From the May 1998 issue of Entrepreneur

Let's play jeopardy. The answer: Open a branch. What's the question?

Here are your options:

1. What do you do when your family business has too many family members for each to have a role?

2. What do you do when you have relatives who can't get along under the same business roof?

3. What do you do when you see another market that's ripe for the product or service supplied by your family's business?

If you responded with question 3, you're the winner. Opening a branch office or store makes good business sense when it presents an opportunity for growth that fits the family business's vision--and when the business is strong enough to sustain the growth. When coupled with the opportunity for talented family members to have their own spheres of influence while still maintaining connections to the strong parent company, the move makes even more sense. What opening a branch office doesn't solve, however, are unresolved family issues. Nor does it squelch disputes among squabbling relatives.

Without a potential market in place, "family businesses [with feuding relatives] would do better to sell the business and divide the proceeds or split the business between the feuding sides (if possible) rather than use expansion to get out of each other's hair," says Ed Hoover, president of LifeSystems inc., an Oakbrook Terrace, Illinois, family business consulting firm.

But when there's a solid business reason behind the decision, opening a branch with a talented family member at the helm presents a rare opportunity to head off problems that arise when you have a lot of qualified family members in a successful business. Branches allow a family business to leverage its established base and solid reputation and take advantage of economies of scale while giving family members their own spheres of influence.

Of course, you can go overboard trying to capitalize on opportunity and a profusion of qualified family members. Frank Bromberg Jr., president of Bromberg's, a sixth-generation Birmingham, Alabama, jewelry store, should know. "In 1960, there were three of us," says Bromberg. "But my cousins and I were prolific, and among us, we had 17 children--and just one very successful store. So we took a look at the future and made some decisions. One was to limit the number of children who could enter the business to three from any one family. Another was to open branches throughout the state, because we knew there was a business opportunity and we knew we'd need room for family members to expand.

"At one time, we had as many as 14 branches until we realized that we didn't need a jewelry store on every street corner to be successful. Now we have eight stores doing double the business that 14 did. And all of them are headed by a family member."

Talent is important if you're planning this type of expansion. So is trust. Sam Howard, co-founder and chairman of Phoenix Healthcare of Tennessee (PHT), an HMO for Tennessee's Medicaid program, and Phoenix Healthcare of Mississippi, was thankful he could call on his daughter Anica to be executive director of PHT. "She's very talented and knowledgeable," says Howard. "But equally important, as long as she's running the operation, she'll protect the name the company was built around."

Establising The Roots

Even if there's a market opportunity to branch out, says Hoover, family businesses have to be wary about doing so before they've gone through the second stage of their development: the professionalization of the business. "If the business hasn't done this yet--and entrepreneurial family businesses are often resistant--they can wind up replicating management and organizational problems when they expand into other markets. Business problems compound geometrically, not mathematically, when there's an expansion." The complexity of expanding makes it essential to define the structure of the holding company, the responsibilities and methods of accountability of the branch heads, the geographical territories, and the operational connections.

In addition to making certain the business processes are well articulated and understood, family members need to talk about unresolved issues of trust and respect before branching out. "If they are not [addressed], chances are these breaches will only escalate," Hoover says.

Still, there's nothing better for a business than expanding your profit, reach and reputation, and having a large, talented cadre of trusted family members to make that expansion happen. It's good for business and good for the family.

"Can you imagine if we hadn't opened our branches and now we had the three [members] of our generation and nine of the next in one building?" muses Bromberg. "We would have killed each other."

Patricia Schiff Estess writes family business histories and is the author of two books, Managing Alternative Work Arrangements (Crisp Publishing) and Money Advice for Your Successful Remarriage (Betterway Press).

Contact Sources

LifeSystems inc., (630) 495-7600, FamBzns@aol.com

Phoenix Healthcare Corp., 3401 West End Ave., #470, Nashville, TN 37203, (615) 460-0260