New strategies from a new generation

By Hedda Schuapak

NextGens' innovative ideas can revitalizes their family companies. Here are three examples.

When twin sisters Jenny Dinnen and Katie Rucker took over MacKenzie Corp., an analytics firm in Lake Forest, Calif., in 2013, they immediately realized that the business needed some new focus in order to remain competitive. Their father, Don Vivrette, had founded the company in 1985 and named it after his mother, Kathryn MacKenzie Vivrette.

Vivrette, now 69, got MacKenzie to the point where it could support his family. His daughters, now 40, are preparing to take it to the next level. They’ve shifted the business model from tactical market research to strategic consulting. They’ve also expanded the company’s client base beyond motorsports to new industries, including professional sports, charities and non-profits, and residential communities.

In a family business, change can be a source of friction between generations. Senior family members may be leery of tampering with a successful formula, while younger generations see new opportunities or shifting market realities their elders might be missing or ignoring.

Innovation is no longer a luxury — it’s a necessity, says Jenny Dinnen, president of sales and marketing at Mac­Kenzie Corp. “Because this company has been wildly successful for 30 years, there are people who say, ‘It’s worked, why change?’ The answer is the entire world is changing at a pace that’s mind-boggling.”

“For us, honoring the past is making sure this company is still here at least the next 30 years,” says Rucker, MacKenzie’s president of operations. “There’s so much happening in the customer and data analytics space. The industry is not what it was 30 years ago, and we had to adapt to a changing industry.”

Forging ahead
The first step to successful innovation is losing the fear of failure, says Rucker. “Our dad was very calculated and risk-averse, and we were brought up and trained in that mentality,” she recalls.

As the sisters grew into leadership roles, they realized cautiousness was holding the company back. The two women, in their early to mid-30s at the time, stepped back and considered what would be the worst possible consequence of trying something new.

“The answer was, we completely bomb, go bankrupt and move on,” says Rucker. “That was a big revelation for us. We figured that if that happened, we just take the great skills we’ve learned and go get a new job. It was being OK with failure that allowed us to move forward.”

Failure didn’t even register in Marisa Sergi’s mind when she created the RedHead Wine brand as a college capstone project at age 19. Her goal back then was to present the project to the class and earn her degree.

Sergi’s parents launched L’Uva Bella Winery in Youngstown, Ohio, in 2005. Today, in addition to the wholesale wine division, the business includes an Italian bistro that also sells supplies for home winemakers. Sergi started feeding grapes into a hand crank press in her parents’ garage as a fifth-grader, so she naturally gravitated toward Cornell University’s viniculture program. The capstone project is a defining feature of the program and is required to graduate.

“You choose the topic, do research and present conclusions in what you’ve learned. Instead of doing research with yeast or microbes, I proposed something a little more creative, and was glad my professors let me lead with my passion for winemaking and creativity rather than something super-scientific,” Sergi says.

After Sergi graduated from college in 2015, her parents wanted her to work elsewhere before joining the family business. She landed a plum job at Ernest & Julio Gallo in Modesto, Calif., helping to create new products. So good was the position that her father, Frank Sergi, wanted her to stay there instead of working at L’Uva Bella.

Her mother was more receptive. “When she came up with the idea to launch RedHead, I said, ‘OK, Marisa, you’re single, you don’t have a family, you don’t have to worry about children, husband, or house; this is your time to do something like this,” says Ruth Sergi, 59. “My husband felt she should have stayed [at Gallo] a couple of years; one year was not enough.”

Suggestions from innovative NextGens


• Know your market. Identify how you can better serve customers’ needs or reach out to a new customer base. Brainstorm creative approaches.

• Overcome the fear of failure. In today’s rapidly changing marketplace, maintaining the status quo is usually riskier than innovating.

 Learn from other companies. Many NextGens seek jobs at major companies before joining the family business so they can get an insider’s view of a successful business plan. Also consider joining a peer networking organization like YPO and forming a board of directors or advisers.

 Earn buy-in from your family. Build a track record of success to establish credibility with your parents and other senior family members. Once you have proved yourself, they will be more inclined to support your innovation plan.

• Build a team that supports your strategy. Explain the strategic plan to employees, and make it clear that those who resist will need to exit.

• Approach challenges with passion. In order to succeed at breaking the mold, you must be fully committed.

Marisa Sergi knew the risks were high — “my reputation, my entire career! I resigned from a job that was very secure and something I really enjoyed, and, especially as a young female winemaker, I felt like I had the whole industry watching me. 

“People knew I was working for Gallo. They knew I was starting a label in a very crowded market, and I knew people would watch me burn or thrive. But I didn’t want to be 80 years old and one day look back on my life and have regrets that included not launching the brand.”

Now 25, Sergi is president of RedHead Wine. The brand can be found on the shelves at Walmart and Kroger stores in Ohio. In West Virginia, it’s available in Riesbeck’s Food Markets and some mom-and-pop stores. In Pennsylvania, consumers can find RedHead Wine in Sparkle markets and select mom-and-pop stores; it will also soon be available in Giant Eagle stores in the state.

Sergi knows she was fortunate to have an existing family business willing to provide seed money for the new brand’s grapes, bottles and caps. L’Uva Bella offered her the use of its winemaking equipment and sales staff. She used money she won in business incubator competitions for sales, marketing and legal expenses.

“It was definitely an adventure of a lifetime — small-town Ohio woman flies to Bentonville to pitch to the Fortune 1 company of the United States!” she recalls. “We didn’t have any experience with pitching to such a large company.”She landed her wine in Walmart by participating in the retail giant’s U.S. Manufacturing Open Call, held every June at its Bentonville, Ark., headquarters.

A business incubator organization in Youngstown, Ohio, helped Sergi plan her pitch. “I got a lot of help in preparing the presentation and to shape my expectation for the meeting,” she says. “I walked in with a very solid pitch, samples and a story, and got a yes from them to go into some of their Ohio stores.”

But with 100,000 or so new wine labels registered every year and about 5,000 wine brands readily available in the U.S. wine market, Sergi acknowledges that without her family’s network of sales reps and clients she might not have succeeded — and she’s acutely aware how quickly fortunes can change. “I don’t want Walmart being 80% of my business and then stress about them going away,” she says. “I’m making sure the business is very diverse, not overpowered by any retailer. Right now it’s under control, but that could change, and I’m very conscious of that.”

Breaking the mold
For Danny Govberg, third-generation CEO of Govberg Jewelers, innovation and disruption are synonymous. If a decades-old business needs to be flipped on its head in order to stand out, so be it.

Govberg Jewelers’ roots date back to 1916, when Albert and Samuel Govberg first opened a small jewelry store in Philadelphia. Albert alone later opened Govberg Jewelers in 1922, and his descendants, including Danny, 58, run the business today. It was a traditional family jewelry store until Danny and his brother, Jeffrey, formally entered the business the early 1980s. Like most children in jewelry families, they’d worked in the store informally all their lives. When, at age 27, Danny announced his intention to expand into luxury watches, his father, Irv, was horrified.

“There’s no money to be made in watches!” insisted Irv, who is now retired. Most jewelers shared Irv’s viewpoint; the advent of battery-powered quartz watches had put small watchmakers out of business, while global luxury brands like Rolex kept tight reins on distribution, pricing and margins.

Whether motivated by his father’s skepticism or the thrill of a challenge, Govberg embraced the category and made the store synonymous with luxury watches in Philadelphia. Today, Govberg Jewelers — which now has three brick-and-mortar locations — is so entrenched in watches that it’s making a concerted effort to add back more jewelry.

Overcoming objections
Dinnen and Rucker, Sergi and Govberg all were lucky in multiple respects: Market timing was right for their ideas, and if their parents were skeptical, they at least were not hostile.

“Mom always supported me,” Sergi says. “Dad also supported me, but he had some doubt. I received a lot of pushback from him, but here we are.”

MacKenzie’s Dinnen and Rucker faced more resistance from some longtime employees than from their father. Eventually, those employees — including a high-level manager — had to go. When the twins took over, the longest-tenured employee had been working there 30 years, and the newest had been with the company for 12 years.

“We tiptoed for a long time trying to honor them and their commitment, but that was hurting the company,” Dinnen says. “The changes we were making meant the company had evolved into something different. They were hired by Don for his company, and it’s everyone’s prerogative to say, ‘This is not what I signed up for.’ ”

The sisters worked with a transition consultant and presented the situation as a self-selecting process. “We said, ‘This is what we’re doing now, and that’s OK if it’s not for you,’ ” Dinnen says.

For Govberg, “no” means “detour.” After successfully challenging his father’s objection to watches, he came up against another wall: an industry as reluctant to enter digital commerce as Irv Govberg was to sell timepieces. Many jewelers still believe nobody will spend thousands of dollars without touching the product, but not Govberg.

“Today’s consumer is increasingly connected and empowered by social networks and digital devices, and they are no longer bound to a store’s hours of operation,” Govberg says. “They dictate how and when they want to interact with a brand.

“This is the future for luxury retail: supporting the consumer on their time, through their preferred style of communication, and with the support of a highly trained and knowledgeable guide.”

But luxury watch brands were so resistant to digital commerce that they forbade even authorized retailers like Govberg to sell online. Selling pre-owned watches was the only way around the restrictions. Luckily, the market was ripe and Govberg pounced.

Collectors often want to sell or trade in one watch to buy another. Govberg initially launched an online luxury watch resale site in 1999, but today the store’s website offers a robust selection of pre-owned luxury watches. His two G4 sons, Marc and Brian, are now in the business, along with their G4 cousin Robyn, Jeffrey’s daughter. Brian, 31, was instrumental in expanding the pre-owned watch business; Robyn, 32, is a client adviser and watch trader; and Marc, 30, is part of the company’s operations team. (Jeffrey retired in 2005.)

Meanwhile, Danny had bigger visions. He and a longtime friend who was a watch dealer in Asia both saw vast potential for a global online platform for pre-owned watches. Together with a private equity partner, they conceptualized and launched a separate global pre-owned watch site, called WatchBox, in 2017. With offices around the world, that site also offers loans against luxury watches in addition to buying and selling them.

Changing the culture
Innovation must happen inside to be successful outside. At MacKenzie Corp., Dinnen and Rucker’s ideas precipitated a shift in the company culture when they took over leadership.

“Our dad hired people very similar to himself,” says Rucker. “Jenny and I are very different from him. He’s more siloed, heads down, get the work done, but we’re more collaborative.” The twins permitted employees to work from home. They attended conferences in a variety of industries, partnered with other companies to penetrate areas that weren’t MacKenzie’s strength, expanded the client base, entered new industries and began to focus on consulting.

“Success to Dad was supporting his family and employees, and he was tremendously successful at both,” says Dinnen. “To us, it’s different. Of course, supporting family and employees is important, but how are we impactful on our client’s business? How are we helping them to succeed?”

“We’re passionate about really cool experiences,” says Rucker. “We’re thinking about how to collect information and insights to improve a customer’s experience with the [client’s] brand. That’s how our services now are in line with how things are changing. For instance, millennials are focusing on companies that are doing good in the world, and that’s something we’re authentically passionate about, so how can our services help companies focus on that and help them align with what the consumer wants from business today?”

At Govberg, innovation required blending the traditional functions of a high-end jeweler with the modern vibe of an online retailer. By necessity, its brick-and-mortar stores resemble other luxury jewelry stores, with carefully curated assortments in locked showcases. But the online division headquarters looks more like a Silicon Valley workspace, with an indoor putting green, a full kitchen and event space, TVs, and toys scattered about.

Danny Govberg may have proved that people will spend $20,000 online — but they still expect the same level of expertise and concierge treatment as they would get in a luxury jewelry store, and that had to be part of the online experience for both the Govberg and WatchBox sites.

“The decision to invest heavily in growing the online business was about addressing the interests and needs of customers with as little friction as possible,” Govberg says. “Luxury commerce is the intersection of brick-and-mortar retail and e-commerce.”

“There’s a real benefit of being a legacy company, but you don’t want to be stuck doing things the old way. Now we have the benefit of both,” says Dinnen. “Consumers’ expectations are changing, and we’re either going to get crashed underneath or we need to get going with it.”    

Hedda Schupak is a frequent contributor to Family Business. Her profile of Fee Brothers appears elsewhere in this issue.

 

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.

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May/June 2019

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