It's become an adage that just 30% of family-owned businesses survive through the second generation. That number comes from a 1987 study that is certainly getting long in the tooth, but experts say it is still accurate. The feeling of an uphill battle to stay relevant and thrive is a daily challenge for CEOs hoping to pass on their legacies. And with 40% of family-business owners expecting to retire by 2017, according to a Mass Mutual/Kennesaw State University survey, there's a lot of planning happening. Crain's Wealth's sister publication, Crain's Detroit Business, talked with seven family businesses to find out their secrets to longevity.
1. Learn to communicate
Family communication can be trying under the best of circumstances. Add in payroll, ringing phones, new products, demanding clients and it can be downright overwhelming. Figure it out. If you don't, you'll fail.
"I don't know how other families do it, but in this family there is an element of unconditional love that is in place," said Christa Sarafa, 41, a second-generation owner of Public Lumber Co., a lumber and millwork company that was started on Detroit's east side in 1927. "If that's not in place, you'll never succeed. You have to have that, so whether you fight over something big or small, you can put it aside instantly when you have to.
" To help structure communication, Bloomfield Hills, Mich.-based wealth management firm Gregory J. Schwartz & Co. Inc., instituted informal weekly meetings on Wednesday mornings. At those gatherings, all five brothers — and dad — can air the daily-grind issues that build up, leaving the quarterly board meetings for more serious and productive discussions.
"With something as sensitive as family relationships, candor is not always there," said president Edward Schwartz, 45.
"We've benefited as a family business because candor has always been there. Both my father and my mother were able to express their candid thoughts on the leadership while also soliciting input."
For Jim Hogan, the key is keeping family life and business life separate.
"Easier said than done," he shared with a knowing laugh.
But that's what has kept his marriage intact and him at the head of the J.W. Westcott Co., which his great-grandfather started in 1874 and is best known for its mail and sundry delivery service to the passing freighters on the Detroit River.
"Family businesses can make and break family ties," said Mr. Hogan, 57. "Keep them as separate as possible. You keep the everyday family matters in one location and keep your business matters in your business location so that they don't drive a wedge."
2. Stay in your lane
"That's your daddy's lane. Call him."
That was just the reminder Espy Thomas needed from her mother. The salesman was calling, wanting to know if they needed more syrup, while customers were at the counter and questions were flying at her. A million things buzzing at her, and her first instinct was to drop everything and track down the syrup order.
But no, that part of Sweet Potato Sensations is her father's responsibility. She just needed a reminder.
"We step on each other's toes, and that can be tough," said Ms. Thomas, 33. "We have to have our roles."
Identifying and sticking to defined duties has been critical to the success of the bakery, which is located in Detroit's Brightmoor neighborhood. Ms. Thomas' mother, Cassandra, started the bakery in the family basement in 1987, specializing just in sweet potato cookies at the time. But now her daughters, Espy and Jennifer, are getting more involved and wanting to evolve the business from a bakery to a caf�.
That makes for a lot of cooks in the kitchen at times, so having clear roles helps prevent animosity or anxiety from brewing.
Having specific duties is also helping Kolene Corp. navigate the transition from the third to fourth generations. The 75-year-old chemical company was started in a garage on Detroit's west side and now boasts Alcoa, Boeing and Cummins Diesel among its customers.
"My grandfather was a workaholic," said Roger Shoemaker, the third-generation chairman, CEO and president. "He lived and breathed Kolene seven days a week. He was always working. That trait is what allowed Kolene to be successful." Now, with more than 30 employees, everyone works very hard, but in their defined roles. Family members — including two great-grandsons — can fill almost any role in the business because they each started in the chemical plant and worked their ways up. In fact, neither Mr. Shoemaker nor his brother or two sons have held positions outside the company.
"My grandfather and my father worked very closely together," said Mr. Shoemaker, 66. "I worked closely with my dad. My sons work very closely with me. But we also have very different roles in the organization. That helps."
Linzie and Jesse Venegas can certainly relate. They've been involved in their dad's business, Ideal Group Inc., since they were kids. "We both had to start out at the bottom," said Linzie, 34. "I stuffed envelopes; Jesse was pushing a broom."
Now, however, they both run a business unit of Ideal Group, which encompasses 11 different operating units and six different companies, including Ideal Construction and Ideal Shield. "
"I give people authority and let people run their companies," said Frank Venegas Jr.
That has been a transition for Mr. Venegas, 62, who began passing stock and ownership to his children this year. He started the company in 1979 after winning a Cadillac in a Home Builders Association raffle. He sold it for $12,000 and used the proceeds to bankroll his first company, Ideal Steel. He now employs 300 people in southwest Detroit, and company revenues exceed $200 million. "I still come to work every day, but I can see where my role has got to change," he said.
3. Take risks, but be conservative
Building a business that can stand the test of generations requires taking some risks. You have to be willing to expand and grow, to let sons and daughters try new things. But be conservative in those risks.
Michael Simmons opened an outpost of his family's jewelry business, Simmons & Clark Inc., in Northland Mall in 1985. That was a big leap for his father and grandfather, who had been operating out of their Broadway location in downtown Detroit since 1925. But they wanted Simmons to grow and develop a business he could take pride in, too.
"I always wanted to open my own store, but my grandfather didn't really want to be a part of it," said Mr. Simmons, 51. "But he gave me authority to do it. After my first year, I gave him my profit-and-loss statement and my grandfather said, 'You're all right, kid.' I'd proven myself."
But the company also remained conservative in its finances even as Mr. Simmons expanded into three other malls. So when the economy started turning, they were prepared and could let the high-price leases go and retrench in the Detroit store.
"We saw what was going on in the economy and knew we could still do very nicely in Detroit," he said. "We have always been very conservative in our finances, and that's been great for us."
Kolene, too, has kept a tight grip on its finances. The company has grown and expanded from its early days of selling tricolethylene (the dry cleaning chemical) to designing and building the equipment that companies like Caterpillar Inc. use in conjunction with Kolene's chemicals.
"It has sort of evolved," said Mr. Shoemaker, who started with the family business in 1968. "We would see a cleaning requirement in a Cat or Cummins tractor, and we would actually develop a product and process to clean that particular component. Then we'd sell them both."
But while the company grew, Mr. Shoemaker was also very careful not to taken on too much debt and keep cash on hand. He's been through four major recessions during his tenure, so he is always preparing for a rainy day. He also didn't follow his competitors' path to the Detroit suburbs even when everyone thought Kolene was crazy.
"Everything was paid for. They're all paid for, all three plants," he said. "To move a company from one location to another is horrifically expensive, and we are debt adverse. In hindsight, I'm glad we didn't. Had we moved the business to, say, Novi and taken on $56 million in debt, when the 2008 recession, well ... A lot of companies struggled while we survived."
4. Cherish your customers
"Treat your customers like they are gold," said Mr. Shoemaker. "In the end, that's how your business survives."
Four recessions have taught him that lesson. It's easy to build strong customer relations in boom times, but when the bear starts roaring, that's when you really prove yourself.
"In tough times, customers may not be buying as much as they did in the past, but if you maintain that relationship, when things get better they'll come back on board," Mr. Shoemaker said. "The key that has allowed us to survive is very little debt, cash on hand and maintaining close relationships with our customers."
Customer relationships are the backbone of Ideal Group's longevity, too. Mr. Venegas' first piece of advice to new business is: "Do what the customer likes."
Like Kolene, Ideal built its business around identifying ways to solve new problems plaguing exiting clients. "We just got really good at what we did, and when the customer said, 'Can you do this?' we raised our hands and said, 'Yes,'" Mr. Venegas said.
Customers are what keep Mr. Simmons coming into work every morning. He joined the jewelry business full time in 1984, the day after he graduated from the University of Michigan, but he'd been working in the store since he was 6.
"I started, unfortunately, by throwing away the garbage," he said, laughing. "The worst part is, I'm still throwing away the garbage."
But he knows it's all worth it when he helps third- and fourth-generation customers, people who remember when his grandfather gave away cigars. The shop has sales in excess of a million dollars, but repeat customers are the success metric that Mr. Simmons measures.
"I just fell in love with the business, the idea that you're taking part in somebody else's life," he said. "We have a great tradition and following."
5. Cultivate non-family leadership
Jim Hogan never intended to be a part of the J.W. Westcott Co., which was a family business on his mother's side. After graduation, he was playing hockey and studying to teach high school. He didn't see himself down on the docks, working like a devil during shipping season, with 50 to 60 deliveries a day, 24 hours a day.
"Shortly after high school, Dad had problems with one of the employees, and I was ripe for the pickings," said Mr. Hogan. "I couldn't say yes; I couldn't say no. I just had to pack my lunch and go ... The next thing you know, you've already been there 40 years."
Right there next to him has been his right-hand man, Paul Jagenow, who is starting his 41st season. The captain of the J.W. Westcott II, Sam Buchanan, is entering his 30th — and he's only 45. Neither is family by blood, but both are family by business.
"It's not a 9-to-5 job for them," Mr. Hogan said. "That's a reason our success can be continued. The legacy. It's the people you are surrounded by, the ones who are carrying the ball."
And it doesn't have to be family. In fact, Mr. Hogan doesn't see either of his children taking up a spot behind their great-great-grandfather's desk. One son is playing hockey in Europe, and while the other is employed by the company, he hasn't shown interest in ownership.
"I don't think this is going to be in their future, so I have a lot of decisions to make," Mr. Hogan said. Ed Schwartz credits non-family leaders with making Gregory J. Schwartz & Co. a stronger firm.
"It has gone a long way toward improving the way our company is managed," he said. "It's also helped strengthen the relationship between myself and my brothers."
But the company goes a step further in bringing outside experience and perspective inside its walls: Family members are required to graduate from college and then spend at least two years working elsewhere before they can join the family business. "It establishes professional maturity and establishes a professional culture," Schwartz said.
"We want anyone, whether their last name was Schwartz or not, to have real work experience." There are currently two college graduates in the third generation, but he's not certain they want to be involved. So having trusted leaders already in place gives Mr. Schwartz confidence in the company's future.
6. Trust your children and let go
This was the big year for Frank Venegas. He turned 62 and could start transferring stock and ownership to his children without facing hefty tax penalties. He's been beaming about that milestone, telling everyone around town of the achievement. But it also means he has to start the process of letting go. That he is less excited about.
"When I was growing up, always the people in the neighborhood thought you're going to retire when you're 65, but if you save your money and do real good, you can retire at 62," he said. "I did all that, but now that I'm 62, I'm thinking I don't know about all that."
It's a process, and he's taking each step slowly. He still goes into work each day, but he's rethinking his responsibilities. It helps that his brother, Loren, is the president, so there is still first generation in the lead.
"I cannot come in and tell everyone to do things different than what their boss told them," he said. "But that's part of maturing." After all, he adds, "you know how your kids are. If your kids are good kids, you should trust them to operate the business ... We sell to 55 companies now, and I wouldn't have done that if it weren't for the kids. I am tired, and they are filled with piss and vinegar and want to do something else."
At Sweet Potato Sensations, Espy Thomas understands that conundrum from the other side of the generation gap. She and her sister are facing the same struggle with her parents. They want to pass on the business, but the letting go is hard, especially when there is a long transition period.
"Parents are always your parents," Mr. Thomas said, smiling and shaking her head. "You know who you raised. Let me do it. If the business is changing, I can fill that role. Trust me."
This story was first published in Crain's Detroit Business.