They have a low survival rate. But when they stick around, they flourish.
Family-owned operations, by most estimates, make up 90 percent of U.S. businesses. They account for 60 percent of employment in the country and 65 percent of wages, according to the Cox Family Enterprise Center at Kennesaw State University in Georgia.
A BusinessWeek analysis in 2003 found they outperformed non-family businesses in shareholder return and income growth.
Yet only 30 percent make it to the second generation, the Cox center determined. The number rapidly shrinks beyond that: 9 percent survive to the third generation and less than 1 percent to the fifth.
“The threshold of trying to pass the baton is the problem,” said Matt Rutherford, an assistant professor of management at Virginia Commonwealth University in Richmond. “It’s sort of surprising how many want to pass the business on, and how few engage in any sort of succession planning.”
Only 29 percent of 800 family businesses surveyed last year by the Seattle-based wealth management firm Laird Norton Tyee had a succession plan. “It provokes people to think about mortality and life after the business – that keeps them from doing it,” said Mario Fidanzi, who runs the Family Enterprise Center at Stetson University in Florida.
Family-controlled businesses range from mom-and-pop stores to public companies, such as Ford Motor Co. Dozens that made a mark in Hampton Roads – the ship repair yard Norshipco; the Colonial Auto Group of car dealerships; and the Johns Brothers heating and oil company, to name a few – have since changed hands.
One that has survived in family ownership beyond three generations, Virginia Beach-based Atlantic Dominion Distributors, evolved from a tobacco distributor founded in 1875 to handling beverages, groceries, candy and other items for retailers. In Suffolk, Birdsong Corp. has grown during its 97-year history to become one of the nation’s major peanut processors and suppliers to food manufacturers.
At their best, family businesses engender fierce loyalty from workers and clients. “The owners themselves are also managers,” said Jim Lee, an economist at Texas A&M-Corpus Christi, “so they will operate in the best interest of the business.” Lee specializes in family businesses.
When tough times hit, “you’re more likely to see them weather the storm,” VCU’s Rutherford said. “They can stand it when revenues and profits decline.”
It’s not always so smooth. Many family businesses have crumbled under the weight of sibling rivalry.
Winemaker Robert Mondavi and his family attracted widespread attention four years ago when they lost control of their namesake winery in California’s Napa Valley. The business had been hobbled for years by friction between Mondavi’s sons.
In Hampton Roads, brothers Reid and Steve Rapoport run The Quality Shop, a men’s clothing store founded by their grandfather. They say they get along well, but a division of labor gives them breathing space.
Reid, 59, mainly runs the shop in downtown Norfolk; Steve, 50, is in charge of the Hilltop store in Virginia Beach.
Like so many other family-business owners, they’re uncertain about what lies ahead.
Steve’s kids are teenagers. Reid has a son at Roanoke College – he likes clothes but hasn’t expressed interest in the business – and a daughter who works in marketing at Dominion Enterprises.
“She’s spent time in the stores and seems to have a knack for it,” Reid said. “But I’ve been hands-off at this point. … It’s unknown right now.”
By the time he was a teenager, Bill Gresham had so many broken bones set that he wanted to become an orthopedic surgeon.
His grandfather had other plans. The founder of construction and crane-service company E.T. Gresham Co. told the teenage Gresham that being a physician wasn’t such a great idea. Instead, he should come to work for the family business.
“I was honored that he felt that way,” said Gresham, who joined his father and grandfather while earning a degree in civil engineering at Old Dominion University. In 1992, he succeeded his father as president of the Norfolk company.
Today, Gresham and his brother Dick, the vice president of construction, devote the sort of attention to succession matters that their father and grandfather once did. When the head of a family-owned business reaches age 60, people “are going to look at your situation and ask, 'Who’s coming up?’ ” said Bill, who is 57.
The influence of earlier generations is on display at E.T. Gresham’s offices on West 26th Street near Hampton Boulevard. The main hallway is lined with dozens of black-and-white photos depicting the original truck fleet, several of the company’s construction projects, and employees moving industrial equipment and ocean cargo.
Bill, who has three sons still in school and one daughter, said he avoided applying the sort of pressure to join the company that his grandfather used. However, his 26-year-old daughter, Kathryne Gresham Ripley, concentrated on marketing in college and today works as the company’s marketing director.
“Kathryne may be the first female president of E.T. Gresham,” her father said. “We don’t know yet.”
Dick, who is 56 and has no children, expressed strong support for eventually considering Bill’s children for management posts. An architect by training, he joined the company in 1982 after graduating from Virginia Tech and working for architecture firms and a construction company in Richmond.
Grooming the fourth generation for management is part of the brothers’ effort to keep their company in family hands. At least three times a month, he gets a letter asking whether E.T. Gresham’s owners are willing to sell, Bill said. He said he discards them.
“The company,” said Dick, “is more important than our personal gain.”
Despite having grown up around the company, the brothers said that they weren’t fully prepared to run it after their father’s death in 2001. The business environment had become more competitive, and they could no longer assume that E.T. Gresham would capture the volume of work that it once did.
To bone up on accounting, marketing and other business disciplines, the brothers enrolled in a “mini-MBA” program at Old Dominion University for executives. Under the guidance of an ODU accounting professor, they also interviewed E.T. Gresham employees as part of a program to improve the company’s efficiency.
Taking the courses and defining ways to strengthen the company paid off, the Greshams said. Those steps also heightened his concern that the next generation of management have a strong grasp of the latest business practices, Bill said. When armed with a solid understanding of business, “you’re going to know how to talk to bankers, insurance agents and bonding people and deliver the information they need.”
As steel columns for a project at Langley Air Force Base took shape at Globe Iron Construction Co. last week , a couple of yellow cranes moved overhead.
The Norfolk company, which cuts, welds and shapes steel for commercial, industrial and institutional buildings, has been installing new cranes at a cost of $500,000 each.
“We’ve spent a couple of million dollars in the last five years upgrading our machinery,” said Lee Peregoff, Globe Iron’s president.
Peregoff sometimes must remind shareholders of the family-owned company that Globe Iron holds onto part of its annual earnings to buy this equipment.
In coming years, its 48-year-old president is likely to get shareholder inquiries about another topic: Who will succeed him?
The matter is not pressing, but it’s one that he and others at Globe Iron routinely think about, Peregoff, a martial-arts enthusiast, said. Despite the cyclical swings in sales and the competitive business environment, its shareholders have decided to hold onto the company, founded in 1923.
“The business has been good to us, and we’d like to control our destiny as much as we can,” Peregoff said.
Two possible candidates to succeed him are his sons: 21-year-old Michael and 19-year-old David. Both are studying at Roanoke College. If either decides to join the company, said Peregoff, he hopes they will work somewhere else first. That will provide them the opportunity to learn how another company operates and to prove themselves away from a family-influenced situation.
When a family member is working at Globe Iron and “somebody knows your last name, they’re going to treat you differently,” their father said.
Peregoff’s grandfather, Sol Mednick , was a Russian immigrant who founded Globe Iron after arriving in New York, earning an engineering degree and eventually moving to Norfolk. The company’s steel has gone into dozens of Hampton Roads buildings, including Nauticus and the Half Moone cruise terminal on the downtown Norfolk waterfront.
Last summer, Globe Iron built and installed the 43-ton pedestrian bridge that spans Columbus Street at Town Center in Virginia Beach.
For Peregoff, who joined the company after graduating from Roanoke College in 1982, working there “was what I always wanted to do.”
That involved an array of summer jobs and then stints in sales, purchasing, personnel and accounting after joining the company full time. However, becoming president “was never predetermined,” said Peregoff, who succeeded his father 10 years ago. The promotion, he said, required approval from other members of the family.
For a company like Globe Iron to survive, said Peregoff, “it has to be run like a business, not like a family enterprise.”
Still, its management has demonstrated a knack for balancing the roles of different family members. Today Peregoff shares responsibilities with Saul Mednick , his 50-year-old cousin and a structural engineer.
“We have a good partnership, one that works,” he said. “Saul’s background is steel fabrication. Mine is in administration.”
Mednick, like Peregoff, grew up around Globe Iron and performed his share of menial tasks. At age 13, he spent the summer cleaning out filing cabinets, addressing envelopes and handling blueprints. Later, he worked in the shop welding and grinding steel destined for construction jobs. Last year Mednick became Globe Iron’s general manager, a post that his late father once held.
One of his three sons, 19-year-old Maurice, has been working at the company part time while attending Tidewater Community College. Mednick, however, hasn’t encouraged his son to pursue a career at Globe Iron.
“Would I like to see him continue? Sure. But this is a tough business,” Mednick said. “I don’t want to put him in a position where he feels he has to continue a family legacy.”
When cousins Barclay and Carter Winn took over the business their great-grandfather founded a century before, they didn’t want outside interference. Even from loved ones.
Their fathers, who ran the company, had shared ownership with a sister and their mother. Cracks had developed. “It was getting ready to get bad,” Barclay recalled. The number of owners would balloon with his and Carter’s generation.
“I didn’t want nonparticipating minority stockholders to affect the viability of my business,” Barclay said. “We’re here working every day. It’s not easy; it’s a long week. And somebody says: 'Why did you buy a Tahoe? Why didn’t you buy a used Taurus?’ ”
So in 1985, Barclay and cousin Carter bought Winn Nursery in Norfolk and split it between the two of them. No hard feelings among the others, they said.
“We run it the way we want to run it,” Barclay said. “We didn’t want to have anyone looking over our shoulder.”
Winn Nursery, begun in 1885 by their great-grandfather A.C. Winn, is a landscape contractor with about 60 employees. Every day, Barclay said, about 16 crews install trees and shrubs anywhere from Williamsburg to Elizabeth City, N.C. Jobs have included the USAA office in Norfolk and convention centers in Virginia Beach and Hampton.
Barclay, 60, is the CEO. He handles bidding and hiring. Carter, 54 , the president, deals with design and negotiations.
Barclay’s the early bird, getting in at 5:30 a.m. each day. Carter arrives an hour later. Barclay, a city councilman, comes in most weekends to make up for time spent at city functions.
Three relatives work in managerial positions: Carter’s brother, James, and Barclay’s two sons, Clay and Wendall.
“I like to say, there’s no scholarships around here: You work, you produce, you get paid accordingly,” Barclay said. “One of the keys is that you treat people like a family and you run the business like a business. You’ve got to deal with them like they’re not your kid.”
Recently, Barclay chided Clay over a labor issue he thought his son could have handled more smoothly. “You can say things a lot of different ways,” Barclay told him. In retrospect, he thinks he was harder on him than he should have been.
Clay, 31, a project manager, said he took it as “coming from a boss or mentor, rather than fatherly advice. I think he expects a lot out of me, but I think that we’ve all got a drive to succeed and do the best we can for our company because our name is attached to it.”
After graduating from the University of Virginia, Clay worked for a little more than a year at Bank of America before joining the nursery. “I just decided it wasn’t for me,” said Clay, who describes himself as an outdoorsman. “Waking up every morning, putting on a suit and tie, and sitting in front of a computer screen all day just wasn’t in my character.”
Carter and Barclay plan one day to transfer the business to Barclay’s sons and Carter’s brother. Of course, Carter said, “You can’t just say, 'Here’s the business.’ ” They’ll consider the tax issues, and the future owners will “have to figure out a way to buy it.”
Clay said they “haven’t discussed it a whole lot” yet. His father, he said, has given him more duties, but he expects Barclay to continue playing a role at least through his 70s.
“We’ll phase out,” Barclay said. “Our parents knew when it was time, and I think we will, too.”