Growth

Flush with success

The memes came first.

In late February, Juan Corzo III started seeing social media memes about how consumers were stocking up on toilet paper and paper towels as they prepared to shelter in place during the coronavirus crisis.

The memes weren’t just a quick laugh for him. As the vice president of South Florida Tissue Paper, his family’s firm, he wondered if the trend might lead to an increase in orders.

For a few weeks, however, business went on as usual. Then, on the morning of March 13, Juan III’s assistant called to let him know they were seeing unusual order volume. The firm typically received three large orders per day. On that morning, the orders were coming in every few minutes.

“I thought ‘It’s happening!” says Juan III. “The memes were true. But then all the orders came in at once.”

From mid-March to mid-April, sales swelled 550%. The Miami Gardens, Fla.-based company moved quickly to capitalize on the opportunity. Shifts were expanded from two to three per day, work weeks were increased from five to seven days, and more than 15 new employees came aboard. Juan III went from 11-hour typical days to working 16 or more hours at the factory.

When states and municipalities imposed stay-at-home orders to slow the spread of the coronavirus, American consumers fixated on making sure they had everything they needed — and they were convinced they needed a lot of toilet paper.

Nationwide, consumer sales of toilet paper surged year-over-year 732% on March 12, according to NCSolutions, a marketing and advertising firm specializing in consumer packaged goods. By March 29, sales had fallen 33% year-over-year, not because demand had dripped but because there was no longer enough toilet paper on the shelves for consumers to buy. On March 29, 70% of supermarkets were out of toilet paper at some point in the day, and even by April 18, nearly half were.

“It’s been physically and mentally overwhelming for me and my staff,” Juan III says, adding that he’s grateful to be able to continue working during the pandemic and to manufacture a product that’s in such high demand.

The company has had to change the way it does business quickly and dramatically. South Florida Tissue Paper has always prided itself on completing orders within seven to 10 days. Since coronavirus, that timeline has extended to two months or more.

“We still have a big pile of orders printed out with production pending,” Juan III says.

Juan III communicates with many of his clients via video call now, and he’s texting with them more than ever before.

Putting safety first
The most dramatic changes have taken place on the production floor. The Corzos have also implemented strict safety procedures in order to keep employees safe during the coronavirus crisis. They required everyone inside the factory to wear masks, moved work stations to be 6 feet apart and closed breakrooms to prevent people from congregating. They’ve also upgraded soap and paper towel dispensers to be automated rather than hand-operated, replaced all door handles with foot handles and are disinfecting the entire facility about once an hour.

“We are investing a lot of money and extra hours to make things happen during coronavirus,” says Juan Corzo II, 58, the company’s CEO and founder. “But it has been a blessing to serve our community.”

A fortuitous move
South Florida Tissue Paper moved in 2015 from a 40,000-square-foot facility to a 100,000-square- foot plant, increased capacity from three to seven lines (at press time, plans to add one more line were in the works) and introduced more automation to the production process.

Juan III had first approached his father about moving to the new facility the previous year as sales started to really take off.

“I didn’t want to move at first because it was going to be hard,” says Juan II. “But [Juan III] was looking at the company and knew it would be difficult to really grow in that space. That ended up being the boom for us. It completely changed our company.”

Both Corzos agree that the company could never have met the coronavirus demand boom if they hadn’t moved to the larger facility and upgraded their equipment.

Company roots
While Juan III represents the second generation to work at South Florida Tissue Paper, the Corzo family’s roots in the toilet and kitchen paper business go back one more generation.

Juan Corzo I founded the paper company Papelera Internacional in Guatemala in the 1970s. Juan II worked with his father throughout his teenage years and early adulthood, eventually becoming an executive there. As the company grew to more than 1,000 employees, it attracted a lot of attention for its success.

Among those paying attention: organized crime groups. In 1996, kidnappers captured Juan Corzo II and his son, Juan III’s brother. They were held and tortured for weeks before being returned in exchange for ransom.

Eventually the perpetrators were caught and prosecuted, and the Corzo family moved to Miami in 1997 for their safety during the trial. The original plan was to just “lay low” until the trial was over, but Juan II wanted to keep busy.

“I had been working in the paper industry with my father from a young age, and I had always been a hard worker my whole life,” he says. “It was very difficult for me in Miami, so I started doing what I know best, and that’s paper manufacturing.”

Juan II started South Florida Tissue Paper with a handful of customers, but by the time the trial ended he had enough steady business that he decided to remain in the United States with his family to continue to grow the business. Juan Corzo I supported the decision.

“After what we had just gone through I was relieved that they were in a safer place,” he says. “My son felt at peace being away from all of the issues and drama left back in Guatemala. I taught my son well, so when he ventured off to the United States to start from scratch he was very well trained and prepared.”

That training paid off. South Florida Tissue Paper grew steadily for decades, but like many businesses ran into hard times during the recession, when sales declined and the firm had to lay off employees to stay afloat.

“We had to find new customers and fully focus on sales to be able work again,” Juan II says.

Today, South Florida Tissue Paper primarily serves regional supermarkets and gas stations located throughout the United States with both private-label products and the firm’s brands, “Soft,” “Excellence” and “Elite.”

The firm recently opened a facility in the Dominican Republic and has plans for further domestic expansion as well.

“We plan on expanding to another state, but we’re not yet sure which state or when,” Juan III says. “Today we are also expanding in our own neighborhood with the addition of a new 20,000-square-foot facility.”

Papelera Internacional was eventually sold to Kruger Inc., a Canadian company.

A new generation joins
Juan III was 6 when his father and brother were kidnapped and 9 when Juan II established South Florida Tissue Paper. He always knew that one day he’d join the family business.

“The background of our family gave me a drive like no other,” Juan III says. “Seeing where my family came from and why we moved here gave me such an incredible drive to give 100% to this company.”

In high school when most of his friends got jobs at the mall, Juan III was working at the factory, learning how to use the simplest machines to create the cardboard core of a toilet paper roll. Eventually he took on more responsibility, and he majored in production management in college with an eye toward coming back home and joining the firm full-time.

By the time Juan III was 20, he was going on sales calls with his father during breaks when from his college studies.

“I was fascinated by sales,” he says. “I loved it. I loved getting a new account, the adrenaline rush of a new piece of business. I got really good at it.”

Juan III graduated in 2013 and began working at the South Florida Tissue Paper full-time. Over time, he  came to oversee the company’s sales and marketing efforts while Juan II spent most of his time on production.

In addition to encouraging the move into a larger facility, Juan III has pushed for several other changes at South Florida Paper. He redesigned the company logo and packaging, updated the website and refocused the company’s efforts on serving large customers.

“We would have a guy coming in with a pickup truck, and we’d load one pallet onto it,” Juan III says. “I implemented a minimum that if you can’t pick up 26 pallets, we can’t serve you anymore. That really opened up a lot of doors for us.”

‘A great team’
Since Juan III joined the company full time, sales have gone up 180%, and that’s before recent bump from coronavirus. Last year the firm’s sales reached $13 million.

“I’m not going to take credit for it,” Juan III says. “It’s my father’s experience and my ideas, teaming up — new generation and old generation. I think my father and I just make a great team.”

Juan I, who sold Papalera Internacional to Kroger in 2007, agrees with the assessment.

“I feel that I am the luckiest man on earth when I see my grandkid doing what I started 60 years ago,” he says. “It is a huge blessing for me to see a third generation taking on my legacy and continuing to grow something that started so many years ago.”

That type of mutual respect between generations is one of the key factors that differentiates the most successful and resilient family businesses, says Dennis Jaffe, author of Borrowed from Your Grandchildren: The Evolution of 100-Year Family Enterprises.

“The older generation isn’t necessarily immediately turning over the store to the younger generation, but they’re listening to them and looking at their ideas,” Jaffe says. “Young people in the family often have a different understanding of the world than their parents. They’re a repository of ideas.”

At 32, Juan III does not yet have children, but he says he’d love to someday have kids who also want to get into the business. Still, with a brother and sister who opted out of the family firm, he’ll let his future children choose their own path.

“If one of my children takes an interest in the company someday, that would fulfill me tremendously,” he says. “I would love it if there was a fourth generation. There is so much history with the Corzo family in the paper industry.”

For now, Juan III is focused on making the most of the new business that has arrived along with the coronavirus.
“I’m making strategic moves to keep us busy as far as the amount of sales that we have after corona,” Juan II says. “I’m opening up new doors and new opportunities with new customers that are promising to stay with me.”                

Beth Braverman last wrote about financial strategies to deploy in the current economic downturn.

Copyright 2020 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.    

A higher calling

The year was 1982. After an antitrust lawsuit that had dragged on for eight years, the U.S. Department of Justice mandated that AT&T Corp. end its vertically integrated monopoly on telephone service in the United States and Canada. For most Americans, the breakup of Ma Bell meant confusing choices and even more confusing bills. But for family-owned, Marion, Ind.-based Moorehead Electric Co., it was the start of an evolution from a local industrial electrical contractor to one of the nation’s largest retailers of mobile phones.

“Suddenly Ma Bell stopped at the wire outside, and different companies could take the wire inside and [install] the phones,” recalls Phyllis Moorehead, 70, a former second-generation owner of Moorehead Electric who is now retired.

Phyllis says her husband, Steve Moorehead, 79, “figured if electricians could run electrical wire, they could run telephone wire. So as part of Moorehead Electric Co., we started Moorehead Communications.”

About the same time, cellular phone technology was becoming commercially viable. Early car phones were expensive and required professional installation, but consumers snapped them up anyway. By 1990, Phyllis and Steve sensed that cellular phones would present an opportunity far bigger than the breakup of Ma Bell.

“When they put up the first cell tower in Marion in 1990, we said, ‘We’re in the telephone business, we have this building by the railroad tracks, why don’t we sell cellphones?’ ” says Phyllis. “We activated one cellphone in November 1990, but we figured if we sell one to everyone in Marion who needs one and we still go bust, so be it.”

Moorehead Electric was founded by Steve’s father, Edward Moorehead, in 1937. Edward retired in 1968 and passed away in 1976.

In 1991, Steve and Phyllis sold Moorehead Electric to focus on the cellphone market. The new owner “didn’t want to deal with this little telephone thing, so we bought Moorehead Communications back as part of the sale,” says Phyllis. That “little telephone thing,” of course, soon became a necessity rather than a luxury. The Moorehead family was in the right industry at the right time.

In the first few months, the business grew from one store to three and, by the end of the first year, to 12. The stores were called The Cellular Connection.

“We were doubling every year at least,” Phyllis says. “It was all I could do in accounting to keep up with them!”

Under the leadership of Phyllis and Steve’s son Scott, 41, the company — now called TCC — has grown exponentially. Scott, who took over in 2008 at just 30 years old, has expanded the company from about 125 stores to nearly 1,250 in 43 states, and from $137 million in annual revenues to “north of $2 billion,” he says.

TCC, a Verizon authorized retailer, is part of a holding company called Round Room LLC. The holding company, formed in 2015, encompasses TCC; other cellphone stores operating under the names Wireless Zone and Wireless Advantage; a partnership in Redux, a technology that dries out water damage in electronics; and Culture of Good, a consulting organization that addresses employee engagement, corporate social responsibility and corporate culture. Culture of Good was co-founded by Scott with Ryan McCarty, his parents’ former pastor.

“Culture of Good is a little bit philanthropy and a little bit corporate culture,” Scott says. “It was birthed in TCC in our corporate stores, and it was such a good idea that we decided to do consulting around that.”

“Scott and I are both really passionate about corporate good,” says Scott’s wife, Julie, 39. “We like to think that influencing [our employees] to do good in the world is better than selling phones or becoming a manager.” She and Scott have two children, ages 12 and 10.

King Arthur and Phish
Steve and Phyllis retired in 2008, sold the company to their sons, Scott and Timothy, and moved to Florida.

When their sons were teens, Steve and Phyllis had gifted each a minority interest in the company. Over time they transferred more shares down, but the brothers were still minority owners until 2008. Steve and Phyllis had planned to sell the rest of the shares to their two sons equally, but Scott and Tim themselves came to an agreement that Scott would buy all their parents’ shares and Tim would have only what he already owned. Scott always was more involved with Moorehead Communications than his brother.

In July 2018, Tim, now 39, sold his interest to Scott. He’s now a franchisee of tech repair brand uBreakiFix and has several stores.

“When my brother was around, we decided to get more diversified and create a holding company to let each entity be its own,” explains Scott. “Tim and I were both uncomfortable with the Moorehead name being the main entity. We had such a great group of people that we wanted to deflect the credit.”

The brothers, who are rabid Phish fans, looked to the band’s songs for name inspiration and were drawn to “Round Room.” They also were inspired by King Arthur’s Knights of the Round Table.

“Everyone sitting at a circular table with an equal voice, and a round room. Those two things converged, and Round Room was what emerged,” says Scott.

Under Round Room, The Cellular Connection name got shortened to TCC. “It was a mouthful. Nobody says ‘cellular’ anymore,” says Scott. About two-thirds of the TCC-branded stores are operated by TCC; the remainder are operated by third parties under a licensing agreement.

In 2016, Round Room acquired more than 350 stores in the Wireless Zone franchise system. In addition, it bought a majority stake in Redux, whose technology was invented by fellow Hoosiers.

“Their genius invention and my ability to monetize it was a really great match,” says Scott with a laugh. Redux equipment is available in TCC’s stores and other wireless locations, and the company is diversifying into drying out other water­damaged electronics, like medical devices and hearing aids.

In May 2018, Round Room acquired 45 Wireless Advantage stores. Those stores are being moved under the TCC banner.

In total, Round Room has more than 2,300 employees. Scott’s wife, Julie, is executive director of TCC Gives, the company’s philanthropic arm. Julie’s brother Jason Buck, 45, joined the company in 2012 and is executive vice president of sales. Company headquarters moved from Marion to Carmel, Ind., a suburb of Indianapolis, about five years ago.

Comprehensive training
Phyllis put together Scott’s training program while he was a student at Purdue University working part-time for the company. Back then, the only mobile phones were car phones, so each store needed an installation bay. That made it more challenging to open new locations than it is today.

Scott’s training program involved working in every position in the business — more than 32 jobs at the time. They included pulling wire when the company still installed landlines, retail sales in TCC’s store #59 in West Lafayette, Ind., and working in the warehouse.

“There was never any question that I was going to come into the business,” Scott says. “I wanted to go work with Mom and Dad. I worked with them for about seven years till they agreed to sell it.”

The leadership transfer was instantaneous, says Scott. “They were the owners and they were running things till they sold it. The minute they did, they were gone.”

Phyllis’s training plan ensured a smooth transition. “It’s a way for the employees to understand this new young guy coming in, and to respect him,” she says. Because Scott had worked alongside them, they were unafraid to approach him to discuss problems. “He was very open to everything they had to say,” Phyllis says.

There are several secrets to Scott’s entrepreneurial success. Because he had personally done every single job in the company and listened to employees’ concerns, he knew what worked and what needed to be changed. He has a risk-tolerant entrepreneurial personality and grew the business the right way. He has also stayed focused on the long term, rather than on immediate gratification.

Like his parents, Scott has capitalized on opportunities in the mobile phone industry. “The [product] was very quickly moving from a luxury item to a commodity,” he says. “There was a lot of [industry] consolidation, and a lot of opportunity for acquisition, as long as you had a stable base.

“We made a conscious effort to build teams that could work fast and hard and [a system that could] repeat itself over and over. It was a mix of organic growth, with teams able to pull that off, and we had a whole other acquisition team that identified good businesses and could teach them to do things the way we did it.

“We had a track record of productivity and a great deal of success making our partners — the Verizons of the world — very happy. The better we did, the more opportunities we got.”

Scott acknowledges that there have been some bumps in the road. He grew the company to the breaking point not just once, but three or four times.

“When you’re so focused on growth and moving so fast, you forget to make sure all the pieces and parts are put together properly behind you. I challenge you to find a company that’s experienced massive growth that will tell you any different.”

Doing good and building connections
About five years ago, Scott and Julie were looking at ways to expand on the philanthropy his parents had begun.

Phyllis and Steve donated to various community charities and talked about doing something bigger, but nothing was formalized until after Scott took over. The Moorehead Family Foundation was established about eight years ago, focusing mainly on Marion.

Once the company moved and became a nationwide business, TCC’s philanthropy needed to grow with it. The Moorehead Family Foundation had given away nearly $2 million in five years of its existence, says Julie. “But if you were to ask anyone in the stores about the foundation’s giving, they wouldn’t know. Scott and I wanted [TCC’s philanthropy] to be unique, special, and have a program element like a non-profit does. And, most importantly, we wanted employees to be involved and engaged.”

Under Julie’s leadership, the Moorehead Family Foundation was dissolved in 2016 and replaced with TCC Gives, a public charity rather than a private foundation.

“The biggest difference is that a foundation typically involves a business and/or family distributing money, but a public charity has to bring in additional funds,” she explains. One-third of what’s given must come from outside funds.

“TCC is still obviously our largest donor, giving $600,000 annually, but I have to raise $200,000 from outside sources, and it can’t just be one big check from Samsung. It has to be from multiple donors.”

The passion to do good helps the business, says adds Julie’s brother, Jason. “It makes us a different retailer,” he says.

He describes Scott on stage at sales rallies. “He doesn’t focus on KPIs [key performance indicators] or talk about how many phones we sell or the number of states we do business in or the usual things a CEO talks about.

“He’s in the position to do something bigger than just sell phones and accessories and make customers happy, and he talks about giving back.”

For many TCC employees, especially younger ones, TCC Gives is their first experience with community philanthropy, Buck says. “It really bonds all of us and keeps us together. It’s a legacy far greater than how many lines we activate or how many upgrades we do this year.”

At Phyllis and Steve’s urging, Scott went to an egalitarian church service in Marion where he met Ryan McCarty, a young, hip pastor with a Mohawk, earrings and a tendency to use four-letter words most pastors don’t.

“His message was, ‘Your why equals your what,’ ” Scott says. “My employees’ ‘what’ was fairly obvious — they’re coming for a paycheck. But how do I give them a ‘why’? I asked him to go to lunch for free advice and he ended up talking me into hiring him. Where I was coming from and where he was coming from is where Culture of Good found its birth.”

Culture of Good was created because “I wanted employees to be more engaged, to have a reason why they want to come to work that’s more than playing with cool gadgets every day or solving problems,” Scott says.

“The further and further away you got from headquarters, the less it felt like a family company. How do I give people the same passion I have for this business? What’s the glue to help hold everybody together? We went into several iterations of [ideas] that didn’t work. We tried stupid things like Mustache Mondays to force people to have fun, but we needed something deeper than that.”

To get employees engaged, giving must touch on their passions, says Julie. First, TCC Gives initiated a local grantmaking program. All employees are eligible to sponsor a grant to a local organization near their store. The criteria are intentionally broad: Organizations receiving grants must serve people, the environment or animals.

An initiative called More Than A Phone, which gives phones and service to survivors of domestic violence, was launched as a pilot at three Indianapolis domestic violence shelters in 2017. TCC gave each shelter 50 phones and two months’ service, which soon changed to 25 phones and four months’ service. The project ties in with Verizon’s involvement with domestic violence as a cause.

More Than A Phone now has donated phones and service to nine shelters; growth has focused on under-served rural areas. “We’d like to get 12 more communities this calendar year,” Julie says. “We’d like to perfect the program before we go bigger, but we hope to be able to have that program everywhere we are,” she says.

In October, employees purchase and wear purple T-shirts to raise awareness of domestic violence and money for victim services. They’re encouraged to volunteer, collect used phones and support shelters’ fundraising events. Last year a tailgating event at an Indianapolis Colts football game raised $15,000, which Julie hopes to double this year and keep doubling.

This effort has intersected with TCC’s local grant initiative. “Once we’ve created a relationship with a shelter, we hear of needs other than phones,” Julie says. “For instance, one needed a new gate. They applied for a grant and we gave it.”

Other Culture of Good initiatives include quarterly themed giving events: distributing backpacks filled with school supplies in July, honoring veterans in November and teachers in February, and animal rescue in May.

The Mooreheads’ efforts to rapidly escalate their company’s philanthropy didn’t always go smoothly, Scott admits. “We said we’re going to go into this movement to be charitable and give to the community, but a lot of folks decided that selling and customer service was a secondary part of the job, and that started to suffer. I had to say, ‘Sales and service still matter, and if we can’t tie it all together, it’s missing the point!’ We didn’t correctly communicate that.”

If Round Room were a public company, the board would frown on the amount Round Room gives away, Scott says.

“Being a privately held family-owned business allowed us so much flexibility to do the right thing,” he says. “I believe it [charitable giving] to be a massive business asset, not a drain. We have a really strong balance sheet because we’re not greedy. We could do what we want to, and if meant us getting less, so be it. You can’t do that with pressure from external stakeholders. I prefer what our result is.”           

Hedda Schupak is a frequent contributor to Family Business. She recently wrote about NextGen innovation.

Copyright 2019 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.

A wild ride at Morey's Piers

It’s two days before the season opening of Morey’s Piers, three boardwalk amusement parks in The Wildwoods, a New Jersey seaside resort about 90 miles outside Philadelphia. On this April afternoon, stands are being stocked with candy and stuffed animals at Morey’s Surfside Pier, and the famous Curley’s Fries have drawn the attention of the bird population. A sweet scent on the breeze suggests that the funnel cake fryer is also getting a test run.

At one of the games, seasonal employees are learning what to say and how to respond to customers, whether they win or not. An enthusiastic trainer gives them tips on how to get visitors’ attention despite the myriad distractions on the pier.

The company has distributed play money to the employees working that day and shifts are set up to get first tastes of a seaside lunch at Jumbo’s Grub and Pub, whose menu includes crab cakes, salads and chicken fingers. This is an opportunity for the kitchen and wait staff to practice service and test a new point-of-sale system.

There are lots of pats on the back, hugs and laughs when all eight members of the Morey family are together on one of the piers. The second generation, Jack and Will Morey, leads the business. The third generation — Will’s two sons and Jack’s two sons — is coming up through the ranks, moving through various roles in the entertainment empire.

Over the next few months, Morey’s Piers will employ 1,500 people and host 3.5 million guests. The Moreys will open a new rollercoaster to commemorate the 50th anniversary of the business. The coaster will be modeled after the Sightseer, the Wildwoods tram car that rides up and down the five-mile boardwalk and warns pedestrians, “Watch the tram car, please!” hundreds of times a day. It’s a fixture of summertime at “the shore.”

Will Morey, 61, says incorporating the culture of the boardwalk is vital to sustaining the success of the enterprise.

“I think today we’re really focused on creating an outstanding family social environment beyond just the rides,” he says. “The real draw here is the seashore. We know that.”

Sliding into the amusement park business
The Moreys’ business history stretches beyond boardwalk amusements.

Wilbert C. Morey, known as Will, started developing Wildwood tourist accommodations in 1957 via a loan from a car dealer. He built Fantasy Motel on West Rio Grande Avenue, which, like other motels in the Wildwoods in the 1950s, featured an architectural style known as Doo Wop. Will started a pattern of beach development leapfrog. He would build a motel and put his wife, Jacqueline (Jackye), in charge of operating it. Then he’d buy property closer to the beach and build again. When the second motel was done, he sold the first, Jackye moved on to run the second and Will built a third motel. It took a while for the Moreys to become solvent.

“Mom was throwing up — literally — when she had to pay the bills,” says Jack, 58.

The biggest gamble was the building of the oceanfront Pan American Hotel. Will bought an entire block of waterfront property and created a design based on the Americana Hotel in Miami Beach, Fla., where Will and Jackye stayed on their honeymoon. The new building would be very different from typical Wildwoods lodging. There would be corridors inside — a hotel instead of a motel.

“In his prime, Wilbert would be infamous for saying he would see great things around the world and then ‘Wildwoodize’ them, which meant build it on a Wildwood seasonal budget,” Jack says.

“Mom said there were two kinds of people”: those who “just didn’t think he would get it done” and those who “knew he wouldn’t get it done.”

Will did get it done. Once the Pan American opened, the Morey family had financial security for the first time since they started as developers.

Since they had some breathing room, the family moved to Florida in the off-season. Jack went to school in Florida, including college. Jack’s brother, Will, also went to college in the south.

In the winter months, their father would travel to New Jersey regularly to check on the hotel. In the summer, the family would come north. Will built a penthouse at the top of the Pan American, and that’s where they lived.

In the fall of 1968, Will’s brother William (Bill), who was selling concessions on the boardwalk, asked Will to go with him to a parking lot in Fort Lauderdale, Fla., to see something Bill thought was extraordinary: a huge fiberglass slide. Bill wanted to build one in the Wildwoods with his brother.

They ordered the slide, put it together and introduced the North Wildwood boardwalk attraction as “Wipe Out” in the summer of 1969.

Monsters, invasions and wars
The giant slide “launched a different kind of animal,” Jack says. With their entry into the amusement business, the Moreys drew on their passion for innovation. “Every year for decades we said, ‘What do we add next year?’ ”

Over the history of Morey’s Piers, there were very few years when nothing of note happened. Rides were constantly being added or reimagined, new hotels were built and restaurants were opened. Even the names of the piers have changed over the decades.

Jack says the family invested in the piers “semi-responsibly, semi-irresponsibly.”

The first round, in the 1970s, centered on monsters and hit movies of the day: King Kong, The Poseidon Adventure, Star Wars. In 2015, “Kong” was reintroduced in an homage to the classic ride: Thrill seekers fly 60 feet above ground in airplane-shaped cars, circling a gorilla perched on a lighthouse, manhandling a tram car.

Ideas for what to add came from the family’s travels, initially in Europe. That’s why the company refers to the 1980s as “The European Invasion.” The invasion was inspired by Oktoberfest, but not because of the beer. (Morey’s Piers didn’t serve alcohol until 2011.) Jack says the rides at the famous German festival were like nothing he had seen before.

“The carnival scene in Western Europe is still fairly vibrant. There are no theme parks, just giant carnivals.” He says German rides are marked by the highest quality of engineering.

During this time, the Moreys began importing rides to New Jersey from Europe. “It was absolutely revolutionary at the time,” Jack says.

In the 1990s, the family became embroiled in what they refer to as “The Coaster Wars” — making big investments to compete with other amusement parks’ thrill rides.

“That’s where we got into trouble,” Jack says. The rides “were fun not just to ride on, but to build. And they aren’t cheap.”

He says there were two fronts to that war — internal and external.

The business was “flirting with excessive reinvestment,” in an effort to lure visitors away from  regional theme parks like Great Adventure in Jackson Township, N.J., or even a Disney park. When expenses threatened to outpace income, the family considered adding a front gate and charging admission to enter the parks.

“In our chase to be more like a traditional theme park … we found ourselves definitely trying to be something we shouldn’t have tried to be,” Jack says.

The family ultimately decided not to add a gate (see related article: Open Space). They concluded a barrier to entry would stray too far from their commitment to be a seamless part of the community. Visitors can stroll through the Moreys’ amusement piers without purchasing anything.

A reorganization and a split
In 1995, after the business bounced back from the coaster wars, Wilbert Morey retired and his son Will took over as CEO. That year the piers, hotels and restaurants were consolidated under a holding company, The Morey Organization. The parks still operate as Morey’s Piers.

With the change in leadership, the consolidation of operations and the decision against an admission charge, fissures formed between Will’s and Bill’s families.

“In some respects, it came out of nowhere, but when you really look back, maybe there were some telltale signs,” says Will. “At the end of the day, the big dog in the room was that we just weren’t sophisticated as an organization. We didn’t have a communications structure that got us talking about the right things on a regular basis.”

There was a settlement in 2005. The details are confidential, but Bill’s family exchanged their stake in the holding company for property not connected to the initial business.

Will thinks an essential piece was missing: He and Jack didn’t have strong relationships with their cousins.

“We didn’t know each other as family members,” Will says. “There really wasn’t any family glue. We only had the business stuff.”

Now the relationship is better between the branches; Will says he’s talked about the break over lunch with one of his cousins in the years since the settlement.

“He was thoughtful and willing to say, ‘Hey, we made some mistakes here.’ But there were enough mistakes to go around,” Will says.

Will and Jack’s children remember little if anything about the conflict, and it hasn’t deterred them from joining the family business.

“I don’t think it gave me pause,” says Will Barrett Morey, Will’s eldest son, 33, who is director of the water parks. “If anything, it made me aware that it could happen. I think about that going forward a lot.

“There’s no road map for how you’re going to work through things when they come up. That’s why it’s important to work through small disagreements.”

Zack Morey, Jack’s eldest, thinks that if there had been more formal policies and communication channels, the split may have been avoidable. Zack, 29, who manages the company’s hotels, notes that the company now has in-house counsel.

Course correction
Another adjustment the company made in the ’90s was to stop measuring Morey’s Piers against other parks. Morey’s didn’t have to be Great Adventure. And it definitely didn’t need to be Disney.

In 1997, Jack met Steve Izenor, a partner at the architectural firm Venturi Scott Brown in Philadelphia and co-author of Learning from Las Vegas. Izenor’s book examined the impact of factors such as design, signage and commercial vernacular on culture and progress. Izenor was interested in the Wildwood story and the shift of the boardwalk from Doo Wop to a more modern, subdued aesthetic. Izenor’s team eschewed the new style.

The results were sent by fax to the Moreys’ office with a clear prescription, Jack says. “ ‘Take tacky to new heights.‘ But [Izenor] said it in a poetic manner.”

Jack also notes architect’s Robert Venturi well-known statement that more is more, but “less is a bore.”

The concept, Jack explains, is that urban planning should establish signage size minimums, not maximums, and pop culture, even when driven by commercialism (he cites the McDonald’s arches as an example) should be treated as “the crown jewel of commercial archeology.” Jack embraces what he considers his primary job in the company: to “slightly organize the chaos that can be embraced by all classes and affluences.”

Will, a Cape May County freeholder (a member of the county governing board), refers to the vibe at the piers as “zaniness” rather than his brother’s “tacky” label.

However, the entire Morey family wants the piers to sustain their own niche. For example, instead of national brands, Morey’s offers its own food and souvenirs to make the experience unique and authentic. The piers have been revamped to ensure they’re fun for the entire family, not just the kids. “Elevated” restaurants have been adde and the water parks now offer cabanas. There is even a bar, PigDog Beach Bar, at the end of Mariner’s Pier.

When the company moved to serve alcohol in 2011, there was resistance. Residents feared the change would create more of a nightclub atmosphere than a family fun space.

“In some respects, kids tugged at their parents’ coattails and said, ‘I want to go to the boardwalk’ and parents took them and counted the minutes until they could leave,” Will says. “We wanted to make an environment that adults want to go to as well. Now we find parents are coming with their kids and staying longer.”

Lessons learned
The family took a few steps to ward off potential issues as the company once again moves toward cousin control (far in the future, say Jack and Will). Will says it wasn’t about making the organization “stiff.” Rather, “We struggled once, let’s not struggle again.”

For one, there is a board of directors that meets three times a year. The board is made up of the brothers, their wives and Jackye’s brother, Barry Gehring, who managed one of the piers for several years and has a 10% stake in the business. He now runs the arcade at Morey’s on a long-term lease.

“We need to take a look at a couple of independent directors, if in an advisory capacity, to have as a tool,” Will says. “We have in the past, but we’re probably at that point again. We need to look at what will our next move be.”

There is also an officers’ group, which includes Will, Jack, COO Geoff Rogers, CFO Joe Cleary and general counsel Steve Fram. The G3 sons are invited and encouraged to attend all officers’ meetings as their various operations schedules permit.

Will and Jack say they’re waiting to see who steps up and wants to run the business. The family has talked about succession, but they haven’t made any formal plans or written anything out.

Will’s younger son, Kyle, who manages the waterparks’ restaurants, wrote his MBA dissertation on the subject of succession. Another third-generation member, Will’s son Jordan, is general manager of the piers’ restaurants.

The Moreys may also look to employment policies in the future. Some third-generation members joined the family business right out of college, while others worked elsewhere.

Zack worked in Vail, Colo., at a hotel and says he learned a great deal from that experience. His cousin Will, on the other hand, went straight into the family business.

“I reserve the right to change my answers,” says third-generation Will. “I think I would like my kids to go somewhere else for a couple of years and then come back if they want.”

Regardless of when a family member starts at the company, the G2 brothers have worked to make sure no one feels entitled to a certain position or compensation. At the same time, no one will be penalized for trying something new. The four G3s are encouraged to move around the company to obtain a wide breadth of knowledge.

“They receive the same pay as they move to different parts of the business. You shouldn’t go [to another department] as the new guy all over again and get a knock in pay,” says the elder Will.

The third generation is also being left to make some of their own decisions and work out their own disputes, he says. “Ultimately they’re going to have to do that if they continue to work together.”

New horizons
As Morey’s Piers moves into the next 50 years, the family would like to see expansion, but it may not be in the Wildwoods.

The family says the beach is their home, but they have built a lot there and it’s time for new challenges.

“You don’t have to be perfect to be outstanding, and in some ways we’ve achieved that or near that,” says second-generation Will. “And making sure we’re at that 95 [percent]-plus level [here] is a priority.

“But my brother is a big believer that the favorite project is the next project.”

There is no solid plan, but the timeline is five to 10 years.

“It’s not something we’ve really focused on,” Will says. “We want to look into tourist-related business in other communities.”

His son agrees.

“This place will never be done,” says Will Barrett Morey. “But from a business continuation high-level strategy, we should diversify from here.

“One thing I’m learning from my uncle is you’re just never done. And if you just want to sustain, that’s a recipe for decline.”    

Copyright 2019 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.                                                 

Risky business down on the farm

 

Risk taking has paid off handsomely for McCarty Family Farms in Colby, Kan. In the last few years the McCarty family has become known for its partnership with Dannon, the global yogurt brand—quite an accomplishment in the dairy farm industry.

While many business owners might say risk goes with the territory, for this family business it has been a game-changer. The company’s profits are in line with historical industry averages, but the partnership eliminates the financial peaks and valleys, and the resulting financial consistency allows for better long-term planning and reinvestment.

Four fourth-generation brothers run the 103-year-old company, which consists of four dairy farms: three in northwest Kansas (Rexford, Bird City and Scott City), and one in southwest Nebraska (Beaver City). The company headquarters is in Colby, Kan., and the Rexford site includes a milk-processing operation.

Ken McCarty, 35, handles public relations and manages “a large chunk” of the partnership. David McCarty, 38, supervises financial operations and general main-office functions. Mike and Clay McCarty, 45 and 43 respectively, split responsibility for operations at the four dairies, managing two apiece. Mike is also in charge of milk quality, and Clay oversees crop farming and raising the heifers (young female cows that have not had a calf). Their parents, Tom and Judy McCarty, are advisers.

Don’t look for executive titles in this family business; the brothers don’t use them. “We’re just co-owners,” Ken says. “I think titles might even be intimidating to some of our employees,” adds Dave.

It may seem odd to an outsider that the two youngest brothers, those with animal science degrees, aren’t the ones with the day-to-day animal responsibilities, but Ken is quick to point out that they all have taken care of cows since they were very young, and whether animal science is learned in the classroom or in the barn, they’re all skilled at it. “You don’t need a degree to care about cattle,” he says.

Betting the farm on a Midwest move
Taylor McCarty, the brothers’ great-grandfather, started the dairy business in 1914 in Sugar Run, Pa., near Scranton, and his son, Harold, took over in 1945. Harold’s son, Tom, assumed the lead role in 1970. “My dad just moved the cows up the road,” Dave jokes, noting that his father significantly expanded the operation.

As the brothers grew, Tom and Judy had to consider the future. Their sons wanted to make farming their career. Ken was in high school at the time, Dave was in college, and the two older sons had graduated and were already working on the farm. Pennsylvania farmland was expensive and the logistics weren’t right for expanding at the current site, so the parents decided to take the family’s first big risk: In 1999 they moved to Rexford, Kan., bought a wheat farm and converted it to a dairy farm. The opportunities for growth were greater in Kansas, Ken says.

Partnering with a top brand
The family took a second risk when they left their producer co-op and partnered with Dannon, becoming the primary milk supplier for the yogurt made in Dannon’s Dallas/Fort Worth manufacturing plant. (McCarty Farms provides condensed skim milk and pasteurized cream.) The two companies were introduced through the Cargill Dairy Enterprise Group, consultants to the dairy industry, after the McCartys approached the group for assistance in exploring new business opportunities.

Ken recalls, “We started talking with Dannon in 2010 and were ready to ship by mid-2012.” The McCartys needed to increase their volume, so they leased the dairy in Scott City, expanded the Rexford and Bird City facilities and built a huge milk processing/condensing plant—the first of its kind in North America—which expanded their capacity even further. Kansas State University Research and Extension helped with site selection, budgeting and facility design, and sat in on meetings with a lender unfamiliar with dairy lending.

Originally the McCartys had a five-year contract with Dannon, but it’s been extended for the foreseeable future. Neither Ken nor Dave will reveal much about the financial arrangement except to say it’s a cost-plus business model. “It’s as simple as it sounds,” Dave says. “I have a cost per gallon, or per hundredweight, of my milk, and there’s a margin on top of that.” Volume varies each week, largely owing to seasonal trends. “We just had to communicate that to Dannon, and we work through the volume changes,” Dave notes.

Also, Dannon’s demand for product isn’t static, explains Ken, so there are times when the McCartys fill only 95% of what Dannon needs. At other times, they produce 120% of Dannon’s requirements, so they either transfer the extra milk to other Dannon plants or market it to outside parties. “Dannon is our preferred customer and has the right to purchase all the milk we produce,” Ken says.

McCarty Family Farms also sells milk and a small amount of cream to Daisy Brand (known for its sour cream and cottage cheese), but the primary recipients of its pasteurized heavy cream are Dannon and Grassland Dairy, for its butter products.

Dave describes what the farm does in even simpler terms: “We produce condensed skim milk, which is what Dannon wants, and cream and water. The water we’re pulling out of the condensed skim milk [close to 65,000 gallons per day] stays on the farm.” Condensing milk on site allows the company to reduce the environmental impact of shipping. As Ken explains, “We take three-and-a-half loads of raw whole milk and condense it into one load of condensed skim milk and the subsequent cream, thereby reducing the carbon footprint associated with those four loads.”

The main benefit of reusing the water reclaimed during condensing is providing water for the dairy cattle. Aside from that, it’s used in the processing plant and for irrigating the crops. The McCartys grow primarily corn for silage as well as grain corn. (Silage is produced by harvesting most of a plant, grinding it, storing it and letting it ferment before using it as food for the cows.) They also grow sorghum silage and a variety of small-grain crops for the young cows.

Since the partnership began, the McCartys have increased their workforce from 105 to about 175 employees. They anticipate having well over 200 in the near future. The number of cows at each farm has increased significantly, as well.

An appetite for risk
You might think that having their fortunes linked to just one customer would keep the McCartys up at night, but they say the partnership mitigates risk for both parties. Dannon’s risks include market volatility, variation in product source and possible variation in quality, Ken notes. The McCartys say they benefit by gaining a greater understanding of what a major client wants and, in turn, being able to modify their operations to match that goal. The arrangement also removes market volatility related to milk prices for them; they don’t have to worry as much about negotiating for the best price.

Ken says the brothers’ appetite for risk was nurtured by seeing their parents remain steadfast once they were satisfied a plan had a good chance of panning out. “Our parents reminisce often about how people thought they were crazy building the dairy I grew up on in Pennsylvania,” Ken says. “People again thought my parents were crazy buying certain farmland, and they definitely thought my parents were crazy for packing up and moving to Kansas to build a dairy. But in each case, my parents had spent a great deal of time thinking through their decision and the pros and cons, building the business case and doing the math, and they were confident they were making the right decision. And they also taught us that when all else fails, work harder.”

Ken acknowledges that the family has all its eggs in one basket. “But we try to mitigate that risk,” he says, “by engaging in continuous improvement, focusing on being innovative and continually trying to raise our level of performance.” They also continue to look for other opportunities.

In May, the dairies received certification in four areas from Validus, an independent certifying company that uses the international standard ISO 9001 to ensure food is produced using socially responsible on-farm production practices. The areas are animal welfare, environmental care, on-farm security and worker care. Dannon required the first one, but the McCartys’ dairies achieved the others voluntarily. In addition, the processing plant has been awarded Validus Traceability certification and is SQF-certified (for “safe quality food”) by the SQF Institute. Finally, McCarty Family Farms as a whole—both the farms and the processing plant—has achieved Non-GMO Project-Verified status through a Validus sister organization.

Given their ties to a major brand, “We realized that their risk becomes our risk and vice versa,” Ken explains. The partnership with Dannon has opened the McCartys’ eyes to other possibilities, and from all indications they are well aware that exploring future opportunities is crucial should Dannon be sold to another company with its own preferred supplier, for example.

How they manage it all
To manage this huge operation, Dave says, “We have monthly meetings with our farm management staff, after which we sit down as brothers and discuss everything.” Ken adds that when it comes to decision making, the majority rules if it becomes difficult to reach consensus. Also, Ken says, the brothers are in constant contact with one another and are “humble enough to admit when we’re wrong and will defer to the right opinion.”

The siblings are the only board members, and no one has been designated as the sole, final decision maker for McCarty Family Farms as a whole. “However, we trust each other enough to accept the decisions each makes in the areas that each individually manages,” Ken says.

They addressed the fact that the siblings entered the business at different times by assigning different levels of ownership across the various entities, based on the date of each entity’s creation and each individual’s years of service. Learning from their parents and grandparents that they need to be patient with and trust each other also helped, Ken says. “We believe that we are stronger together than separate, and that we would not want to be on this journey without one another,” he says. “With those beliefs, a great deal of the struggles simply become background noise.”

Another partnership
In 2016, McCarty Family Farms took a third leap: The company partnered with yet another family farm, VanTilburg Farms in Ohio, a full-service agricultural retail provider and grain elevator. The dairy will produce non-GMO project-verified whole raw milk to be sold to a Dannon yogurt plant in Ohio. Construction of the MVP Dairy, as it will be called, was expected to start in the fall.

The VanTilburg family will be vested financial partners in MVP Dairy and will supply feed for the cows as well as an outlet for nutrients (dry cow manure and water) generated on the dairy. These will be applied to their farmland, as well as other area farmland, to help offset the use of commercial fertilizers and improve the health and productivity of the land.

The VanTilburg operation was attractive to the ­McCartys for several reasons, including that the Ohio family business farms a sizeable amount of ground to provide feed for dairy cattle. “By bringing their row crop farm into the fold with the dairy farms, they’re closing the loop from soil to cow and back to the soil again,” says Ken.
“The idea of joining with another farm is new to us,” Dave says. “It’s always been just us, and now we have a new set of partners, which will create plenty of challenges, just in communication and understanding everybody’s role.” The McCartys are young, he notes, and the group they’re partnering with is, too. “And we all need to continue to grow. As my dad would always say, ‘If you’re not growing, you’re dying.’ ”

Dave says he and his brothers weren’t seeking another partnership, but teaming up with the VanTilburgs offered the best chance for further growth. “As we were there looking for opportunities, the two groups came across one another, and we found, similar to our Dannon relationship, there was synergy,” Dave says. “We knew we could work together.”

Dave notes that the new venture has to align their cultures initially. As an example, there are those pesky job titles. The VanTilburg family uses them.           

Patricia Olsen is a business writer based in New Jersey.

Copyright 2017 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.

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Editors Note: Smart growth

Earlier this year, Tyson Foods, a family-controlled, publicly traded company known for its chicken, pork and beef products, announced it would explore the sale of its Sara Lee frozen bakery business and other "non-protein" brands. Tyson also said it would acquire AdvancePierre Foods, a supplier of packaged meat sandwiches.

At about the same time, JAB Holding Co., which invests for Germany's Reimann family, announced that it planned to sell high-end shoe companies Jimmy Choo and Bally International. A few weeks prior, JAB had acquired Panera Bread Co.; it also owns Krispy Kreme Doughnuts and other food companies. The Reimanns decided that selling pricey shoes among all that food was a misstep.

Both these family enterprises rethought their holdings and concluded they needed to get on a smarter growth track. They both understood that while diversification is a good idea, a company must diversify in a way that leverages its strengths.

Most family businesses aspire to grow (although some would rather continue operating as a small venture focused on superior customer service). Whether it's achieved through acquisition or organically, growth must be well planned.

Is an independent board reviewing your plans? Independent directors who have helped other companies grow and/or have expertise in your industry can provide a "reality check" on your ambitious plans and can help you navigate pitfalls.

Are you anticipating the marketplace of the future? If you're planning to make a new widget (or acquire a widget company), have you considered whether customers will still want that widget in five years or whether strong competitors or copycats might develop widgets of their own?

Are you conducting market research, or relying on instinct? Is your plan based on systematic focus-group studies, or just a few conversations with the CEO's cronies or some favorite customers? Be aware of your blind spots.

Do you have the infrastructure to support your growth plans? Can your existing staff and facilities handle the growth? Will projects fall through the cracks as staffers take on new assignments? Have you budgeted enough to meet your future needs? Bear in mind that growth doesn't automatically result in economies of scale; you will initially have more expenses.

Have you weighed the pros and cons of your funding mechanism? Are you taking on investors who will push for short-term gains? If you plan to fund your growth through company profits, are your family shareholders on board with a reduction in their dividends?

Do you know when to stop? After a few new offerings that are big hits, it's tempting to press onward in the same direction. Make sure you haven't begun to compete with yourself, and that you're not producing more than the market will bear.

Does your prospective acquisition fit in with your company culture? Cultural fit is especially important in a family business. Do your due diligence to make sure that the integration will be smooth.

Like Tyson and JAB, you must regularly review your growth strategy and be prepared to make changes if you're not on the right track. The shoes might have been a good fit a few years ago, but now it could be time for a change.

Copyright 2017 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.

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Seven essential initiatives ensure family business growth and survival

Despite seemingly blue skies and calm waters, family businesses, like boats on the ocean, face continual and potentially dangerous threats. The ultimate price for failure to prepare for and meet these threats is extinction. Unfortunately, this is the fate of most family businesses after the second generation.

Looking to the future of your family business, you have two strategic alternatives: maximize the company's value and sell it, or grow the firm for future generations. Today, selling your company is no longer an attractive option. Capital gains taxes reduce your wealth, while prospective returns from reinvesting your remaining proceeds in fixed income and equity securities remain paltry.

Without doubt, growing your family business over the long term is your soundest option for navigating future economic challenges and creating (and preserving) family wealth. You can help secure your company's survival and ensure your family's future prosperity by taking several essential steps.

1. Build a sound governance foundation.

Understand and align your shareholders' goals! These are your critical first steps to maintain a healthy family business and prepare for transitions. Your personal needs as owners and your company's business needs each change over time, often dramatically. Both require continual adjustment to keep your goals on target and your ownership aligned.

Once goals are aligned, ownership must agree upon operating and business decision-making policies. Issues such as majority vs. super-majority voting requirements, board membership and authority levels, ownership cash distribution policies and restrictions on ownership transfers must be addressed and codified. A good corporate attorney can help identify the issues and document your agreements in a "Shareholders' Operating Agreement."

You then should establish both a strong board of directors or advisers and a family council to manage governance.

The board will focus on business issues, including strategies, finance, organization, business plans, succession plans and performance oversight. The board's main goal will be to represent the interests of all shareholders.

The family council will address the "family" issues that arise in every family-owned business. Its mandate will be to manage family member communications, networking and conflict resolution; individual and overall family member investment objectives; and estate planning and ownership considerations, and to set direction for the board regarding family business philosophies, culture and priorities.

2. Proactively manage family dynamics.

Managing the "family" side of business is a critical task for the ownership group, at times more important than managing the "business" side. Many families do not appreciate its importance until irreversible damage has been done.

Most family problems occur around what I call the "Four Cs for Successful Family Dynamics": consideration, communication, connectivity and compensation. Family stakeholders must feel that their ideas are honestly considered, that they are connected to the business and being kept well informed and that they are being fairly treated financially. Specific strategies and initiatives must be developed and agreed upon for all four Cs.

Many CEOs and boards focus on the business issues; they mistakenly believe that these "softer" issues will take care of themselves. They think successful business results will resolve problematic family dynamics. They don't!

Worse yet, small family dynamics problems do not go away over time. They simmer in the background until a future triggering event raises the temperature to a boiling point. At that stage, disagreements are infinitely more difficult to resolve. Minority ownership "issues" often become majority ownership "problems" if not promptly resolved.

3. Focus on business strategy.

The business environment changes constantly. Technology, competition, economic cycles, evolving customer needs, disruptive value propositions, new regulations, and your own financial and organizational capabilities together lay out a complex jigsaw puzzle. Regularly reviewing—and challenging—your strategies is essential for long-term success.

Strategic plans should be developed by your senior management team and reviewed, challenged and approved by your board. Communicating approved strategies to all of your stakeholders (i.e., management team, employees, key vendors and customers) is critical to obtaining buy-in and ensuring implementation. An outside facilitator often can improve the results of this planning process. The facilitator can help ensure that the approach used to determine the appropriate business strategies is fact-based and respectful of all team members' opinions.

4. Invest in the 'right' organization.

Strategy drives organizational requirements. Your goal is simple: Hire the best people you can afford, put them in the right positions and reward them well for performance. Top performers will pay for themselves many times over. Poor performers will be very costly—well beyond their payroll cost.

Determining family members' roles in the organization can be tricky. Those decisions must be based on capabilities and work ethic, not birthright. In addition, boundaries are important, as family members wear multiple hats as owners, board members, managers, employees, future owners and family members. There are many ways to have family involved and feeling "special" without compromising your management team's performance. A customized family policy manual, often called a family constitution, is a good start. It establishes the "ground rules" for family members participating in the family business as owners, managers and/or employees.

The best organizations empower all team members. When possible, every manager should be highly motivated and clearly authorized to run his or her part of the business and meet specific goals. Acknowledging and rewarding outstanding performers, identifying and removing underperformers, training the next generation and planning for succession are essential practices of successful businesses.

5. Manage against metrics.

What you measure (and reward) drives your results. Quantifiable performance metrics, developed with input from your people and aligned to support the business plan, provide a roadmap for success. The prerequisite is transparency in financial and operating systems. Keeping goals simple, clear and attainable makes performance assessment straightforward—either you accomplished your goals or you did not. Eliminating excuses for poor performance is important to keep your team focused on priorities.

Sharing performance metrics throughout the organization can motivate your teams, when done appropriately. Doing so communicates goals and creates peer pressure to perform and contribute.

As CEO of the Isaac Group, I shared production metrics and goals for the first time with our direct line equipment operators. The result: Our main plant doubled production without requiring any capital expenditures. Empowering individual employees to focus on their personal and unit performance metrics motivates them to meet their objectives.

When you set goals, share information, empower your team members and reward performance, everybody wins.

6. Commit to a culture of growth.

Any business, and particularly any family business, must grow to survive. Operating costs rise, business markets change and product life cycles get shorter. And, as a family grows, there are more "mouths to feed."

Businesses either grow and stay healthy or stagnate and die. Yes, there are "lifestyle" businesses that generate good cash flows in spite of a stagnant business model, but it is doubtful these businesses will make it to the next generation or realize a good price if sold. Furthermore, it is difficult to recruit and retain top talent in a stagnating company.

A culture of growth forces a business to be competitive. It requires the business to develop new products and services, deliver a solid value proposition to customers, focus on profits and sustain an entrepreneurial spirit. A company with a culture of growth generates the financial resources to reward both its people and its ownership, thus perpetuating an upward performance trajectory.

7. Cultivate an 'investor' perspective.

Most family business owners fail to look at their company from an "investor" perspective, even when the family business is their largest investment and source of wealth. They confuse business returns on equity with realized shareholder returns.

Until shareholders receive cash, their returns are 0%! Low levels of cash distribution result in lower shareholder realized returns, inadequate shareholder liquidity and increased exposure to unforeseen "tail risks." This often leads to problematic family dynamics that create major rifts within the family and threaten the longevity of the company itself.

Look at your family owners as investors. You must run the family business to maximize realized shareholder value, and continue to address individual and business goals diligently to keep the ownership group satisfied and aligned.

Focus sharply on cash flow generation and distributions, in addition to profits. Measure and report on annual changes in equity valuation, realized shareholder returns and performance against annual business plans. Publish the results in an annual shareholder report. Consider partial transfer of "trapped" accumulated wealth in the operating businesses into newly created family investment entities. This will diversify your family's investment portfolio, provide increased asset protection and shareholder liquidity, and reduce overall family wealth management risk.

Undertaking these seven core initiatives will enable you to improve your business decision making and develop an ownership group that is supportive of creating an enduring, multigenerational, highly successful family business.

George A. Isaac is founder and president of GAI Capital Ltd., a specialized family business consulting firm advising clients on succession planning, governance, family dynamics, operating improvements and family business wealth realization and asset protection strategies (www.GeorgeIsaac.com).

Copyright 2017 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.

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Dickeys Barbecue gets set for greater growth

The ambitions of the Dickey family have fueled the exponential growth of Dickey's Barbecue Restaurants Inc. The family's willingness to redefine the company's business model made the expansion possible.

Three generations and 76 years after the first Dickey's Barbecue Pit opened in a tiny location north of Dallas, the company is now the largest barbecue chain in America. The original store still operates as part of the chain.

"Roland Dickey Sr. literally took his father's business and built a chain," explains Laura Rea Dickey, his daughter-in-law and CEO of Dickey's Barbecue Restaurants. "The third generation has taken that foundation and scaled it and made it relevant to today." Since taking over from his father in 2006, her husband, Roland Jr., has expanded the company from 20 locations to more than 600, and there's no holding him back now.

Late last year, Roland Dickey Jr., 43, created Dickey's Capital Group (DCG), a holding company that includes the restaurant business along with several other assets and operating companies. He's now CEO of DCG, while his wife runs the original restaurant operation.

Laura, 37, works with Renee Roozen, formerly a regional VP, who took over as president of the chain. Roland Sr., 71, remains chairman. The management reorganization widens the opportunities for further growth, including international expansion and the creation of other operating companies.

"In addition to our manufacturing and technology expansion, we are working on new concepts in the fast-casual restaurant space," Roland Jr. explains. "We are working on a few new concepts, both through acquisition and new concept development. Dickey's Barbecue Restaurants Inc. is growing rapidly, and we anticipate that continuing, especially with our plans to expand internationally in 2017. Dickey's Capital Group is growing in tandem."

The company has come a long way from the original location that Roland's grandfather, Travis Dickey, opened in 1941. The restaurant served low-smoked barbecue with potato chips on the side and offered beer, milk and soda to drink. A sign on the building was rented to Dr. Pepper to help cover start-up costs. Travis handled food prep while his wife, Ollie, served the customers and kept the books. The menu has expanded somewhat today, but each restaurant still slow-smokes meats on-site the same way Travis did.

G2 builds a chain

When their father passed away in 1967, Roland Sr. and his brother Travis Dickey Jr. ("TD") pitched in to help their mother. "At the time, I was at SMU [Southern Methodist University] finishing my senior year and my brother TD was an architect," Roland Sr. says. "I thought jumping in to run the restaurant was temporary and that I would go on to law school as planned. Instead, we ended up making that little barbecue joint two restaurants, then three, then a catering business and more."

The "more" came about in 1994 when the first franchise was sold. Frank Smith, a Dickey's customer and local Dallas restaurant owner, convinced the Dickeys to sell him a franchise to diversify his other food service holdings. "His son, Dale Smith, is still a franchisee and has expanded to own five restaurants," Roland Sr. says. Other franchisees followed. "We focused on expanding in the Dallas-Fort Worth metroplex, where folks knew the brand and the barbecue," he explains. "We didn't begin really expanding much out of Texas until Roland Jr. joined the company."

That happened officially in 1999, although Roland Jr., like his father, grew up in the restaurant business. "When I was a kid trying to have a summer riding my bike with my friends, my dad would take me to work with him," Roland Jr. says with a laugh. "When I was 9, he had me making potato salad and washing dishes and busing tables." As a teenager, Roland Jr. was promoted to slicing brisket. After college, he worked in operations for other fast-casual chains before returning to Dickey's as a manager. He was named CEO in 2006.

More changes followed. Roland Jr.'s wife, Laura, joined the company formally in 2008. "It was a difficult time in the economy, and it was very much 'all hands on deck' to figure out how we could weather the recession and build sales without sacrificing the brand," she says. "We scaled down the restaurants from the big, 3,500-square-foot dinner house to a more streamlined, fast-casual serving style rather than a buffet. That allowed us to make more efficient use of the space." There were about 200 stores in the system at that time.

Ownership was consolidated in 2011, when TD Dickey passed away and Roland Sr. bought out his brother's interests. Today, the company is fully owned by Roland Sr., Roland Jr. and his brother Cullen, and their wives. They also constitute the board of directors. Cullen, 40, owns an independent real estate firm that sometimes advises the restaurant company, but isn't otherwise active in the company.

Roland Sr. today serves as the public face—the "Colonel Sanders"—of Dickey's, according to his son. He travels frequently to visit owner/operators for grand openings and anniversary celebrations and appears in cooking segments on local TV stations.

Family ties expand the system

Meanwhile, franchising continues to drive growth. "We have new people joining our system every month," Roland Jr. points out, "but more than half our growth is from existing owner/operators and their families opening more stores. That's our No. 1 barometer of success."

Many of the franchisees are family businesses as well. According to company president Renee Roozen, there are currently 382 different franchisees, the overwhelming number of whom own and operate a single location. Many of them have close relationships with the Dickeys. "The family travels to the stores," Roozen says. "I continue to be amazed when I talk about some single-unit operator in Smalltown, USA, and they come back with the history of where they opened, who was involved, what they did. It means something to them."

Roozen believes family involvement has been crucial to the company's success. "No one is going to care more than someone whose name is on the outside of the building," she says. "The Dickey family is very involved. They care innately. They take the success of every store very personally."

Laura says family ownership is an important factor in the owner/operator relationship, as well. "For franchisees, there's an authenticity to being a true family brand," she says, "with two of the three generations there to talk to about business development and struggles and various personal business choices."

"These aren't gazillionaire international conglomerates buying Dickey's franchises," Roland Jr. explains. "It takes the right kind of owner/operator to be engaged hands-on on a daily basis. That's the way the family has always been, and we ask the same thing of them." That's not to say all the franchisees are mom-and-pop operations. A big leap forward came in 2014 when the company struck a development deal with two former Kentucky Fried Chicken franchisees and their partners to open 100 new stores in California over 10 years.

The system is adding roughly a store every week now. While the company doesn't discuss revenue figures, industry sources estimate systemwide sales of around $500 million, and Roozen says the franchisees employ roughly 8,000 people. There are about 200 corporate staff members. FastCasual.com put Dickey's in first place on its list of "Top 100 Movers and Shakers" and the company was recognized for the third year by Nation's Restaurant News as a "Top 10 Growth Chain" and by industry research organization Technomic as the fastest-growing restaurant chain in the country.

G3 restructures the organization

The Dickeys aren't about to rest on their laurels, however. The management reorganization allows Roland to concentrate on expansion and development of other opportunities while Laura and Roozen grow the restaurant business. The Dickey's Barbecue Restaurant office is located in Dallas. "Marketing, training, operations and communications are about nothing but Dickey's," Roland says. "They have just one mission: Make our brand great."

 

"With Renee's operating background and mine in strategic marketing, it's a good partnership," Laura says. Her background was in marketing and technology, and she served as the company's chief information officer for several years before assuming the CEO's role. Before joining Dickey's, Roozen was VP of operations at Famous Brands International, parent of the Mrs. Fields Cookies and TCBY brands.

DCG, the holding company that Roland heads, was created to expand and diversify the family's holdings beyond the original barbecue concept while supporting and streamlining restaurant operations. "As we got bigger, we wanted to pull professional services out and make them a separate company," he says. "That's finance, HR, legal and other things that aren't specific to Dickey's. They have their own office in Plano [a Dallas suburb] and provide those professional services for all the companies in addition to Dickey's."

Those other companies currently include Wycliff Douglas Foods, a food manufacturer and distributor that supplies Dickey's as well as other companies, and a 22-person technology business, Spark Intelligence, which, according to Roland, "provides restaurant technology from enterprise management to online ordering as well as point of sale." Both firms serve the Dickey's franchise system but are expected to grow and serve other restaurant chains as well. There are other assets, including some real estate holdings, and some minority partners, but "all of the companies are either wholly owned or majority controlled by DCG," according to Roland. Under development are plans to create and/or acquire new fast-casual restaurant concepts.

On the front burner right now is international expansion. "We had shied away from international growth as we built a strong domestic footprint," Roland says. "But we decided this is going to be the year we finally go international. We receive two or three inquiries a day about it. We're putting the infrastructure in place to grow and manage that in a healthy way. We expect to build a big brand and build it right."

Asia and South America are current targets, Laura reports. "There are active talks with investor groups that we hope to announce in 2017," she says.

Continued family ownership is key to the plans. "We want to be nimble, responsive, lean and smart," Laura says. "Because it's an extension of the family, we can avoid the traditional company mindset with a level of bureaucracy. With just a couple of folks in the decision-making circle, you have a lot of career opportunity, mobility and access." She adds an important caveat: "Being a family brand with history matters some, but where we're going matters as much, if not more."

That's also why "we plow back heavily and invest in ourselves," Roland says. "We're not beholden to Wall Street or private equity owners. We can run this company the way we want and build net worth for our owner/operators. Our growth is just a byproduct of making them successful."

Laura and Roland Jr. don't have children now. Cullen has a 3-year-old son, Warren. Given the third generation's ages, succession planning is on the back burner. They are determined to keep Dickey's a family business, however. "I can't foresee a future where the business isn't closely tied to the family," Laura says. "On the other hand, we have to look at succession planning in a different way, for the long-term continuation of the brand, as sometime in the future someone without the last name Dickey will hold the position of CEO. If Warren is interested in the family business, he would work outside the company successfully before joining the team, as all family members do, and that likely [entails] a gap. So we have to be good stewards of the brand and plan for that."

"I see Dickey's future as bright and staying a family business," Roland Sr. says. "We have folks offer to buy us out often, from other national brands to private equity, and right now we're happy staying the course."

"We never want to give up control," Roland Jr. says. "This is our identity. It's more than just a business, and we love it."

Dave Donelson is a business writer and former family business owner in West Harrison, N.Y.

Copyright 2017 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.

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Life cycle trends pose challenges to family business sustainability

Sustaining a family business over multiple generations has never been easy, and several megatrends are making it even harder.

First, there is the well-documented decline in corporate life expectancy generally. A recent study by Fidelity Investments found that in the last 20 years, the expected life of public companies has declined from 25 years on average to less than 12 years. Private companies have a much higher mortality rate. Corporate "death" occurs through business failure, M&A and other causes. The rising cost and the increased complexity of doing business as a result of globalization, technology and communication advances are among the reasons for the increasing mortality rate.

Second, there are the demographic trends documented recently by the National Institutes of Health's National Institute on Aging—a 60-year-old man is now expected to live 23 more years. In 1960, a 60-year-old man could expect to live nine more years. Today healthy men and women in their 60s have a good chance of living to 100 or more. For a multigenerational family business, this dramatic change in expected mortality has far-reaching implications. Not long ago, two generations at most worked together in a family firm. It is now common to have three generations actively involved in the business. The fourth generation often has already been born or is right around the corner.

These trends—declining corporate life expectancy and increasing human longevity—exacerbate the core dilemma of every family business: how to match family growth with the growth of the business. If the family grows faster than the business, either the business gets sold or what constitutes "the family" must be redefined (i.e., must shrink). This has always been a major source of family business dysfunction, since the typical family grows geometrically and businesses, unless exceptional, grow in line with GDP growth. This mismatch in growth rates has the potential to generate a lot of friction between the family and the business.

The need for growth

The need for faster business growth is particularly acute for businesses in the process of transitioning from sibling to cousin leadership and beyond. Given the boom in family business formation after World War II, this is a large subset of the current family business population. Many of these firms now find themselves at the juncture at which family business survival is most challenging.

Faster growth is the best answer to the challenges created by these two mega-trends. Family businesses seeking growth should actively consider product line extensions, acquisitions of new businesses, innovation and more investment in research and development. All these growth strategies require more capital and greater focus on capital allocation. Pursuit of more growth increases the risk profile of the business and may cause some discomfort, but the alternative is not a viable option. The stakeholders must buy into this.

More family businesses today are taking on private equity partners in their pursuit of greater growth. The private equity market now has many participants who are actively looking for family business growth equity opportunities. This can involve a direct infusion of growth capital to the core business or the formation of a partnership with a private equity fund to acquire additional assets. The family can also enter the private equity business itself and build its own portfolio of independent businesses. This requires the human capital to manage such a process and a funding mechanism for the additional required investment.

The survivors of tomorrow not only are focusing on growth but also have developed complementary best practices to address the threats posed by these mega-trends. Three deserve special mention—they relate to the human resources function, succession transitions (of management and control) and governance.

Human resources

Investment in human capital is a key attribute of the survivors. This means greater and more specialized education for family members before they join the business. It also means better mentoring and evaluation of key employees once they are in the business. The human resources function—in name or practice—must now be a significant component of the leadership team. More family means more complexity and the need for more process and consistency in the hiring, training and performance evaluation of everyone in the business.

More intentional management of senior-generation members' retirement and faster incorporation of the younger generations into decision-making roles are also necessary. Given the changing skill sets and technical expertise required today for business success, it is imperative to involve the younger generations sooner. If the family doesn't have the necessary talent, more outside professionals must be brought on board.

Those responsible for the human resources function must also place increased emphasis on what is now referred to as "cultural fit"—the determination of how a particular job candidate will mesh with the family members and their values. This is a critical consideration when going outside the family to fill key positions. Interviewing and testing processes should be deliberate and comprehensive so the risks of hiring missteps are minimized. Most firms require that new family member hires be vetted in a similar fashion.

Succession planning

Transitions in leadership and voting control of the business are always important but now must be more actively managed as well. Not long ago, only one generational leadership and ownership transfer had to be effected within one's lifetime. Now, family members may need to take part in two such transfers. Succession choices in family businesses must be made and are never easy. Getting the process right the first time will ease the burden on those who will be involved in such choices in the future.

Major wealth transfer decisions and the actions required to implement them are always easy to defer to another time. But the traditional "I die, you inherit" approach definitely doesn't work in this new environment. You can't wait until you're in your 80s to pass on the control of the business to the next generation; at that point the "kids" are already in their 50s and 60s and should be thinking about turning over the business to the next generation coming along! The new demographic realities mandate a new approach to the timing and method of transferring control of the business.

Governance

As the complexity of running the family business increases, it is easy to understand why the maintenance of family harmony becomes more important. It is essential for everyone in the family—not just the direct equity owners—to be on the same page in terms of shared values, objectives and long-term perspective. In this context, the family now includes the cousins who are coming along in the third generation and beyond. Family harmony among all the stakeholders in the family business must be a priority.

This is why today there is so much more emphasis on governance mechanisms such as mission statements, family constitutions and formal decision-making and communication forums, such as the family meeting, family assembly and family council. Decisions about what is best for the family and what is best for the business should be addressed independently and resolved in an organized and deliberate way. Conflicts need to be identified and resolved. Conversations about sustainability and stewardship are imperative.

Competitive advantage

Family businesses' resilience and adaptability in the face of challenge is a competitive advantage. Two key life cycle mega-trends—the acceleration of corporate mortality and the demographics of aging—must be addressed by every family business today. Whether by instinct or design, family businesses will benefit by incorporating some of the approaches described above to meet these challenges.

Spencer Burke is executive vice president of the St. Louis Trust Company (www.stlouistrust.com). He is also an adjunct lecturer in family business at the Olin School of Business, Washington University in St. Louis.

Copyright 2017 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.

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Building a sustainable family enterprise

Craig Lloyd used to sit his three daughters down every Christmas and ask how they would handle the family real estate business if he died suddenly.

The business was still relatively small, and this annual conversation was as close as the family came to having a formal meeting.

Craig and Pat Lloyd's three daughters, however, did not want to start their holiday celebration this way.

"We said, 'This is a really morbid conversation to have every Christmas; we'd rather have it another time,' " says Christie Ernst, 41, vice president of property management at Lloyd Companies.

Starting around 15 years ago, the family separated their business discussions from their holiday celebration. About eight years ago, they formalized their family meetings even further, which led to a transformation in how the company is run. Today, Lloyd Companies has a strong governance system and is poised for growth.

The enterprise, based in Sioux Falls, S.D., now has more than 175 employees and at the beginning of 2016 executed a transition from Craig Lloyd, 68, to his nephew Chris Thorkelson, 37. Craig Lloyd remains board chairman; Thorkelson is president and CEO.

The company is involved in many different facets of real estate: It has developed 1,000 acres of land; it develops, constructs, sells and leases both residential and commercial real estate; and it manages more than 4,300 apartment units, both those it owns and those owned by others. It also manages 1.7 million square feet of commercial property. It generates $10 million in annual revenue.

Founders Craig and Pat Lloyd still own the company, though they are working on an eventual transition of ownership to their three daughters—Ernst; Liz Lloyd, 43, who sells real estate for the company; and Mary Huber, 38, who takes part in ownership meetings but does not work for the company—and Thorkelson, their nephew.

Thorkelson, Ernst and Liz Lloyd are the only family members currently working for the business. Pat Lloyd, 65, worked for the company in a variety of capacities over the years, setting up policies and procedures and serving as president of property management. She retired nine years ago.

Lloyd Companies got its start in 1972, when Craig and Pat Lloyd moved from Mankato, Minn., where Craig worked for a lumberyard owned by his uncle, to Sioux Falls, where his uncle also owned property. The Lloyds managed a 120-unit apartment building but soon were looking for more of a challenge. Craig Lloyd started building houses and then began developing apartment buildings and commercial properties. He also expanded the business to include more property management.

A vision of diversification

Soon after its founding, the company was hit with its first challenge: the recession of the early 1980s, when interest rates skyrocketed. That experience led Craig Lloyd to change strategies—which ultimately helped the company become more stable and successful.

As interest rates skyrocketed in the early '80s, "Nobody was buying houses," Craig Lloyd says. "We had about 17 housing units on the market at that time, and we were lucky enough to get through that period with, compared to others, probably minor scathing. But I said, 'I don't want to build the company based just on home building.' "

So Lloyd Companies diversified. It started building apartments as well as homes, and it brought in investors who provided capital to buy and manage residential and commercial properties, giving the company "a broader base," Craig Lloyd says.

The company stopped building new homes in the late 1980s, but it remains a diversified enterprise. Today, Lloyd Companies has about 400 investors.

Craig and Pat Lloyd also bought out Craig's uncle's share of the South Dakota-based business in the late 1980s. (His uncle kept the Minnesota part of the business, which he later sold to a non-family member.)

That first recession brought with it valuable lessons.

"Never pass up a good recession," Craig Lloyd says. "We were just trying to pay the bills and making sure that if we had investors they got paid. It was a huge struggle to get to where we are today, but we were able to react to the economic conditions and make the best of it."

One piece of land that Lloyd Companies acquired shortly after this period became a pivotal development for the company—and the community. Meadows on the River, a shopping center with more than 20 businesses (including a number of big-box retailers), was developed near an interchange that provided more access to a key part of Sioux Falls.

"It was a huge transformation point, not only for the company but for the city as well," Ernst says.

The development cemented the company's place as instrumental to the growth of the community.

Family future

The family business was "very much part of our lives growing up," Ernst says. She and her sisters helped clean apartments and listened to their parents talk about the business at the dinner table.

"Before cell phones were really cell phones, my dad had a phone in the car," Ernst says. "We called the business their fourth and favorite child, which took their time and energy."

What she heard did not make Ernst want to work in the business as an adult. "I saw my parents struggle, and I really wanted nothing to do with it," she says. So after graduating from Marquette University with a degree in international business and information technology, she took a job with Motorola in Phoenix, Ariz.

Nine years ago, Ernst was working in Washington, D.C., doing project management for a large, publicly traded corporation, when her parents asked if she would be interested in coming back and taking over the role her mother had filled before her retirement.

Ernst and her husband, Todd, discussed whether to make the move—including what he would do if they moved to South Dakota. Her husband's background is in finance, and after some research he saw an opportunity to start a business raising capital for Lloyd Companies.

"This was probably one of the pivotal moments in the company; it took us from survival mode to being able to survive the recession of 2008," Ernst says. Lloyd Companies used the capital raised by Todd Ernst's firm to expand. "We went from having a handful of investors to 400," Christie Ernst says.

Ernst's return was one of three key developments that ultimately led to the development of the business's governance system and transition of leadership.

Another driving force was the death of Craig Lloyd's uncle, the one who had initially hired him into the business.

"My cousins had to sell a lot of the property to raise money to pay the tax bill," Craig Lloyd says. "It hurt me to think that they had to do that when the guy had really spent a lot of time and effort trying to plan for it. It didn't work."

The situation made Craig Lloyd consider more carefully what would happen when he died, and how he wanted to pass the business on to his family.

A third key event for the business occurred when Thorkelson joined the company after graduating from college in 2003.

Thorkelson had grown up in Hastings, Minn., about four hours from Sioux Falls. His mother and Pat Lloyd are sisters, and the families got together about once a month. Thorkelson also sometimes stayed with the Lloyds during summers and traveled with them to California, New York and Florida.

"My first job was working for Pat and Craig, getting up early in the morning and getting dropped off at a construction site and sweeping apartments," Thorkelson says. "I was 11."

Later, when he was a student at the University of Wisconsin-Madison, Thorkelson was invited by Craig Lloyd to build a retaining wall for him because he had experience in landscaping. Thorkelson recruited some buddies and drove to South Dakota to do the work. During a subsequent visit, he started conversations with his uncle and aunt about joining the business.

After graduating from college with a major in industrial engineering and a minor in business, Thorkelson took a four-day road trip to celebrate, then moved to Sioux Falls and went to work.

Because his cousins had not showed much interest in the business, Craig Lloyd and Thorkelson discussed Thorkelson's potential as a successor candidate. They decided Thorkelson would learn about different parts of the business in preparation for possibly running it someday.

"I started as a framer and learned that trade, then went into concrete, then into finish carpentry," Thorkelson says. "Then I got into being my own estimator and site superintendent." He later held roles as vice president of construction and development before becoming chief operating officer in 2012.

Transforming governance

Over the past decade, with Ernst back working for the business and Thorkelson taking on increasing responsibility, the Lloyd family looked at how to formalize both its corporate and family governance.

At a 2008 retreat presented by the Prairie Family Business Association, the family saw their business and their future in a new light.

"We came to the agreement that we're a family-owned business, not necessarily a family-managed business," Ernst says.

They also realized they needed to break down the roles Craig Lloyd played, as a manager, a board member and an owner.

"Pat and I did everything from washing dishes to making million-dollar decisions," Craig Lloyd says. They realized they needed to formalize their roles and train others to make a smooth transition.

"Because we were just used to doing it all, it was hard to take off some of those hats," Pat Lloyd says.

Managing the transition became a full-time job for Ernst at one time, though she is now back to running the property management division.

The more formal family meetings clarified the possibilities for succession planning, as well: "At one of our family business meetings, we asked, 'Does any one of you want Craig's position one day?' " Pat Lloyd says. "The only one who raised his hand was our nephew."

The company now has a 12-member management team; the only family members on the team are Thorkelson and Ernst. What had started as an advisory board turned into a true governing board for the company. Craig Lloyd, as chairman, is the only family member on the board.

Although Craig and Pat Lloyd are still the owners, their daughters and Thorkelson participate in formulating the owners' plan each year. This plan guides the board's work, and the board in turn guides the company management.

The family meets once a year with a facilitator, plus several other times a year solely as a family.

Community involvement

Craig and Pat Lloyd have seen a lot of growth in Sioux Falls—the metro area population has more than doubled since the early 1970s—and they have been consistently involved with the community. They are active in a range of organizations including the YMCA and Feisty Fighters, a non-profit founded by Pat Lloyd and her daughters that raises funds to fight cancer.

"We take a certain portion of our profit every year and give back to the community," Craig Lloyd says. "Our kids have taken this to another level."

"Because of all the leadership that Pat and Craig have done over the years, non-profits want to have key leadership from the company on their boards," Thorkelson says.

Thorkelson and his cousins are looking at expanding the company, staying in the real estate business but getting into new markets in the Midwest.

"We want to diversify a little bit, not be so heavily dependent on Sioux Falls," Thorkelson says.

Efforts are under way to get the younger generation engaged in the business. Huber, the Lloyds' youngest daughter, has set up a summer program for the family's kids, who range in age from 3 to 9. They learned from a member of the accounting team about distinguishing wants from needs, for example, and they visited a construction site wearing safety vests and hard hats.

"The next generation has more energy than I have, and they have big expansion plans," Craig Lloyd says. "They're not sitting on their laurels."

Margaret Steen is a freelance writer based in Los Altos, Calif.

Copyright 2016 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.

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Preparing your company for post-crisis growth

If your family business survived the economic upheaval of the past few years, congratulations. Your company is likely still standing because of its inherent competencies, long-term strategic decisions and conservative financial management. But it’s not yet time to go back to business as usual, because the economy has not fully recovered.

In a natural disaster, such as an earthquake, more casualties occur in the aftermath than during the event itself. Often, the small decisions people make and the ways they prepare for high-impact events will determine whether or not they survive unscathed. Similarly, the aftershocks of the recent financial crisis likely will continue to reverberate throughout the economy for years to come. To ensure your company’s future survival, you must open yourself up to new ways of thinking about growth.

Domestically, some competitors may be struggling and some customers or suppliers may be out of business. Internationally, new competitors, suppliers and customers have emerged from the developing world. Access to those markets may be challenging and costly for many family companies. Banks are restricting credit, private equity funds are struggling and government regulation is increasing.  

Despite these challenges, growth is not a choice but a necessity for family companies’ long-term survival and for family wealth creation. Yet this economic crisis has taught us that short-term growth without profit is a recipe for disaster.

How to jump-start growth

As the saying goes, don’t let a crisis go to waste. Here are some strategies for jump-starting sustainable, profitable growth:

• Invest in depth, not breadth. Focus on deepening your company’s core competencies rather than making capital investments to tap new markets or capture market share. Consider acquisitions and investments that will broaden your range of products or services or bolster core technology.

• Become more agile. The companies that will survive are not the largest, but those with a lean cost structure and flexible working capital that can adapt rapidly to changing economic conditions.

Another oft-repeated saying is, “Life is a marathon, not a sprint.” A sprinter has big muscles, while a marathon runner has a lean body. Similarly, you want a lean cost structure at all levels of your organization. To be sustainable, leanness must be part of your company culture, from the executive suite to the shop floor.

During the recent crisis, one of our clients set a company-wide cost-cutting goal. Every department head was asked to develop cost-cutting and efficiency improvements. The departments ended up cutting twice the amount originally targeted.

Flexible working capital requires low inventory levels, on-time collections and plenty of available lines of credit. The chain reaction in banking and credit markets caused many companies to stumble through the recession.

• Help to keep your customers and suppliers profitable. Take steps to integrate more closely with your supply chain, such as by helping your customers market to their customers. A client that supplies goods to Lowe’s, Walmart and Home Depot sends its employees into those stores to provide weekly customer education sessions. Its managers have discarded the silo mentality and recognize that their customer’s customer is also their customer.

Also remember that your existing customers are your best prospects. Keeping them is much more efficient and less costly than seeking new customers. At the other end of the supply chain, brainstorm with your suppliers about how they can work with you to increase sales to your customers.

Margin management and analysis of value-added features through your entire supply chain are essential to determine margin contribution for each participant in the chain.

• Develop and maintain global brands. Companies with global brands have been successful through the recession. A family company, even if it’s not a giant, can develop a global brand cost-effectively via digital marketing tools such as Facebook and Internet trade networks.

Don’t just emphasize the features of your products or service; focus on people. Publicize joint problem-solving efforts among your employees, suppliers and customers. Use slogans that transcend cultures and are identified with your company or your products, like BMW’s “the ultimate driving machine.”

• Seek out long-term capital sources. The banking crisis has prompted business owners to ask a surprising question: Is my money safe with this institution?

Despite the lack of available business credit, family businesses have a significant financing advantage: patient capital from the family. But this patient capital must be nurtured, particularly in a crisis. Shareholder communication is essential.

Many of our clients circulated an extensive shareholder survey in the aftermath of the downturn to determine individual shareholders’ needs and objectives. Because some shareholders may have been personally affected by the crisis, this is an opportune time to assess their appetite for risk and to evaluate how they want to transmit wealth to the next generation. Shall we be a financial family or an operating family, or both? Shall we diversify our risk by liquidating part of our family business holding? Or shall we take advantage of lower valuations and invest in acquisitions? Shall we form a family office?

This exercise may lead to the decision to invite a long-term capital partner to provide diversification for the family or growth capital for the business. An outside partner must fit in with the family culture and understand family business dynamics.

In my experience, single family offices are terrific partners for other family companies. In the last two years, we have identified more than 400 single family offices around the globe that are interested in investing in family companies. A family business can benefit from the family office’s experience, long-term investment orientation and family values. An investment in a family business can provide a single family office with a new legacy holding. Their objective is to achieve long-term returns in a partnership investment.

In a crisis, it’s natural to focus on getting through the shock. But you cannot afford to stay in defensive mode. What you do next will determine whether you survive and grow. The time to act is now.

François de Visscher is founder and partner at de Visscher & Co., a Greenwich, Conn., financial consulting and investment banking firm for closely held and family companies (francois@devisscher.com).

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