Making Family Business Work in the 850
Family businesses are loosely defined as businesses in which two or more family members are employed. The underpinnings of our economy, they are known for their personal service and commitment to the community. But they often struggle to stay open beyond the first or second generation.
All In the Family Family businesses remain the backbone of the American economy By Lilly Rockwell Originally published in the Dec 2010/Jan 2011 issue of 850 Business Magazine
As a young girl, Mary Katharine Lawler accompanied her father to his Tallahassee insurance office on slow summer days.
While some kids might find the prospect of a summer spent lolling about an insurance office insufferably boring, Lawler found ways to occupy her time.
The receptionist drew a picture of a telephone, and Lawler pretended to assist her.
“I would copy her and play with my telephone and mimic what she was doing,” Lawler said with a chuckle. “Then, when I could actually read, I spent my summers filing.”
Lawler’s father, Doug Croley, started his Tallahassee-based insurance agency in 1978. From the start, family members were involved, with his wife handling the bookkeeping and his mother pitching in as an insurance agent. Though Croley told Lawler to pursue whatever career she chose, so long as it “got her off my payroll,” he made sure to extol the virtues of working at an insurance agency and gave her plenty of exposure to the office.
“There was a desire to see a new generation come in and continue the agency,” Croley said. “I think customers appreciate that because continuity means a lot.”
Lawler began college with every intention of not working for an insurance company because, frankly, “I had been around it my whole life. I didn’t want to do insurance.”
Four years later, she graduated from Florida State University with an insurance degree.
After a six-year stint managing multimillion-dollar corporate accounts for Arthur J. Gallagher Insurance in Tampa, she’s back at Croley Insurance. But instead of answering phones, Lawler is the company’s vice president. In short, she said, “I found that I really like it.” Lawler not only works beside her father, but her mother and grandmother are still in the business.
Family-owned businesses are the backbone of the U.S. economy. They control 64 percent of the nation’s gross domestic product, or $5.9 billion, according to the journal Family Business Review.
Family businesses are loosely defined as businesses in which two or more family members are employed. The underpinnings of our economy, they are known for their personal service and commitment to the community. But they often struggle to stay open beyond the first or second generation.
Those family firms that are handed down from generation to generation are looked to as not only pillars of their community, but also as experienced business sages that have weathered economic storms that brought down many other businesses around them.
In Tallahassee, the Proctor family has run a car dealership for 100 years. Currently the family owns Honda, Acura and Subaru car dealerships in Tallahassee. These family-owned dealerships began in 1910 and have endured through three generations.
“The world changes around us, and you’ve gotta keep pace with that,” said W. Theo Proctor III. “You can’t rest on your laurels. You have to look at ways to keep progressing and finding your niche with society.”
The Good and Bad
Family members can be a business’s best asset — or its worst liability. But when things are running smoothly, those involved in family firms say it’s the best way to run a business.
Among the pluses: Family members are hardworking and loyal and help keep the work environment fun and relaxed. Other draws are the influence that family members have over how the business is managed and the financial rewards that come with being part owner.
“Blood is thicker than water,” said Jane Hilburt-Davis, a Boston-based family business consultant. “There is nothing quite like working with family, if it’s going well. They are more nimble, they can move faster, and I have seen in bad times how they pitch in and take on extra tasks.” Not to mention that family businesses generally have less debt and are more conservative financially, she added.
At Capital City Lawn Care, Vice President and Director of Operations Adam Gunter is the son of founder Ben Gunter. The two work 6 feet away from each other in their northwest Tallahassee office.
“We’ve been around each other so long in the business now that I know what he’s thinking and he knows what I’m thinking,” Adam Gunter said.
But experts warn that, when things go sour, working with family members can turn from a dream into a nightmare. The stakes are higher because not only is the financial future of these family members at stake, so is their relationship with one another. Fighting over business easily spills over into epic feuds over Thanksgiving dinner.
“It’s a more relaxed feel at work when you work with family, and it’s easy for us to work together,” said Rob Baker, the owner of T-N-T Hideaway Canoes in the Wakulla County town of Crawfordville. He works with his mother and sits on the board with other family members. “On the other hand, you have got to keep in good standing with the family. If you have one family member that is not agreeing on the business direction, it can really hold things up.”
Family-owned businesses can be structured in different ways. These firms can be a corporation, with shareholders and a board of directors, or an LLC, a limited liability company, a hybrid between a corporation and a partnership or sole proprietorship.
“Whether it’s family or friends, make sure you have a shareholder or, in the case of an LLC, an operating agreement, in place to set up who will do what,” said Scott Behren, a South Florida-based employment attorney. These agreements will outline the structure of the business; who contributes what, whether it’s sweat equity or financial equity; how to determine the value of the business; and how conflicts will be resolved.
Hilburt-Davis said many of her clients come to her when there is a bump in the road, usually because of poor succession planning — and her training in family therapy has often come in handy.
“Very often, it’s difficult for the owner-founder to stop working because that generation is mostly men, that was their life and it is hard for them to step aside,” she said. “They are very ambivalent about retiring and are reluctant to release control and power.”
She helps families determine how they will settle disputes. Once that is resolved, they can tackle planning who will take over the reins of the business.
Accidental Entrepreneurs
The founders of many family businesses start with an idea, a few extra bucks and a lot of hard work. They recruit spouses, brothers or sisters, parents, cousins and sometimes their own children out of necessity, looking for inexpensive, reliable labor.
The children of the founders recall, quite literally, growing up in the office.
Adam Gunter has photos at his desk of him at age 3, grinning from ear to ear as he stood in front of a lawn mower with his father leaning over him.
“I grew up in the shop,” Adam Gunter said. “When I was a kid, I hung around here, and I’d ride around with my dad checking on jobs.” At 13, he was given his first real assignment when he was dropped off at a Tallahassee apartment complex with a push mower.
“Every summer from the time I was 15, I worked here (in the office) and then after school I’d come and mow. So I was always around,” he said.
That type of non-stop exposure causes many second-generation children to question whether they want to inherit the family business. Lawler swore she’d never work at her father’s insurance company, and now she’s vice president. Martin Proctor said he didn’t want to work at his family’s car dealerships, and now he’s one of two Proctors running the operations. Even Adam Gunter went through a brief period of doubt.
But no one was more certain they wouldn’t work for the family business than Lynn Wheelus.
She was so intent on not inheriting her family’s tailor shop that she moved to Tennessee at age 18, sure that putting hundreds of miles between her and her family would work.
Rein’s Formal Wear in Pensacola was bought by Wheelus’ father and mother in 1948. It began as a tailor shop and evolved into a tuxedo shop by the 1970s. Wheelus remembers helping her parents with cuff links and ties as a little girl. When she was old enough to read, she was assigned the task of organizing shirts into drawers, labeled by size.
“When I was in high school, you were forced to work in the family business,” she remembered. “I swore I would never work in that place again.”
She tried dental school for a brief period and then impulsively moved to Knoxville, Tenn., hoping to land a job. But she couldn’t get a job without an education and, “10 days later, I called my father and told him I wanted to come back.” He had a job waiting for her, as manager of the store. Her reaction? “I loved it.” Now she laughs when she recalls her days rebelling against the family business.
“It’s a fun business. You always have a paycheck, it’s enjoyable, and you know everybody you work with because they are all related,” she said.
Her older sister works at the store part time, and her cousin has worked there for 20 years. And Wheelus’ father, at age 90, still pops in almost daily.
A Familiar Place
Many second-generation family business owners say they were drawn to working in their parent’s business after a lifetime spent learning the ropes.
For Adam Gunter, it felt like a natural progression because he “was always around.” His father, Ben, started the business in 1977, at a time when there weren’t many other commercial lawn care companies in Tallahassee. Capital City does residential work, too, but focuses mainly on commercial lawn care, maintaining the lush lawns and vibrant flowers that adorn local apartment complexes, shopping centers and office complexes.
After high school, Adam Gunter chose to learn landscape technology at Lake City Community College. He concedes that he never really thought about anything else, even though he wasn’t pushed into the business. Since his 21-year-old brother and 23-year-old sister haven’t shown much interest in working there, Gunter said it appears the Capitol City Lawn Care throne is his to inherit.
Glenn Shelley also started young, loading trucks and sweeping floors at his father’s Fort Walton Beach moving van company when he was 20.
“It’s one of those industries you can’t manage unless you know what it really takes,” he said. “It’s very labor-intensive and hard work. It’s also all about customer service.”
Shelley’s father started the company in 1961 with two employees and one truck. Now A&A Transfer and Storage Inc. has 160 employees and agency agreements with Mayflower and United, both large national moving companies. About 75 percent of the business comes from the military, and Shelley is fortunate to have a military contract under Mayflower for 10 years.
Although he is now training his son, Ross, to follow in his footsteps, there is no mandate that Shelley’s children work in the business.
“I left it open,” he said. “It’s here if you want to and if you don’t, you don’t have to. I have two daughters who work here part time, but they aren’t interested in taking over the business.”
At T-N-T Hideaway, Rob Baker is the third-generation to run the canoe rental family business. His grandmother, Gretchen Evans, founded the business in 1976, starting out as a no-frills bait-and-tackle shop that she ran in semi-retirement. Soon, it became a canoe and kayak rental spot, an obvious choice due to its location on the shores of the slow-moving Wakulla River. The grandchildren pitched in, especially strong boys like Baker who could load and unload canoes for customers after school or on weekends.
“To live on a lazy river and not have much to do and still support herself was her dream,” Baker said. Although he became an entrepreneur, starting a carpet-cleaning and a truck accessories business, he kept in touch with the family business because he sat on its board of directors.
After his grandmother had a stroke in 2001, Baker’s mother stepped in to help. By 2005, Baker had agreed to return to T-N-T Hideaway, but only if he was allowed to try an ambitious turnaround strategy he had mulled for years. Instead of just renting canoes and kayaks, Baker wanted to move into the business of selling them as well. He also wanted to buy a van to take people on guided fishing tours in other nearby rivers and lakes.
“It made a big difference in income,” Baker said. “When I first stepped in, there wasn’t enough income to support more than one person.” Now there are two employees, with occasional part-time help in busy months.
While some families put little or no pressure on the children or grandchildren, others take great pains to ensure that family members take over the business.
Carol Pauls and her brother, Mark, were home-schooled by their parents, Alice and Tim Pauls, after moving from California to Santa Rosa Beach.
As part of their schooling, Alice had the children learn about home remodeling and how to import containers from Indonesia.
“We started to import containers of wood horses from Indonesia,” Alice Pauls said. “As a family, we set up a whole business from eBay selling horses to Alaska and Japan and around the world.”
After Carol Pauls got her master’s degree in business administration and Mark Pauls got a law degree, the brother-and-sister duo returned to the family business as planned. As partners in the company, they are working to help their parents realize a dream of constructing a facility for weddings and banquets, a 28-room bed and breakfast, a boutique hotel called 30-A Suites and a restaurant. Conveniently, Carol is the manager and marketing director while Mark is a contractor.
“From the time we started to work together in these businesses, we discussed working together,” Carol Pauls said. “A family gets closer when you home-school, or at least we did. We work together as a unit, and you can be more free as far as conversation. Everyone has a mutual respect for each other and the opportunity to get more done.”
Gods of Business
While they don’t dominate any one industry, some of the most common family-owned businesses are retail stores, restaurants and automotive dealerships. Many families are also involved in the manufacturing, real estate and construction industries.
Because it’s rare for a family business to be passed down to the second and third generations, those that do manage to survive are treated as “gods of business,” filled with wisdom about what it takes to survive severe ups and downs in the economy, turmoil among family members, changing technology and more.
Marks Insurance in Apalachicola began as an insurance and real estate agency founded by Charles Aubrey Marks in 1930, in the midst of the Great Depression. Now the business is being run by the third and fourth generations of the family, Charles Aubrey “Chuck” Marks III and his son, Nathan Marks.
“There have been a lot of challenging ups and downs within the insurance market, especially since Hurricane Andrew in 1992,” said Chuck Marks, who took over in 1981. “The nature of the insurance industry is cyclical, and even more so in Florida. If you don’t mind an occasional roller coaster ride, you’ll be OK.”
After Hurricane Katrina in 2005, most insurance companies were going under or scaling back. But in 2006, the Marks family decided that it would be a good time to expand and open another branch in Tallahassee. The move paid off in spades, and these days Chuck Marks continues to run the Apalachicola branch while Nathan overseas the Tallahassee office.
“We all know better than to take it for granted,” Chuck Marks said. “Upholding the values that helped us get to where we are today gives us a solid foundation to handle the highs and lows that impact our business.”
Living with the Dead
Many children of small-business owners grew up filing papers in offices, mowing lawns, washing dishes or folding clothes. Tim Adams learned to live with dead people. His father owned a Blountstown funeral home and, lacking funds to afford a house and a separate building for the funeral home, he combined the two in a 3,000-square-foot home.
“We lived in the back bedroom. It was 13 by 13,” Adams said. “We had a little TV between the beds, and we all lived in that same room and cooked supper on a hot plate in the bathroom.” The rest of the house was used as a full-fledged funeral home, with space for funeral services, room for spare coffins, and equipment used to prepare bodies for viewings.
“We didn’t bring friends home,” Adams recalled. “We would have to sneak in the back door and be really quiet and spend a lot of our time at friends’ houses or outside.”
Adams wanted to be an architect when he was younger, having decided the funeral home business wasn’t for him. But as soon as he got his driver’s license, he was put to work delivering flowers and running other errands for the family funeral home.
“I said, well, this is what I’m going to do,” Adams said. “I went to school in Birmingham for mortuary science and came back and started working.” And he never stopped. His father died in 2002, and today Tim Adams owns and manages Adams Funeral Home along with his mother.
The family long ago moved out of the original funeral home into a house built directly behind it. That original home is now being renovated, and a second location has opened up in nearby Bristol.
“It’s great having family to work with,” Adams said. “If you have to leave for a week, you know things are going to be handled the way they should. You don’t have to leave it to someone who is after a check.”
Partners in Marriage and Business
Some family businesses aren’t run by parents and their children but are husband-and-wife teams. Zana Ireland and husband Anthony Ireland were living in Atlanta and looking for a hobby after taking early retirement. They liked building model railroads and decided to start a new business that sold high-tech electronics for model trains.
“It turned out that at the time there was a real need for a new form of controls for trains,” Zana Ireland said. They took technology that was popular with model train builders in Europe and adapted it to American model trains. They found a method using computer controls that allow the train to send a message back to the conductor, just as real trains do, making these model railroads very realistic.
The couple brought their product to a train show and returned home empty-handed because they had sold everything.
They started manufacturing the parts themselves and the business grew rapidly as demand escalated. In 2008, they moved the business to Panama City and now employ 30 people.
The Irelands have split their work duties in half, with Zana holding the title of president and overseeing administration, marketing and sales. Anthony Ireland is the vice president and oversees engineering, product development and manufacturing.
Zana Ireland said she and her husband grew up around family businesses, but instead of inheriting from their parents, they wanted to grow their own. As far as working with her husband goes, she said, “Sometimes you get mad at each other. But you can’t take it out of the office, just leave it there.”
Who’s Next?
One of the biggest threats to the survival of family-owned businesses is the chance to have a second generation run the show after the parents have retired or passed away.
For every Proctor or Marks family that has managed a business for three or four generations, there are thousands of family businesses that never made it past the first.
Many second-generation children aren’t interested in taking on the family business or family members agree that it’s best to sell, take their profits and go their separate ways.
Family business consultant Hilburt-Davis said poor succession planning is what causes many businesses to seek her advice. Often there is no plan for who will run the business next, or disagreement over who is the right person to do that. If no one is interested in active management of the business, she suggests bringing in a non-family CEO while allowing family members to retain their stake and preserve it for the next generation. She adds that there is nothing wrong with a sell-the-business exit strategy.
Baker of T-N-T Hideaway said there is no family member selected to inherit the business after him. The next generation is still school-age, and it’s too soon to say who might show an interest.
“We have an 11-year-old that is the oldest of the grandkids; he seems interested,” said Jackie Baker, his mother. “When he works, he gets a free soda or candy bar.”
At Capital City Lawn Care, the next generation is currently a toddling 2-year-old boy named Camper, who enjoys investigating every nook and cranny in his father’s office.
“I’m going to let him choose his own path,” Adam Gunter said. “I wasn’t pushed into the business. My dad always told me that you do what you want to do.”
Lee Gordon contributed to this article
By the Numbers
80–90% of all business enterprises in North America are family businesses.
64% of the United States’ gross domestic product, or $5.907 billion, comes from family-owned businesses. 62% of the U.S. work force is employed by family-owned businesses.
30% of all family-owned businesses survive into the second generation, 12% will still be viable into the third generation, and 3% are still operating at the fourth-generation level and beyond. 19% of family businesses have not completed any estate planning other than writing a will, and only 37% have a strategic plan.
24% of businesses responding to an American Family Business Survey have a female CEO or president.
Return on assets is better in family firms, with a 6.65% greater return than non-family firms.
Family business performance is greater, with an economic value added increase of 5.5%, when founding families maintain an ownership stake.
Compiled from Family Business Review and the American Family Business Survey by Raymond Institute/MassMutual
So You Want to Work with Family
Tips from Top Family Business Experts on How to Avoid Common Disputes
Take the time to hire an attorney when starting your business. Attorneys can help prevent future conflict by drafting appropriate shareholder or operating agreements. “Whether it’s a family member or friend, you need to have these agreements in place to set up who will do what,” explained Scott Behren, a South Florida-based employment attorney.
Determine a tie-breaker. It may seem obvious to split a business 50-50 between husband and wife, but that presents problems when there is disagreement. “You need to make sure your shareholder or operating agreement has some way to break ties if you don’t agree,” Behren said. The tiebreaker can be a neutral third party, such as a CPA, attorney or even a trusted family member.
Add non-family members to your board or a non-family CEO. Whether it’s a board of directors, board of advisers, or even the CEO, experts say it’s best to bring in new blood. “It’s very important to give a more objective perspective and bring in talents the family business needs,” said Jane Hilburt-Davis, a Boston-based family business adviser. “If they are trusted, they can really add a wonderful outside voice to the family. It’s very important.” Many second- or third-generation family members hire an outside CEO and keep their stake in the business rather than become involved in day-to-day management.
Develop a process for settling disputes. It’s not so important what the disagreement is, but how you settle it. “The very first thing I do with clients is help them figure out, ‘How are we going to make a decision?’” Hilburt-Davis said. “It might be consensus or majority, as long as they agree on the type of process to make decisions.”
Decide how to value what your business is worth. What a business is worth is called its valuation. Often family members will each own a certain stake, or number of shares in a business. If the shareholder or operating agreement doesn’t spell out how to determine what the shares are worth, you will “spend a lot of money on valuation experts and accountants,” Behren said. A better solution is to determine a formula to use in advance, using a certain percentage of revenue or income, for instance.
Have a succession plan. Most disputes that Hilburt-Davis sees revolve around who will control the business next and when, or whether, to sell it. It can cause tremendous stress within an extended family, even if only two family members are butting heads. “The stakes are very, very high, and it’s usually a lot of family assets,” Hilburt-Davis said.
