family business was easier than actually starting to work, gaining credibility and respect, and taking on the role of “entrepreneur” in an existing company. Much of her work has focused on ways next generation family business members can fit in and make their marks.
Her third and more recent area of research focuses on burnout in next generation family members managing a business.
Introducing the Next Generation
When bringing a new family member into the business, families must ask what is needed at three levels—for the business, the family and the individual. How is the business doing? How are the people involved in the business, including family members, performing and interacting? What are the new individual’s particular skills, education, self-esteem and other traits? Each situation will be different, so there are not necessarily any best practices to guide the change.
She says many families want individuals to work outside of the business to gain experience before joining the family company, but time does not always allow this. In those cases, businesses might bring in an outside manager or mentor to train the next generation.
Next Generation Members as Entrepreneurs
Gaia explained three primary ways next generation family members can leave a footprint on an existing family business. First is through innovation. The next generation can develop a new way of manufacturing or packaging a product, for example. The second is by implementing a venture strategy–adding new components–within the existing business.
For innovations or new ventures, Gaia acknowledges that existing family members in the business may be resistant to change or hesitant to learn new ways of doing things. They also may question if the capital is available in the business or in the family. She recommends that next generation family members gain experience or exposure to the new area or even hire someone with knowledge in that area. They also should develop a business plan before recommending changes.
The third method is strategic renewal. In companies and families with open communication, family members can look around, see what’s best for a company’s survival, anticipate the needs of the customer, and change if needed. Strategic renewal requires a family that understands that each generation has choices. Gaia used Playmobil, a fourth generation company that began by developing molding items, to illustrate. The family looked around and saw changes in the market and transitioned the company to respond. They now successfully manufacture plastic toys, have some amusement parks, and manage other components as well. They’re still working together as a family, but the business looks very different.
Strategic renewal requires overcoming the “we haven’t done that before” reaction from older generations and/or family members who own part of the business but who are not working in the business. It also requires significant time and planning, people who are willing to learn and change, and financial resources. Strategic renewal works best in families with strong relationships, where decisions can be made in the best interest of the business or family and not based on personalities or even old, unrelated disagreements.
Gaia’s Message to Next Generation Family Business Members
Gaia warns that coming into an existing business can be difficult, and change requires patience. She says to build relationships with people of your generation, and try to see the business as the older generation does. Perhaps they’ve worked in the business their entire careers, they’re looking at retiring or exiting the business, and may not see a need to change if they’ve been successful with what they’re currently doing. She emphasizes that empathy is needed from both the older and the newer generations.
Overall, she encourages next generation family members that change can happen, but it’s a process. There are ways to be innovative and fresh inside an existing business, but you’ll need to support your ideas with facts and research to make it happen.
She also points to the study of family business as a resource. Researchers, experts and the community of family business owners allow for the exchange of information and a place where family business members can share and learn that other family businesses face similar challenges.
Gaia says that many next generation family business members are viewed as “lucky” by those who know their families, but others don’t always understand the responsibility that comes with being the next to go into and continue the success of an existing family business. They also don’t understand what it’s like to be viewed as the business owner’s son or daughter at the business and even in social situations. By surrounding themselves with others in similar situations, next generation family business members will find a community that understands and can help. Kennesaw State University’s Executive MBA program for Families in Business is an example of a community that allows business members to share openly and learn from each other.
Researching Burnout Among Next Generation Family Business Members
Gaia defines burnout as stress related to work that reveals itself in three parts. First, the worker experiences emotional exhaustion and has no more energy. Next, the worker begins to detach himself or herself from the job and other workers. Finally, the worker becomes ineffective in his or her role. When the three occur together, the worker is experiencing burnout.
Burnout has mostly been studied in professionals such as nurses, doctors, police officers and teachers. Gaia and colleagues Morgan Miles from University of Tasmania and Dave Shepherd from Georgia Southern University have been studying the same in next generations family business members through a worldwide survey. They are collecting data to see where and how burnout is occurring and to determine its causes. Results are not in, but one observation so far is that people in “normal” (non-family) jobs get stressed at work and rely on their families to help them through, even if that means supporting them through a job change. Preliminary findings are showing that more family business members are fine at work, but stressed with heir families. They are researching the causes and considering alternatives to family as a coping strategy. One initial finding is that workers in families with clear boundaries between work and family experience less burnout.
Gaia and her fellow researchers are not studying stress in the patriarchs of family businesses, but she says she has noticed it. The patriarchs always have questions about what will happen next with the business, and they may have to choose a successor among their children. Without proper boundaries, the other children may perceive the patriarch loves one child more, even when the decision is based solely on business aptitude or skill.
Communicating in Families
Gaia says that the Cox Family Enterprise Center has found there are two keys coexisting factors to long term success in a family business: family’s cohesiveness and business’ profitability. The two are related and build on each other. If the family is cohesive, they will make good decisions. Money will not have to be spent to buy out other family members, and more money can be invested in the company, leading to greater profitability. At the same time, if the company is profitable, there will be more trust among family member owners, whether they are working or non-working.
As a result, good communication in family business members is vital. Sometimes it’s hard for family members to see the root of a problem, so getting help from someone who understands—whether an expert or someone in a different family business—can facilitate resolution of issues.
Families also need to make distinctions between owners and owner/managers. Those who have ownership but do not participate in the management of the business still must be responsible for learning about the business so they can make and understand decisions when needed.
Gaia Marchisio’s Tips for Family Businesses
About our guest:
Gaia Marchisio, Ph.D.
Assistant Professor of Management
Kennesaw State University
1000 Chastain Road, #4900
Kennesaw, GA 30144
Phone: 770.423.6324
Email: gmarchis@kennesaw.edu
This week, Family Business Radio co-hosts Meredith Moore and Dwayne Samples will take a look at family business around the world with Gaia Marchisio, Ph.D. Scheduled to air at 1 p.m. on Thursday, December 8, 2011, the show will focus on Gaia’s experience working with next generation members of family businesses in Europe, South America, Italy, China, Australia and the U.S.
Our guest:
Gaia Marchisio, Ph.D.
Gaia Marchisio is Assistant Professor of Management at Kennesaw State University, where she teaches graduate and undergraduate courses in management and behavioral sciences, family business management, and family business consulting. She also is a faculty associate of the Cox Family Enterprise Center at KSU. Her research primarily concerns fostering entrepreneurship in family business, burnout in family business, and strategic planning processes in family business. An active international speaker and family business advisor, she regularly presents and/or advises family business management around the world.
Born in Italy, Gaia was raised as a fourth generation successor in her family-owned business, helping her understand the emotional challenges and responsibilities of being a young member of an entrepreneurial family. After finishing her BBA, she joined the Strategic and Entrepreneurial Management Department at SDA Bocconi, Bocconi University School of Management. She earned her doctorate in Business Administration on family business, and in 2006, she moved to the U.S. to take her current assignment at Kennesaw State.
Gaia Marchisio, Ph.D.
Assistant Professor of Management
Kennesaw State University
1000 Chastain Road, #4900
Kennesaw, GA 30144
Phone: 770.423.6324
Email: gmarchisi@kennesaw.edu
Website: http://coles.kennesaw.edu/centers/cox-family-enterprise/index.htm
Hosted by Meredith Moore and Dwayne Samples, the show provides a platform to showcase family-owned businesses, key executive non-family members who are helping to drive those businesses, and the professional advisors that assist them. Family Business Radio was created to further the community and serve as a mouthpiece to educate, inform and support this vital segment of our economy.