Branching Out Ready to expand? Better make sure it's for all the right reasons.

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

Here are your options:

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

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

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

If you responded with question 3, you're the winner. Openinga branch office or store makes good business sense when it presentsan opportunity for growth that fits the family business'svision--and when the business is strong enough to sustain thegrowth. When coupled with the opportunity for talented familymembers to have their own spheres of influence while stillmaintaining connections to the strong parent company, the movemakes even more sense. What opening a branch office doesn'tsolve, however, are unresolved family issues. Nor does it squelchdisputes among squabbling relatives.

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

But when there's a solid business reason behind thedecision, opening a branch with a talented family member at thehelm presents a rare opportunity to head off problems that arisewhen you have a lot of qualified family members in a successfulbusiness. Branches allow a family business to leverage itsestablished base and solid reputation and take advantage ofeconomies of scale while giving family members their own spheres ofinfluence.

Of course, you can go overboard trying to capitalize onopportunity and a profusion of qualified family members. FrankBromberg Jr., president of Bromberg's, a sixth-generationBirmingham, Alabama, jewelry store, should know. "In 1960,there were three of us," says Bromberg. "But my cousinsand I were prolific, and among us, we had 17 children--and just onevery successful store. So we took a look at the future and madesome decisions. One was to limit the number of children who couldenter the business to three from any one family. Another was toopen branches throughout the state, because we knew there was abusiness opportunity and we knew we'd need room for familymembers to expand.

"At one time, we had as many as 14 branches until werealized that we didn't need a jewelry store on every streetcorner to be successful. Now we have eight stores doing double thebusiness that 14 did. And all of them are headed by a familymember."

Talent is important if you're planning this type ofexpansion. So is trust. Sam Howard, co-founder and chairman ofPhoenix Healthcare of Tennessee (PHT), an HMO for Tennessee'sMedicaid program, and Phoenix Healthcare of Mississippi, wasthankful he could call on his daughter Anica to be executivedirector of PHT. "She's very talented andknowledgeable," says Howard. "But equally important, aslong as she's running the operation, she'll protect thename the company was built around."

Establising The Roots

Even if there's a market opportunity to branch out, saysHoover, family businesses have to be wary about doing so beforethey've gone through the second stage of their development: theprofessionalization of the business. "If the businesshasn't done this yet--and entrepreneurial family businesses areoften resistant--they can wind up replicating management andorganizational problems when they expand into other markets.Business problems compound geometrically, not mathematically, whenthere's an expansion." The complexity of expanding makesit essential to define the structure of the holding company, theresponsibilities and methods of accountability of the branch heads,the geographical territories, and the operational connections.

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

Still, there's nothing better for a business than expandingyour profit, reach and reputation, and having a large, talentedcadre 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 andnow we had the three [members] of our generation and nine of thenext in one building?" muses Bromberg. "We would havekilled each other."

Patricia Schiff Estess writes family business histories andis the author of two books, Managing Alternative WorkArrangements (Crisp Publishing) and Money Advice for YourSuccessful 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