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MAKING IT AS A FAMILY BUSINESS
50 YEARS AND BEYOND ADVICE FROM THE EXPERTS More Inside
+ The Legacy of a Regional Grocery Chain + Stories in Succession Planning + Next Generation’s Current Mindset
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FROM THE CEO
Begin planning now Think strategically to survive and thrive Growing up in a family business, I realized early on that the structure of our business was very different from a “traditional business.” My keen interest in family enterprises was fueled in the early 1980s when I attended family business study groups in Cleveland, led by the late Dr. Léon A. Danco. As the founder of the Center for Family Business, Dr. Danco served as the national expert in perpetuation and continuity of the family owned business. I also was fortunate Jeff Ahola to participate in the internationally accredited executive MBA program for Families in Business at Kennesaw State University, where I studied European dynastic families. While I was well-armed with knowledge of family business best practices, I found it very difficult to implement these practices in my own family business. Most family businesses are run by the patriarch of the family, who then hands down the business to the oldest son. In our family business, my mother and father started the business together and when they retired, they handed down the business to all four of their children. Like many small business
owners, my siblings and I were focused on business survival and had very little time or energy for anything else. In the early stages of the business, we put blood, sweat and tears into the company; working 14-hour days and on the weekends was normal and expected. Each sibling brought a needed skill set to the business: sales, tax, payroll and computer programming. Fortunately, there were enough years of stability and growth for us to weather periods of economic adversity in the 1980s and 1990s. When the business moved beyond survival mode, we hired more employees and dedicated time to
FIVE KEYS TO FIVE DECADES Advice from the experts
work on business development. It wasn’t until the early 2000s when I looked up and saw how fast we had really grown over the last 30 years. That realization triggered my siblings and me to begin living the family business best practices I had learned so much about. We improved family and business communication, developed family business governance policies and established a board of advisers to help navigate the next strategic phase. The most difficult realization was accepting the fact that my siblings and I are not going to work in the family business forever. We hired non-family member executive leaders to continue our legacy, and last summer, as we celebrated our company’s 50th anniversary, my daughter, our third generation, joined the family business. My only advice to other family businesses: Begin planning now. Communication and transparency are the keys to enabling a family business to survive and thrive from generation to generation. By implementing the best practices I learned from Dr. Danco, our family business is ready for the next 50 years, with the next generation.
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FAMILY COMPANY
3
The legacy of Buehler’s
Local grocery chain’s values key to growth, future By KATHY AMES CARR
T
he impetus behind one of Northeast Ohio’s beloved local grocery chains originated nearly a century ago, on a dairy farm in a village outside New Philadelphia. Dairy farm owners Ed and Helen Buehler had an idea for launching their own small business that would offer a superior experience over the big supermarkets. At the time, Ed worked for the Great Atlantic & Pacific Tea Company, or the A&P, a grocery behemoth that at the time operated 16,000-plus stores before a staggered collapse ultimately led to its bankruptcy and closure in 2015. In 1929, Ed and Helen opened their first Buehler’s in New Philadelphia, ushering in the foundation of a legacy grocery operation that endures today. “The business thrived on customer service, free delivery and buying on credit,” said Christopher Buehler, vice president of marketing and strategy at E&H Hardware Group, a former Buehler’s
4 FAMILY COMPANY
PHOTOS PROVIDED
Come hear more about Buehler’s transition to an ESOP at the Family Business Forum Sept. 12. MORE DETAILS ON PAGE 11 affiliate. Buying on credit was critical during the Great Depression and was one of the ways customers were able to still
shop at Buehler’s, he said. “Relationships built on trust was a pillar of Buehler’s back then and continue to serve as an important foundation of the family hardware business being operated by fourthgeneration members today.” Ed’s reputation as an innovator propelled the community institution forward through the subsequent years. Family members say Buehler’s was the first grocery store in Ohio Crain Content Studio - Sponsored Content
to develop a load-and-go grocery bagging system, in which bags of groceries are loaded into a plastic bin then transported to cars outside via a conveyor belt. Parking lot spaces were designed to be a couple feet wider than the standard size, to give people more room to get out of their cars. Store cleanliness was a priority. The attention to service and aesthetics — not to mention the selection of local produce, quality meats and other goods — differentiated the shopping experience from its large-scale chain competitors. “(Ed) cared deeply about his reputation and the products he sold,” Buehler said. “It’s always been a very local-oriented business. Community and philanthropic involvement were a key part of the operation as well.” There are now 13 Buehler’s grocery stores in Northeast Ohio. Although the company remains committed to its core values, the operation has shifted as industry consolidation and increased competition have necessitated new ways of looking at the future of the mid-size grocery business. In October 2017, E&H Family Group, the parent company of Buehler’s, announced the sale of all its Buehler’s stores to its employees in the form of an employee stock ownership program, or ESOP. The newly formed employee-owned company now operates as Buehler’s Fresh Foods. E&H Family Group continues to oversee E&H Hardware Group LLC, which operates 24 E&H Ace Hardware stores in Ohio. That entity is owned by both the third- and fourth-generation of the Buehler family. Five of those hardware stores are still
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From left, the E&H Hardware Group team includes Mark Klingbeil, chief financial officer; Christopher Buehler, vice president of marketing and strategy; and Rich Fishburn, vice president of operations. E&H Hardware Group oversees 24 Ace Hardware stores throughout Ohio, including five stores that operate independently within Buehler’s. Its parent company, E&H Family Group, last fall sold its 13 Buehler’s supermarkets to employees through an ESOP. located within Buehler’s Fresh Foods stores but operate independently. “We’re focused on the future of E&H Hardware Group,” said Rich Fishburn, E&H Hardware Group’s vice president of operations. “From the Buehler family standpoint, we plan to continue the family legacy of focusing on local, community and innovation as we move forward.” As for the future of Buehler’s Fresh Foods, president and CEO Dan Shanahan plans to navigate the direction of the supermarket chain with a similar mindset. “With close to
90 years in the supermarket business, the Buehler’s name has considerable brand equity in the markets we serve,” he said. The new company wants to grow both its core business and some of its ancillary units, such as catering, restaurants and liquor. “An important element of the Buehler legacy was a willingness to look ahead, be innovative and build for the future,” said Shanahan, a veteran of the company. “That is a characteristic that will serve us well in today’s rapidly changing retail environment.”
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STORIES IN
SUCCESSION PLANNING From long-range strategies to short-term solutions, planning for the future is top of mind for many NEO family businesses By BARRY GOODRICH
W
CARUSO’S COFFEE ROASTERS
hen Mike Caruso founded Caruso’s succession plan. “Typically, the younger Coffee Roasters with sons Dominic, generation is not the one that has acquired a Michael and Paul in 2003, his initial lot of the wealth and the older generation is concern was becoming a force in wondering if there will be enough the industry. Fifteen years later, money to retire on,” he says. the Cleveland-based firm is one of The three sons, all of whom the largest roasters in the Midwest wrestled in college, can be and the family is already in the competitive. “Tempers can run final stages of its succession plan. short and things can get touchy,” “We started the conversation says Caruso of the planning five years ago, we’re at the oneprocess. “It’s more emotional than yard line now,” says Dominic Dominic Caruso people realize and it’s important Caruso. “As we’ve gotten bigger, it’s been a lot of re-shuffling of responsibilities. Each sibling brings a different skill set to the table. And there are tax ramifications … it can make your head spin.” Caruso stresses the need for a trust factor between generations involved in a
Q
not to take things too personally.” While separating family and business is never easy, it is essential to the success of a plan. “We learned about this industry at our dinner table,” says Caruso. “But you can either have a business discussion or a family discussion. You can’t do both.”
QUATTRO FRATELLI
uattro Fratelli, the corporate designation for D&S Automotive, M.C. Mobility Services, Defender Auto Glass and Ability Van Rentals, is the epitome of a family business success story. What was once a one-man business founded by Carmen Paterniti has now grown into a thriving firm with revenues of $32 million. Paterniti’s sons, C.J., Shaun, Dustin and Cody, are young, ranging in age from 34 to 22, but they had the foresight to begin C.J. Paterniti estate planning with their father four years ago. “It’s something you have to work through,” says C.J. Paterniti. “We
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have positive equity in everything we own but with growth comes debt. I’m working with a part-time CFO right now.” The Paternitis are a close-knit group, all living within 20 minutes of the company’s Chardon headquarters. “The hardest part of this (planning) has been the emotional part,” says Paterniti. “This company is my father’s baby. He built it in my grandmother’s garage. The family dynamic is so difficult. We want to enjoy each other’s company when we’re together but the topic of work comes up all the time.” Paterniti has learned that keeping an open mind and utilizing
C
WEEKLEY’S MAILING SERVICE
hristian Weekley spent part of her childhood helping out her father Tom at Weekley’s Mailing Service in Berea. After graduating from Bowling Green State University, she married and relocated to Michigan to raise a family of her own, leaving the family business in her rearview mirror. As often happens, life altered Weekley’s plans. She divorced, remarried and returned to the family business to Christian Weekley help her ailing father in 2012 and was named company president in 2016. One year later, her father died, leaving her mother as the majority owner. “My father had the business up for sale for three years but he didn’t just want to give it away,” says Weekley. “The main reason I was brought here was so we didn’t have to have a fire sale.” Weekley was soon forced to deal with the legal complexities of the family business, one of the largest letter shops in Ohio for the past 70 years. “The business and building are divided up between children and cousins,” she says. “Now that we’re on the third generation, there are more and more people involved. And we have 32 employees, many of whom have been here 20, 30 or 40 years.” Currently working with attorneys to settle her father’s estate, Weekley is also seeking a general manager to handle the firm’s daily operations. “A GM is our temporary succession plan right now,” she says. “My first choice is to get someone from the industry, someone who understands how this business works.”
each family member’s strengths is a key to a strong succession plan. “Everything doesn’t need to be split down the middle,” he says. “That’s not fair to the people who have put in the most work.” Sitting down with a third party, whether it be an attorney or CPA, is another crucial step in the process. “Sometimes my aggressiveness gets the best of me,” says Paterniti. “This (planning) takes time and it takes diligence to have an unbiased opinion toward what’s the best scenario for the family.” FAMILY COMPANY
7
I
ARSLANIAN BROTHERS
n 1959, Ted Arslanian dropped out of Michigan State University, walking away from a football scholarship to start his own carpet cleaning business in Cleveland. The South High School graduate soon brought in brothers Hank and Armen to set the tone for what would become one of Northeast Ohio’s longest running family businesses. Nearly 60 years later, 11 family members work at Arslanian Brothers’ Warrensville Heights location. “My brothers and I set a standard for them and they’ve followed it,” says the 80-year-old Arslanian of the family. “This isn’t about money for them — they know this business and they all want to be in it. That’s a big difference from a lot of businesses where people come to work in a suit and tie and sit behind a desk all day.” While the company’s original succession Ted Arslanian plan was put in to place 20 years ago, it was redefined three years ago when Armen retired due to health reasons. “Our business model has changed a lot from the times when we used to have 16 trucks on the road at the same time,” says Arslanian. With the help of an accountant, planner and a lawyer, Arslanian was able to determine the company’s real worth and finalize a plan designating each family member as a shareholder. “At some point they will be running the business so it’s set up for them to take over. We didn’t think we’d ever get old. But it’s good to know things are in place for the future.”
W
GREAT LAKES BREWING CO.
hen Patrick and Dan Conway started Great Lakes Brewing Co. 30 years ago this September, craft beers were virtually unheard of in the United States. Even in their wildest dreams, the brothers could not have possibly imagined a nationwide landscape in which a new microbrewery would open every nine hours. The highly competitive nature of the business, coupled with the approaching landmark anniversary, spurred the Conways to bring in outside expertise to help plan for the future. Three years ago, Bill Boor became the CEO of Great Lakes, enabling the founders to take a step back while continuing their involvement with the business. “The term succession plan is in the eye of the beholder,” says Boor, himself a longtime home brewer. “I think Pat and Dan wanted to get some of their time back while still being involved in an on-going basis. And the company is also facing some very big strategic issues in a crazy market.” In May, Ohio’s first and largest craft brewery implemented a new Employee Stock Ownership Plan to go along with the 401(k) and profit-sharing plans already in place. And while the firm recently purchased 10 acres of land in the Scranton Peninsula, expansion remains on the back-burner. Bill Boor “Pat and Dan don’t strike me as anxious to retire and go to Florida,” says Boor. “They like being involved in the business. We’re moving in a direction where we’ve got an ownership structure, but we’re headed in a way that also gives us flexibility.”
OWNERSHIP EXIT PLANNING: MAXIMIZE VALUE & EXIT ON YOUR TERMS
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FROM THE EXPERTS FIVE KEYS TO FIVE DECADES AND BEYOND
By VINCE GUERRIERI
O
nly 3% of family owned businesses make it to the fourth generation. And only 1% of businesses in America are continuously family owned for at least 100 years. There are a lot of factors that can keep a family owned business prosperous — and more than a few that can put them out of business. Here are some tips to keep you on the right path.
1
BE WILLING TO ADAPT.
The Busch family started out with a furniture and hardware store in Cleveland’s Old Brooklyn neighborhood. Because they built caskets, they branched into funeral services. “You’d think the business is pretty straightforward, but the funeral industry has gone through a lot of changes,” says Busch Funeral Homes president James Busch. He and his brother Mark, the fourth generation of the family to work at the funeral home, made it a point to install a crematory in 1988. “That was way ahead of the times, and it helped us meet the changing needs of the consumer,” When Harley-Davidson started making golf carts in 1963, Southeast Harley-Davidson in Bedford started selling them. And when the company stopped making them 18 years later, Southeast switched to Club Car, another golf cart manufacturer. “We saw an opportunity,” says dealership owner and president Paul Meyers Jr. Today, they have more than 4,000 carts that they rent out. “Now, we make more profits from golf carts than we do from motorcycles,” he says.
2
REINVEST IN THE COMPANY.
Ken Haffey, a senior partner and financial adviser at Skoda Minotti, sometimes sees people who use family owned businesses as what he calls “lifestyle businesses.” They’ll draw a good salary and while the bills may be paid and there’s some working capital on hand,
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the company is more reactionary than proactive, without a lot of reinvestment in the company, which keeps the company vibrant and can reap dividends in the long term. “Take advantage of everything that’s available to you,” Haffey says, noting that his company upgrades its technology every three years or so. But don’t feel like you have to spend money all the time. “There is a fine line,” he says. “You don’t have to keep up with the Joneses, but have a reasonable plan across the board. Monitor operating expenses, but don’t beat people up.” And invest in business development and marketing. “New clients are the lifeblood of any organization,” Haffey says.
3
HIRE GOOD PEOPLE – AND KEEP INVESTING IN THEM.
“You have to hire people who can do the job better than you,” Busch says. “Our name may be on the building, but it’s not us. There are 55 of us that make the place run. We’re really fortunate to have a great staff.” The idea of a family business to some is a business that keeps family members employed. But that can be counterproductive. “You can’t have Aunt Theresa run the payroll from her dining room table to save a few bucks,” Haffey says. “You want to make sure you have sound, accurate, timely information. You want to have numbers you can rely on at any time.” Haffey also urges regular training — and the occasional team-building (and morale-
building) event as well. “Go out and leave the building and do something worthwhile three or four times a year,” he says.
4
HAVE A SUCCESSION PLAN IN PLACE – EVEN IF YOU DON’T THINK YOU NEED IT YET.
5
SOMETIMES, YOU HAVE TO HAVE THE TOUGH CONVERSATIONS.
James Busch’s father, John, had to take over the family business at a young age after his father’s death, and he wanted to make sure his children didn’t have to deal with that. His succession plan transferred his business to his sons in a 20-year window, James Busch says: 10 for the actual business, and another 10 for the real estate. It can be a complicated process, something Meyers knows firsthand. Southeast Harley-Davidson is an 11-acre site with not just a dealership, but a pair of restaurants. Meyers says he’ll probably end up selling the business. “I hope to hang on for another four or five years,” he says. And that’s a good timeframe to set up a transition, Haffey says. “The number in my mind is three to five years, especially if you want to set the business up for beyond that generation.”
As is the case with so many things, communication is key — particularly when family businesses have not just business relationships, but personal ones. “A parent owns the company and there may be multiple siblings, each with the idea in their head that they’re going to lead the company,” says Joe Arnold, founder and president of Foundation Wealth Advisors. “If there’s no communication, you could be setting yourself up for serious issues and consequences down the road.” FAMILY COMPANY
9
YOUR FAMILY BUSINESS TOOK YEARS TO BUILD It’s never too early to plan your transition. We help drive success in Family Business Succession Planning •
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BY THE NUMBERS: Next generation’s current mindset
26%
of next gens struggle to get the current gen to give serious attention to their ideas
82% of next gens think innovation is key but only 15% think their own firm has a clear plan
75% of next gens have big plans about taking the business forward
Only 7% of next gens think their family business
HAS A STRATEGY FIT FOR THE DIGITAL AGE SOURCE: PwC Next Gen Study 2017
65% OF FAMILY FIRMS HAVE MULTIPLE GENERATIONS WORKING TOGETHER WITHIN THE BUSINESS Source: 2017 Family Enterprise USA Family Business Survey
FAMILY BUSINESS FORUM
Have you passed ownership of the business on to the next generation? Yes, full ownership including controlling and noncontrolling shares:
No, and have not yet started to develop a succession plan:
5%
32%
Yes, partial ownership:
35%
No, but have a succession plan in place:
28%
SOURCE: 2017 Family Enterprise USA Family Business Survey
Don’t miss the Family Business Forum from 8 a.m. to 1 p.m. Sept. 12 at Corporate College East for more strategies in succession planning. Presented by Ahola and produced by Crain Content Studio Cleveland, this half-day event will offer the opportunity to learn from experts in succession planning and hear from established Northeast Ohio businesses that have successfully navigated this terrain. For more information, got to CrainsCleveland.com/events.
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