Children-Turned-CEOs Face Tough Questions

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The children of successful entrepreneurs are under a lot of pressure after taking over the family business. How can they make the operation truly their own--both in terms of strategy and leadership?

You're the child of a successful entrepreneur and the family business has been entrusted to you. That's a lot of pressure. If you foul things up, the business not only goes south but Mom or Dad's legacy sinks, too.

So, many second- and later-generation family-business operators are torn. Sticking closely to the management approach that has been inherited can often be the easiest path, but how can they make the business truly their own--both in terms of strategy and leadership?

"That's the toughest issue I deal with," says Rich Morris, a former executive and co-owner of a family business who now advises other family companies. Workers at family firms have often watched the new chief executive grow up around the place. "How do you get the people who work there to view you, son or daughter, as running the company?" asks Mr. Morris, owner of ROI Consulting Inc., in Evanston, Ill.

Surprisingly, many children-turned-CEOs at family businesses say the transition can occur suddenly and fairly simply--by making a major business decision that fundamentally changes the company. Such a move makes the new-generation entrepreneur feel he or she is actually in charge, not just a caretaker for prior generations. And it sends that message to workers, as well.

"It's that thing that Dad never thought to do," says Mr. Morris. Or perhaps thought to do and decided against.

Julie Smolyansky, 27, took over as president and chief executive officer of Lifeway Foods Inc., a Morton Grove, Ill., maker of liquid-yogurt drinks, last June when her father, the company founder, died of a heart attack at age 55. Ms. Smolyansky had worked closely with her father, but hadn't expected to run Lifeway, which is publicly traded and has annual sales of about $10 million, anytime soon.

"We sort of recovered and moved on," she says. "It's a little uncomfortable when you're the youngest female in the room and you're surrounded by gray-haired middle-aged men." But she had watched her father, "with a thick Russian accent," make himself understood and in charge, so it didn't seem impossible. She knew right away she wanted to manage differently than her father, who she says was "more Soviet-style. He started it. It's hard to give up control."

The company's drink, known as kefir, is packaged in white plastic bottles with a fairly drab label slapped on. And Ms. Smolyansky has wanted in recent years to see Lifeway join other beverage makers in wrapping the bottles in plastic sleeves that allow for more colorful and bold packaging. A sleeving machine, however, sells for more than $100,000. Her father looked. "He'd say, 'It will fly off the shelves with this packaging.' "

But having started the business on a shoestring and operating it as economically as possible, "he just couldn't do it," she says. Late last year, Ms. Smolyansky and her younger brother Edward attended a food-packaging convention. They looked at sleeving machines and ended up ordering one, which arrives next month. "It's exciting," she says. "We went out and celebrated. It's definitely the biggest change for our product and company. It would really have hurt us if we kept the old look."

By the end of April, Lifeway hopes to have its new packaging on store shelves. And while her father's photograph hangs in her office, the company is feeling more and more like her own, Ms. Smolyansky says.

At Koss Corp., a Milwaukee-based maker of stereo headphones, Michael Koss, named CEO by his father, founder John C. Koss, in 1991, immediately renegotiated what he viewed as an overly restrictive bank-loan agreement. His father had personally guaranteed the loan and it was also secured by the company's assets, unusual for a company with Koss's many years of success. "The first thing I did was negotiated [John Koss] off as guarantor," Michael Koss says.

Arlene Levy, who along with a brother and sister, runs A. Messe & Sons, a Chicago industrial plumbing and heating-supply company their father bought 30 years ago, says the siblings had plenty of ideas for change under their father, but those notions weren't always welcome. "He was still running it with an iron fist" when he died in 1991, Ms. Levy says.

Her brother had pushed for computerization, but her father had resisted. After his death, though, "we didn't waste a second." Immediately Messe & Sons installed computers, which helped efficiency and cash flow and allowed the business to boost its inventory and sales.

Marc Schulman's first decision upon taking over Eli's Cheesecake from his father in 1984 was literally whether to shut the business down or not. The bakery was making about 150 cakes a day, an offshoot of the family's then much bigger Chicago restaurant, which his father continued to operate. "Do you expand or get out?" Mr. Schulman recalls thinking.

Deciding to expand, Mr. Schulman, 47 now, got on the phone with the bank to figure out how to make payroll. His father simply told him: "Do what you've got to do. Once it's your problem, you've got to deal with it." Today Eli's makes 15,000 to 18,000 cakes a day, and has annual sales of more than $30 million.

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