Recipe for a new generation

By Deanne Stone

The Fat family had run their Sacramento restaurant and real estate enterprise according to tradition. In anticipation of their next leadership transition, they shifted to an approach rooted in planning.

Frank Fat’s restaurant is a Sacramento institution. Located a few blocks from California’s State Capitol building, it was for decades the gathering place for California legislators. The restaurant was as famous for its good food and service as it was for the political maneuverings that took place there. The corner booth was reserved for the most influential politicians, and many bills that later became law were first sketched out on napkins in Frank Fat’s restaurant.

Playing host to California’s political elite was a Chinese immigrant, Frank Fat, whose winning personality and infallible memory for names and faces compensated for his imperfect command of English. Nicknamed “Senator Fat,” he welcomed politicians from both sides of the aisle and built a loyal clientele among the general public that has sustained the restaurant’s popularity for 74 years. Frank was such a legendary businessman that his picture is included in a mural created by the city to honor Sacramento’s pioneers.

Frank died in 1992 at age 88, having created the foundation for the second generation to expand Fat’s Family of Restaurants and Fat Family Properties. Today, with 275 employees in their businesses, they earn 60% of their profits from the restaurants and 40% from real estate.

The extended family includes 14 third-generation and 24 fourth-generation members, yet so far only one member of the third generation, Kevin Fat, has expressed interest in a leadership role. Unlike previous leaders of the business, who worked until they died, three key family members announced in 2003 that they wanted to start planning for retirement.

The pending retirements and the third generation’s lack of interest in working in the business have propelled the family to take action. Its immediate concern is ensuring a smooth transition of leadership, but it is also thinking about how to make the business more attractive to younger family members.

“When the second generation started talking about retiring,” says Jerry Fat, 62, the second-generation CEO and president, “we asked ourselves whether we wanted to continue as a family business and whether we could succeed without a family member as leader. The answer to the first question was yes, and Kevin answered the second question by stepping forward.” The younger generation hasn’t wanted to work in the restaurants, but they may be interested in working in sales or marketing in Fat’s properties.

Like many business families, for most of their history the Fats were preoccupied with the daily demands of running their enterprise. Frank Fat opened his restaurant in 1939, 20 years after arriving in California with no money and little education. Working as a dishwasher and restaurant helper, he saved money for a return trip to China, where his family had arranged his marriage to a young woman in his town. Seeing no future in China, he came back to Sacramento, leaving behind his wife and infant son, Wing. It took a decade for him to save enough money to send for them.

How Frank raised the cash to buy his restaurant is a classic tale of honesty rewarded. At the time he was working in a Chinese eatery that offered a lottery for winners of a game played by Chinese customers. Tickets sold for 50 cents apiece, and a Caucasian businessman gave Frank money to buy some for him. One ticket won the lottery of $900. Frank cashed it in but couldn’t find the buyer. When the man returned to the restaurant months later, Frank handed him his winnings. The man was so impressed by Frank’s honesty that he loaned him the down payment to buy his own restaurant. Frank’s friends thought he was crazy to open a business in a run-down part of town but, for Frank, owning his own restaurant was paramount. He had no idea that 806 L St. would become prime real estate.

Frank and his wife, Mary, had six children. Wing, whom the family refers to as the No. 1 son, started working in his father’s restaurant as a boy. As the eldest, he was expected to help support the college educations of his five younger siblings. Frank was the undisputed patriarch, but he and Wing worked as a team in building up the business. Their success was all the more remarkable given the open hostility toward Chinese people in California in the 1940s and ’50s.

Denise Mazucca, the tax adviser to the Fat family for the past 30 years, says that Frank and Wing won people over with their warm, outgoing personalities. “They knew how to make people feel welcome in the restaurant, and they had a very strong work ethic,” Mazucca says. “They worked 14-hour days to make the business a success.”

Frank was a shrewd businessman whose philosophy was to start small and never extend beyond his means, a practice he followed in investing in real estate. While building his business, he simultaneously acquired properties in the Sacramento area. About 90% of the real estate in Fat Family Properties’ portfolio today was purchased by Frank.

Frank’s second son, Ken, is a dentist, and the only one of Frank’s four sons who never worked in the family business. But Ken’s wife, Lina, a chef and cookbook author, is vice president and director of cuisine research and development for the restaurants.

In 1972, Frank’s third son, Tom, joined the business and proceeded to transform it. Tired of working as a corporate tax attorney in Los Angeles, he returned to Sacramento with ambitious ideas for growing the family business. The restaurant chain Victoria Station was then at the peak of its popularity. Tom convinced Frank and Wing that California was ready for an Asian-themed restaurant chain, and he enticed Jerry, Frank’s youngest son, to join the family business. Jerry had just graduated from UC-Berkeley.

“I hated the restaurant business when I was growing up,” says Jerry, “but Tom persuaded me that new opportunities would open up as the business grew and diversified, and he was right.”

In 1975, the family opened the first of the chain restaurants they called China Camp in Old Sacramento. An early version of East-West fusion cooking, it was designed to appeal to the baby boomer population. Building on its success, the family opened a second restaurant in San Diego.

When Collin, Wing’s eldest son, graduated from UCLA in 1976, the family was in the process of restoring a 19th-century building in Old Sacramento to house a more traditional American restaurant, Fat City Bar and Café. Collin was recruited to help open it.

“Without Uncle Tom’s vision,” says Collin, 60, who serves as vice president and director of restaurant operations, “we wouldn’t have started a restaurant chain. He was very astute in studying the restaurant market and how big corporations were run.”

By the early ’90s, China Camp had run its course. The family closed out the chain in 1992. Meanwhile, Indian tribes were opening casinos in California. Two in Southern California approached the Fat Family of Restaurants about using its name for their restaurants to attract customers. Under their agreement, the casinos own and operate the restaurants and Fat’s Family of Restaurants acts as advisers in exchange for 20% of the profits.

Recognizing a market for Asian restaurants in two nearby towns, the Fats opened Fat’s Asia Bistro & Dim Sum Bar in Roseville and, a few years later, Fat’s Asia Bistro & Bar in Folsom. Those additions brought the number of restaurants operated by the family to four. They also run a catering and banquet business, renting space in the building that housed China Camp in Sacramento.

From the start, succession in the Fat enterprise was based on tradition rather than on planning. As in many traditional Chinese families, leadership passed from the eldest son to the next in line.

After Frank retired in 1971, Wing served as president until his death in 2005. He was succeeded by Tom, who died two years later. Next in line was Jerry, Frank’s youngest son, 25 years younger than his oldest brother, Wing.

The deaths of Wing and Tom signaled the end of an era in which strong leaders ran an informally organized family business. Although Jerry and Collin are from different generations, they are only two years apart in age and think like contemporaries. They wanted to establish more professional ground rules for running the company, changes made more pressing after Kevin—the son of Ken and Lina—joined the business in 2003 and became next in line to assume leadership of the company.

Why haven’t the younger generations wanted to work in the business? In Chinese culture, the younger generation is taught to respect and honor the older generation. But Jerry, Collin and Kevin all remember being turned off listening to their elders’ fights. “The second generation were opinionated Type A personalities,” says Kevin, 46, vice president and director of business administration. “They used to have screaming fights that would end up with someone storming out. My cousins and I remembered all the arguments and didn’t want any part of it.”

The family operated on consensus, and while they agreed on the big issues, everyone had opinions on the details of how to run the restaurant. Kevin recalls heated battles about menu items, table settings and the color of restaurant walls.

Collin offers additional reasons why the highly educated younger family members prefer to work outside the family business. “One of my kids is a CPA and the other a hedge fund analyst earning six-figure salaries,” Collin says. “The younger generation don’t value ownership and equity as much as large salaries and free weekends. We can’t compete with that.”

Kevin, who had worked in the hospitality and technology industries in San Francisco, hadn’t considered joining the family business either. But in 2003, his wife lost her job in the dot-com bust at the same time that the family was looking for a general manager to run Frank Fat’s. With Jerry, Collin and Lina planning to retire, Kevin could advance to a leadership position.

“I felt a responsibility to my family and the business to come back,” says Kevin. “But another factor in my decision was my kids. Growing up, my cousins were almost like my siblings. I wanted my kids to grow up knowing their cousins, too.”

Five years ago, the Fats embarked on the process of professionalizing the business. At the urging of Denise Mazucca, their CPA, they formed a board made up of eight family members and Mazucca. “We are emotional people,” says Jerry, “and having Denise there keeps us focused and -respectful.”Fuzzily defined roles in upper management had confused employees about whom to listen to, so the Fats hired a consultant to work with them in sharpening lines of authority and improving communication skills. The family also invested in a long-term program of preparing Kevin for leadership. Two and a half years ago, they began working with Mark Ingram, a partner in Continuity Partners in Sacramento, a multi-family office integrating family legacy with wealth strategies, to help them develop a succession plan. Ingram has been working with Jerry, Collin and Lina on a development plan and meets with them periodically to talk about Kevin’s progress and areas that need to be strengthened. In addition, Ingram is Kevin’s executive coach. They meet twice a month and will continue meeting as Kevin moves through the transition process.

Kevin has all the makings of a strong leader, says Ingram. “He is intelligent, intuitive and gregarious and has a visceral connection to the family business. But there’s a difference between knowing a business and leading it. This family feels passionate about preserving its legacy, and developing Kevin’s leadership competencies is a way to ensure it.”

Kevin had considered furthering his education by getting an MBA, but instead chose to go through the 18-month Leadership Series offered by the Capital Region Family Business Center in Sacramento. “What was missing in the MBA programs was the focus on family business,” he says. “The Leadership Series related directly to what I was doing in our business in how to work with families and put practices in place.” A bonus of the program was finding a peer group of younger family members next in line for succession. Now friends as well as fellow family business owners, they meet regularly to share resources and solutions.

The Fat family had always worked together as a team in running the business. After Jerry, Collin and Lina retire, Kevin will be the only family member in a leadership position. “The business will be different, less personality driven,” says Jerry. “Kevin won’t have trusted family members at his side, but he will have more authority to run the business in his own style.”

And who knows? Some younger family members may see opportunities for themselves in a professionally run, transparent family business.

Deanne Stone is a business writer based in Berkeley, Calif.

 

 

 


 

 

 

Copyright 2013 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permssion from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.

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May/June 2013

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