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Why family businesses are best.; By: Brokaw, L.; Murphy, A.., Inc., Mar92, Vol. 14 Issue 3, p72,
7p, 4c, 1bw
Database: Academic Search Premier
WHY FAMILY BUSINESSES ARE BESTIt might not be easier to run a business with family members. But when family businesses work, they possess an inborn competitive edge no other company can match Forget for a moment everything you've read in Inc. about family businesses.
Forget the spousal cat fights. Forget the destruction wrought by tyrannical fathers. Forget all those battles waged by all those children trying to get their parents to view them as managerial peers. Sure, when businesses get messy, family businesses get messier than most. But the messy ones are the exceptions.
The rule, on the other hand, is this: a business run by a team of family members is more resilient and more likely to succeed than any other kind of company. Not as likely. More likely. For despite the sometimes emotionally taxing challenges of family-based management -- and no one is saying it's easy -- there are things about family businesses, about the ways they function internally and are perceived externally, that other businesses simply can't replicate. The result is that family businesses enter the commercial fray with a head start smart managers can exploit to keep them ahead. By their very makeup, family businesses have an unparalleled competitive advantage.
Here's why...ST-Familiarity Begets Speed Family businesses have one indisputable defining quality: the individuals reporting to one another, confiding in one another, and growing the company together understand viscerally what makes their compatriots tick.
Whether dealing with a sibling or a parent or a spouse, they know what inspires, what threatens, what elicits compromise. The best family businesses turn that understanding into an efficiency that breeds speedier management.
"We're absolutely faster," says Crystal Ettridge, who with her brother Steven has grown Temps & Co., a Washington, D.C., temporary agency, into a three-time Inc. 500 company with current billings of $32 million.
"We have a telepathic relationship. We don't waste time."
For instance, when the company opened an office in Atlanta during a period of heavy growth in the late 1980s, and it floundered, Ettridge went to survey the situation and brought back the bad news. "I came home and said, `Unless you are willing to move down there, or I move down there, it's not going to work.
The staff we have is not prepared to run the office this far from home.' I told him my recommendation was to close it down. And the decision was made in, like, one minute. He said, `Fine, it's closed.' And we moved to quickly cut our losses."
Ettridge says she pulls no punches in telling her brother what's good, bad, and ugly about his ideas. "It's just part of the dynamic we've had from growing up together. We don't spend a lot of time saying please and thank you, or typing up plans to present to each other. I think if you know how to utilize that undercurrent and knowledge of each other, you really can have the edge."
Paul Kennedy, president of Kennedy Die Castings, in Worcester, Mass., calls it a shared intuitive sense.
"We can talk in shorthand," says Kennedy about working with his father and brother, who help run the company. "We can get things done in shorthand. The family-business structure can be amazingly quickfooted."
Some customers don't want to speak to a nameless -- let alone faceless -- person in your operation. They want to speak to the person in charge. You know, the person whose name is on the door.
How nice, then, if there are 2, or 3, or 10 people in the company whose name is on the door. In the world of symbols and perception, the experience of dealing with a family member can reassure a customer as much as speaking with the one person who holds the title of president. Family members become a way of leveraging and multiplying a chief executive's presence in the marketplace.
Joseph P. Goryeb, who founded Champion Mortgage Co. as a sole proprietor in 1981, now shares management of the 143-employee, $21-million Parsippany, N.J., company with two sons and a nephew. His wife and daughter also are in the ranks. And he's found that the more people named Goryeb around, the better.
"I'm very, very visible on TV," says Goryeb. "I do all the commercials, and we're on television about 50, 60 times a day here in the New York-Philadelphia area. So everybody recognizes the name. And every time a Goryeb gets on the phone, the customers are impressed that someone at that level is handling them."
That response depends partly on each individual's competence. But Goryeb says the name alone counts for a lot. "I just brought my daughter on board," he notes, "and she's learning the business; her job is to send loans to different investors for preapproval. She's a Goryeb also, and I think it helps."
During short-term crises -- the hurricane that leaves physical destruction, or the sudden cash crunch that temporarily pinches operations -- solid, team-spirited staffs often come together in support of the company.
But longer-term crises -- such as a slow and confidence-draining decline in sales during a recession -- can test businesses in deeper ways. Family businesses pull together with a unique kind of durability during those periods, because family members know it's their business they're sacrificing for. They are simply more likely than nonfamily employees to willingly give up pay, time, and status if the call goes out. They're less likely to bolt. Anita Roddick, founder of $185-million cosmetics manufacturer and retailer the Body Shop, based in Littlehampton, England, likens family businesses to tightly woven fabric: there are hidden strengths that show under pressure.
Computerware Inc., a $50-million computer retailer with corporate customers, knows that hidden strength.
Run by four brothers, their parents, and one outsider, the Bristol, Pa., company drew from that strength during down cycles.
Budget tightening, says president and eldest brother John Kovalcik Jr., was easier to impose on family members. First went perks like afternoons of golf. Next were the company credit cards, so that managers had to fill out T&E forms for reimbursement of expenses. Salaries were frozen for everyone in the company, and the seven owners took 10% pay cuts.
"It was just done, and it was accepted," says Kovalcik. "Our family said, `OK, we'll pitch in.' And this was a good amount of our income; what we earn right now isn't even within industry standards."
That's a different reaction, he thinks, than he may have gotten from nonfamily managers. "It's hard to forecast," he says. "It's unknown how devoted your people are. The really good ones are really devoted. But most companies have a spread of people -- good people, clock punchers, and people in-between." In difficult times, family businesses have fewer unknowns. (Continued) Inherent trust produces a stronger team The difference between us and them -- the competition -- is completely clear in a family business. Few people in business with family members have cause to second-guess the motives of their partners. Rarely do they have to worry about a team member jumping ship to the competition. And trust, they find, has the potential to make family partners more secure, more open, and subsequently, more informed than any team of unrelated people -- all to the competitive advantage of the business.
Michael Pelosi, for instance, figures his father would have fired him long ago if they didn't share the same DNA. Not for poor performance, but because Pelosi adamantly and unrelentingly insisted that the business his father had founded had to shift direction.
Airo Clean Engineering, in Exton, Pa., designs and builds clean rooms used by hospitals, pharmaceutical companies, biotech outfits, and the like. When Pelosi joined full-time, in 1981, the battles over marketing more aggressively and broadening the customer base began. "It was very much a question of his philosophy versus my philosophy," recalls Michael Pelosi. "Certain industries we were selling to were dying out, and we needed to change. We went head-to-head many times." The confrontations, he says, were rougher than what he thinks his father would have accepted from an outsider. "If we had not been related, I wouldn't have been able to get away with the things I did. He would have fired anybody else."
Maybe it was a sense of job security that allowed Pelosi to push so strongly; along with the entitlement to his position came a burden of responsibility that, he believed, obligated him to speak his mind. Maybe it was his father's certainty that his son knew he wasn't betting just the boss's company but his own company on the new strategies. The senior Pelosi now credits his son's aggressive sales-and-marketing approach -- both toward him and in the marketplace -- for the company's tripling of revenues to $3.5 million since 1987. In December 1990 he retired. "Michael has fallen beautifully into the CEO's role," says his father. "He has new ideas, a fresh approach, and maybe more ambition than I have. I can relax."
Those are the dynamics of a family team: arguing prodigiously over strategy or execution even when another family member has great ego invested in one option or another. And relatives can do that because they trust one another and care about one another.
Echoes J. Paul Grayson, cofounder of the $30-million graphics-software company Micrografx, in Richardson, Tex.: "With my brother and me, it's possible to disagree, get mad, and promptly forget. With a nonfamily member, it's easier to harbor a grudge or have personal conflicts. We never hold long-term grudges."
Leverage, part two:
Perceived commitment Means great PR There is a mystique to family businesses, a belief among customers that these companies have uncommon integrity and an uncommon commitment to their businesses. There's an expectation that families care more because their names are on the line. And sharp companies milk that perception for all it's worth.
For instance, the Longaberger Co., in Dresden, Ohio, has taken its warm and fuzzy product -- handcrafted wooden baskets -- and surrounded it with equally warm and fuzzy photo-album-like brochures and catalogs with children who look like Huck Finn and Becky Thatcher. The sales pitches tout, implicitly and explicitly, the idea of family heritage coming "from our home to your home."
"This wasn't a marketing strategy we put together in the home office with some M.B.A.-ers or something," insists Tami Longaberger Kaido, vice-president of marketing. The approach grew, she says, from the company's real-life legacy of Longaberger men -- Kaido's grandfather and then father -- who made wellcrafted woven baskets. What's impressive, though, is the company's ability to sustain that approach even while employing 2,000 people and bringing in roughly $140 million in 1991 sales. "No doubt about it, I think people are buying the intangibles that come with the product," says Kaido. "They're buying tradition and the idealistic values of a family: church socials and wholesome, honest, rural America."
Businesses can also play off stereotypes of family relationships for the greater glory of customer awareness.
Columbia Sportswear Co. has done that exquisitely. The Portland, Oreg., company's revenues in 1986 were $19.5 million; over the next four years they exploded to $117 million, owing in no small part to a tongue-incheek advertising campaign that extols the finickiness of the company's chairwoman, "Mother Gert" Boyle, and the attempts by her son -- company president Tim Boyle -- to placate her. Previous ad campaigns had earnestly presented the technical advantages of the company's outdoor gear. By contrast, a later TV spot had Mother Gert making Tim walk through a car wash to demonstrate how waterproof their parkas are.
Even high-tech companies have found marketing value in emphasizing We Are Family. Brochures from Computerware Inc. open by telling customers straight out that it's a family-owned computer reseller, and close with a photograph of the five Kovalcik men and their one nonfamily manager. "There are so many bigger companies out there touting We're Bigger, We're More Businesslike," says John Kovalcik Jr. "We want to take a totally different tack. Our sales are strictly corporate, and if you can pull off another angle -We're the Owners, We'll Make Sure You're Taken Care Of -- a lot of people will buy because of it."
Continuity projects stability, making customers and employees feel secure Some family businesses shy away from emphasizing their "family-ness" to customers, employees, and their communities; the characterization, they think, doesn't project appropriate professionalism. It's pejorative. But others have found that presenting themselves as a family operation enables them to take advantage of an assumption that family companies, more than any other kind, are in business for the long haul -- and will provide continuity for customers and employees alike. Family businesses can make their constituencies feel secure.
"Family-run companies have a lot of flexibility to respond and plan, because you can say, `I don't care about next quarter or next year. I'm going to build something that will do really well in years 6 through 10,' says Bruce Woolpert, a third-generation manager and, with his brother, Steve, copresident of the Granite Rock
Co., a supplier of concrete and crushed stone in Watsonville, Calif. Adds Steve, "There's no doubt about it:
working here goes deeper than the relationship with my parents and my brother. We are advancing something that was begun by our grandfather, which makes for a certain responsibility to continue and progress. There's no greater motivation than that."