All in the Family: Why Some Family Businesses Thrive – and Others Don’t
Less than one-third of family businesses survive to the second generation. Only half of those businesses make it to the third generation. Two factors that can boost odds of success: positive corporate culture and a focus on the long term.
Research offers striking contrasts about family businesses. On one hand, they tend to be highly successful. Family businesses generate more than 50% of U.S. gross national product. Some 19% of the firms in the Fortune Global 500 companies are family-controlled; of the U.S. firms in the Global 500; 15% are family controlled. According to Credit Suisse, family-owned firms make more money, generate more cash, and overall outperform their non-family owned counterparts.
On the other hand, family businesses often face tough odds and circumstances for survival: Less than one-third of family businesses survive the transition from the first generation to the second, and then 50% percent of those businesses don’t make it to the third generation. Less than 4% of businesses survive to the fourth generation. Ernesto Poza, professor of global family enterprises at the Thunderbird School of Global Management in Glendale, Ariz., points out that companies that make it to the fifth generation are so uncommon that there is virtually no research available.
What does a family business need to succeed and move from one generation to the next? According to the Economist, one factor is that family firms, both public and private, often have a longer-term perspective than non-family businesses – a luxury that stable ownership affords and often allows for controlled and steady growth. “A special concern for these companies is how to preserve the founder’s legacy and vision while making the necessary adjustments that new ways of doing business demand,” says Warren Stephens, Chairman, President and Chief Executive Officer of Stephens Inc., a family-owned financial services firm. “We at Stephens appreciate this. It’s important to respect a company’s heritage, but if the goal is longevity, the strategic focus must be the future. You’re in a better position to get there when the decision makers are engaged and acting in the best interests of the company, and not as focused on personal gains. That’s how family businesses thrive and become multi-generational success stories.”
Family firms also seem to have an advantage when it comes to corporate culture, according to research from McKinsey. When the firm applied its “organizational health” index to 114 family businesses and some 1,200 other big companies, family firms had superior scores in culture, worker motivation, and leadership, reports the Economist. (The same research also noted that family firms tended to score lower when it came to innovation and being too internally focused.)
Less than one-third of family businesses survive the transition from the first generation to the second, and then 50% percent of those businesses don’t make it to the third generation.
And what causes them to fail? According to Dr. Arnold Pollard, who advises family businesses, too often family companies need the fresh perspectives, special skills, or impartiality that outsiders would bring. “Virtually all highly successful, long-lived family businesses have learned to successfully incorporate outside talent — employees, executives, board members, and outside advisors – into the organization while preserving those qualities that make such businesses special,” says Pollard. Those often include culture, good work-life balance, and long-term strategic perspective, says Pollard.
However, sometimes it is a family member that can offer the fresh perspective. Cal Turner Jr., former CEO of Dollar General – a business that had three generations of family ownership and operation – recognized that his father, whom he succeeded as CEO, lacked the ability to take the business to the next level. “My father was a great entrepreneur, but entrepreneurs are not the ones to grow the business beyond a certain point,” says Turner. “It created an opportunity for me, who was not an entrepreneur, to help change the business.”
Here is a look at five businesses that have beaten the odds and have made it past the second generation of family leadership.
THE VERMONT COUNTRY STORE
Don’t let the folksy name, old-fashioned catalog, or nostalgia-inducing items fool you into thinking The Vermont Country Store is just a quaint roadside nod to yesteryear. The store lives up to its motto of being “purveyors of the practical and hard-to-find,” selling tried and true brands and products from the past. So great is The Vermont Country Store’s clout and marketing savvy that it has actually resuscitated such brands as Jubilee, Lifebuoy, and Charles Chips.
It’s also a tourist attraction that draws visitors from all over the U.S, and Europe, and is the heart of the family-owned and operated enterprise, which is now being run by the third generation of the Orton family. The fourth generation is already working in the family business, which consists of two stores, three restaurants, the catalog, and an online channel. Revenue for the privately held company is estimated to be around $93 million a year.
Keeping the business in the family has been a goal of Lyman Orton, the son of the founders, since the ’90s. He describes his sons as “stewards,” though the CEO is an outsider.
J.M. Smucker Co., founded in 1897, may be best known for its quirky advertising slogan: “With a name like Smucker’s, it has to be good.” But the company’s real claim to fame is that it is one of the rare companies that has made it to the fifth generation of family leadership. In 2016, Mark T. Smucker, great-great-grandson of the founder, became CEO and president. The company frequently makes lists of “Best Places to Work.” But it took some convincing from his father to get Mark, a former geology teacher and advertising executive, to consider a career at the family business.
From humble beginnings as a cider mill, the Fortune 500 company’s portfolio encompasses numerous iconic brands: Jif, Crisco, Folgers, and of course the eponymous signature preserves. It also owns a variety of well-known pet food brands, such as Meow Mix, Nature’s Recipe, 9 Lives, and Rachael Ray Nutrish. Mark has been credited with helping the company move beyond its core products to be the home of both “beloved brands” and a company where smaller, craft brands can find a berth.
For Oregon-based Columbia Sportswear, being a family business is a key part of its identity. Chairman Gert “Ma” Boyle, daughter of the founders and mother of CEO Tim, became an anchor in the company’s branding advertising in the ’80s. The tagline “Tough Mother” was a reference both to the durability of Columbia’s clothes, footwear, and accessories, and to Gert herself, who as a 46-year-old housewife took over the company after the sudden death of her husband, Neal, in 1970.
After a skirmish with near-bankruptcy, Gert turned down an offer of $1400 for the business and decided to run it – or “run it into the ground” – herself. Tim, who dropped out of college in his senior year, and Gert were determined to keep alive the business that her parents had started in 1938 after escaping from Nazi Germany. Originally a hat distributor, Columbia turned to sportswear and manufacturing in 1960 when Gert designed the company’s first fishing vest. At 94, Gert is still active in the business and is once again starring in ads.
What’s in a name? For Goya, the leading global Hispanic food company, it’s probably the best dollar the company ever spent. Founders Prudencio and Carolina Unanue thought “Goya” was a nod to their Spanish heritage, and was easier to pronounce than their own last name. So Prudencio bought the name for a dollar from a sardine company. And like Smuckers, the name has become a key element of the company tagline, created by Prudencio: “If It’s Goya, It Has to Be Good.” That means “good taste, good for you, and good value,” according to Bob Unanue, CEO of Goya Foods, and grandson of the founders, who emigrated from Spain, and started the company in 1936.
Goya is the largest Hispanic-owned food company in the U.S. It recently added 324, 000 square feet of production warehouses, production office and auxiliary buildings to help meet increasing demand for Goya’s healthy product lines: foods that are low sodium, sugar-free, or organic. Warehousing is one of the ways Goya operates differently from most food companies, who ship product to store-owned warehouses. Goya does direct store delivery, allowing a direct relationship with store owners and deeper knowledge of the client base – a way Goya creates strong brand loyalty. Unanue admits that this may be a more expensive way to operate, but he sees it as a way to better serve the customer – and as a privately held company, Goya has more latitude to make such a decision.
UTZ QUALITY FOODS
Utz Quality Foods, which started in 1921 making potato chips in Hanover, PA, remains true to its hometown roots. The company is still headquartered in Hanover, and run by fourth generation family leadership. (CEO Dylan Lissette is married to the great-granddaughter of founders William and Salie Utz, who started making the chips in their kitchen.)
Today Utz is the No. 1 independent, privately held salty snack company in United States, producing more than 3.3 million pounds of snacks per week, including potato chips, pretzels, cheese snacks, corn chips, tortillas, veggie stix/straws, popcorn, onion rings, and pork skins across facilities in Alabama, Colorado, Louisiana and Massachusetts, as well as the company’s native Pennsylvania. Utz is looking to expand by switching to a direct-store delivery model, which it says will allow it to handle higher-volume sales to larger stores, and through acquisition of small snack makers.
Last year Mike Rice, grandson of the founders, and his wife, Jane, announced the formation of The Rice Family Foundation to support organizations in Hanover communities, deepening the ties between Utz and the town where it got its start.