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Helping the Family Business Grow

Can a newcomer revitalize a family business--without igniting a family feud? Learn from 3 entrepreneurs who did just that.
March 1, 2005
URL: http://www.entrepreneur.com/article/76152

Editor's Note: Looking for our online exclusive? Click here for a list of resources to help you keep things running smoothly in your family business.

The 20s are a time for self-discovery, and Robert Douglas Jr.'s 20s were no different. After earning a political science degree in 1995 from Eckerd College in St. Petersburg, Florida, he was off to Maui, Hawaii, to ride the tide for a year as a professional windsurfer. Then it was back to Florida to pursue another interest: flying. Robert Jr. earned a commercial pilot's license and got a job as a flight engineer for a family-owned Miami airline company. By the late '90s, he was flying DC-8s all over Central and South America.

Working for a father-son company made a big impression on Robert Jr., 33. "I looked at it and thought, 'What a great opportunity,'" he says. "I decided to take a leave of absence from the flying job to see if I could work with my father."

His father is Robert Douglas Sr., 72, founder of The Black Dog Tavern Co. Inc., the iconic T-shirt shop and restaurant on Martha's Vineyard, Massachusetts. The Black Dog dates back to 1971, when Robert Sr. opened a restaurant and named it after his Labrador-boxer, whose namesake was the pirate in the classic novel Treasure Island.

By the early '80s, The Black Dog T-shirt was a must-have item for Ivy Leaguers who spent summers on the island, and the store generated national buzz in the '90s, thanks to customers like President Bill Clinton. Robert Jr. created his own buzz when he came back to The Black Dog in 2000 to spend six months as a manager-in-training and quickly transitioned into the role of COO. Robert Jr. had his own ideas for revitalizing the business, but pushing new ideas wasn't easy; some senior managers quit amid the turbulence. "I think [the resistance] was due to my fresh outlook," says Robert Jr., now CEO. "I don't want to call it inexperience, but it was definitely a fresh set of eyes on the business."

Returning to the family business as "the kid" isn't all milkshakes and cotton candy, especially when younger family members see changes that need to happen for the business to remain relevant and profitable. "Young successors bring ideas to the table," says Paula Harveston, a management professor at the Campbell School of Business at Berry College in Mount Berry, Georgia. "It can be a problem, especially when there's no confidence in that person's leadership abilities yet."

This crisis of confidence could become more of an issue. Leadership in 39 percent of U.S. family-owned businesses will change hands over the next five years, according to the 2003 "MassMutual Financial Group/Raymond Institute American Family Business Survey." Thirty percent will go on to be run by second-generation family members, 12 percent will survive into the third generation, and just 3 percent will be handed down to the fourth generation, says Joseph Astrachan, editor of Family Business Review. In fact, the average life span of the U.S. family business is only 24 years.

At The Black Dog, Robert Sr. remains owner, chairman, president and sounding board for Robert Jr. and brother Jamie, 31, who oversees management of its retail stores. (His brother Morgan, 27, is a lunch cook at the tavern, and another brother, Brooke, 22, isn't involved with the business, "but," says Robert Jr., "I'm working on him.")

Having an encouraging parent helps, says Robert Jr., but he still had to sell employees on a new direction. It's been a slow process of outlining his ideas (one of which is a five-year plan for expanding the clothing side by up to 50 new stores--a move that could propel sales to $75 million by 2008), getting everyone's input and answering tons of questions. Some employees might leave, Robert Jr. says, but that's the price of progress. "I had countless meetings with the employees, because they need to be brought up to speed," he says. "It might take three, four, five months to keep on driving it home."

You Can't Go Home Again . . . Can You?

There's a fine line between the boardroom table and the kitchen table in any family business. Just ask Ellen Picataggio, 35, and husband Pete, 36, managing partners of The Farmer's Daughter, a 66-room hotel in Hollywood, California. The hotel was built in the 1960s and became a neighborhood icon, especially for fledgling actors who could get a room for as little as $25 a night.

Ellen's Korean-born parents bought the hotel in 1997 and continued to run it as a low-budget motel with the help of her sister, Christina. When Christina was killed in a car accident in 1999, Ellen's parents asked her to leave her job as an operations manager for a clothing manufacturer to take over operations at The Farmer's Daughter.

Pete considered leaving his job in business development for software company Symantec to join the family business. Leaving the corporate world was one hurdle; the thought of working seven days a week with his in-laws looking over his shoulder was another. "When they first asked, I said no," he says. "But the more I let my brain get behind it, the bigger a challenge it [appeared to be]."

He joined Ellen, and they started unpacking their own ideas. Ellen wanted to update the motel's design. Pete felt marketing and operations needed a huge overhaul. Both wanted to revamp The Farmer's Daughter into an upscale hybrid hotel-motel, a renovation that would cost a few million dollars. Ellen's parents, who are both in their 70s and spend most of their time off-site but maintain full ownership, resisted initially. "[My parents] come in every day for five or 10 minutes to look around and talk about what's going on," Ellen says. "Their minds are still very much involved in what's going on in the business."

The Picataggios gave Ellen's parents an ultimatum: Either you let us change some things, or we're outta here. "We sat down and said, 'If this is just going to be a Motel 6, we can't stay here.' That was step one," Ellen says.

The Picataggios also pressed her parents' hot button--the bottom line--by writing a business plan, preparing a sales pitch and letting them do the math. It worked: The renovation was completed in 2003, redecorated rooms are going for $115 to $122 a night, and The Farmer's Daughter has become a Hollywood nightspot for celebrity parties. Sales for 2005 are expected to reach $2.3 million.

Family members have to make a stellar case for any changes they propose, says Larry Bennett, director of the Larry Friedman International Center for Entrepreneurship at Johnson & Wales University in Providence, Rhode Island. To be taken seriously, "you have to quantify your rationale better than you would in a nonfamily business," he says. "You have to have an attorney's mind-set. That means knowing the answer before asking the question."

For the Picataggios, approaching Ellen's parents as investors and understanding their perspective was also key to changing their minds. "You have to keep it on a professional level," Ellen says. "That made a huge difference."

Smoothing Ruffled Feathers

Mark Schnepf represents the third generation to run Schnepf Farms, a family farm started in 1941 by his grandparents in Queen Creek, Arizona. But his original plan was to become a corporate attorney. "Growing up, I never wanted to be a farmer," says Schnepf, 46. "The work was too hard, the hours too awful."

When the farm ran into financial trouble in the early 1980s, Schnepf's dad, Ray, asked him to take a break before law school to manage the financial end of what was then a 5,000-acre working farm with 100 employees. "I started working with my dad and never left," Mark says.

The younger Schnepf, however, realized the farm needed to revitalize itself or it would go out of business. Mark and his wife, Carrie, 44, started incorporating public events, including an annual Peach Festival. Ray, who passed away in 1995, was excited about the direction the farm was heading.

But his mom, Thora, wasn't happy as the farm downsized both staff and acreage to branch into "agritainment," promoting itself as Arizona's "premier family entertainment farm" with petting zoos, a train ride and festivals that now draw thousands of people. Farm employees balked at interacting with the public, and old customers of the farm's roadside fruit and vegetable stand didn't like the changes, either.

The Schnepfs encouraged Thora to come to events on the farm, where she "warmed up to the idea," Mark says. "She became a local celebrity." They met with employees and explained how the changes were about survival and being able to pay people more, which improved morale. Today, the farm has 10 full-time employees, 110 seasonal employees, and annual sales of about $2 million. The Schnepfs believe they're staying true to the farm's legacy by keeping it alive--in fact, Mark thinks his biggest mistake was not changing faster because he didn't want to ruffle any feathers. "Don't be afraid to make changes," he says. "[Waiting too long] cost us a lot of money and time."

You must have a hands-on grasp of the core business processes first, says James Olan Hutcheson, president of ReGeneration Partners, a family-business consulting firm in Dallas. Even better, family members should seek outside work experience to get a well-rounded perspective and ask to be interviewed like any other applicant before they enter the family business. This lays the groundwork for what's expected and also what the younger generation expects. "Establish a code of conduct that says how you'll discuss important matters," Hutcheson says.

Nancy Bass, 43, is third-generation co-owner of the Strand Book Store, founded by her grandfather, Benjamin Bass, in 1927 in New York City. Today, it's an oasis for book lovers who trek to its flagship store on 12th and Broadway or to one of its four other locations around the city. While her dad, co-owner Fred Bass, 75, oversees the book buying and prefers bartering with the public at the used-book counter, Nancy--armed with an MBA and management experience from Exxon--is busy nearly doubling the size of the flagship store. She also oversees 210 employees and manages operations.

Updating a local legend can be daunting. "When I meet people at parties, they say, 'That's my favorite place in New York,'" Nancy says. So how has she pushed big changes such as web-based book selling? "Dad has to get used to things, so I say, 'If this doesn't work, this is the worst-case scenario.' We'll try it in small steps, and he'll get used to the change," she says.

You have to pick your battles and stay flexible, too. "I've given in to a lot of things where I might have the better way, but it's not the important battle," Nancy says. "You can have different paths to get to the same ends." There certainly seems to be no end in sight to the company's success: 2004 sales booked in at about $22 million.

Words to the Wise

So how do you push change as a second-or third-generation family business member? We asked the experts.

Family Business

Running a family business is very unique and offers its own obstacles most other types of businesses don't face. For instance, sibling rivalry is a perennial problem in most family businesses, while many nonfamily businesses have policies against family members working together. So with all the intricacies that come with family-owned businesses, here's a list of resources that will help keep your business one big, happy family.