Successful family businesses learn & adapt
Photo | Edd Cote
Jessica Bettencourt made significant changes to the business operations at Klem's in Spencer after taking over from her father, Mike Klem.
Soon after Jessica Bettencourt took over as the third generation owner of the hardware and outdoor equipment retailer Klem's in Spencer, she decided she'd make a hard decision her father couldn't bring himself to do.
Klem's opened in 1946 as a tractor repair store, but tractors had long since stopped being a significant moneymaker for the business. So Bettencourt, who took over in 2011, pulled out.
“That was how my grandfather started the company,” Bettencourt said of John Klem, who started the shop in Hardwick. Bettencourt went through the company's financials, however, and hired a consultant and kept coming back to the same conclusion.
“Every option we thought we could do, it led back to that we really had to close this part of the business,” she said. “It was definitely been the right thing to do."
Klem's can count itself in the minority of businesses reaching a third generation, an achievement family-business experts say is increasingly difficult, requiring tough decisions, outside perspective, and an ability to avoid pitfalls like intra-family squabbles over a company's future or its riches.
“Businesses don't run on democracies,” said Jeffrey Davis, the chairman and founder of Mage LLC, a family-business consulting group in Newton, explaining the authority a family-business leader needs to make important and often difficult decisions.
“They run on benevolent dictatorships,” Davis said.
Changing with the times
Family businesses likely don't see themselves as dictatorships, but to be multi-generational businesses, they've survived by adapting and looking ahead instead of how things have been done in previous generations.
Red Apple Farm in Phillipston has made it into its third generation and its 10th decade because its taken on major changes.
Albert Rose, who went by his middle name, Spaulding, started the farm in 1929, leaving it to his son, Bill, in 1981. At that point, 95 percent of sales were wholesale. But Bill Rose saw his small operation's future in retail – and now the business is about 95 percent retail sales, said his son, Al Rose, who took over in 2001.
“My dad realized the writing was on the wall,” Al Rose said.
Rose has made changes himself. The farm had only about 20 employees when he started, but the staff has grown exponentially since: more than 100 during the fall season, in addition to seven managers. Another 40 staff a stand during winter at Wachusett Mountain, and another 20 are at the Red Apple stand at the Boston Public Market.
It took a three-generation family meeting to decide to be a part of the Boston Public Market when it debuted in 2015.
“We were excited about that opportunity,” Rose said, “and we jumped in with two fee
High failure rates
Rose has an advantage Davis says is critical for running a family business well. He spent time at other businesses to gain a new perspective, and he had the right education. Rose earned a master's degree in agricultural economics and worked as a buyer for years for Frito-Lay.
“I can draw a straight line in the sand with family business,” Davis said. “On one side are those who've only worked in the family business, and on the other are those who've worked outside it. Those who've only been inside, the failure rate is epidemic.”
The odds can be stacked against practically any small business from the start. But family-run businesses don't have particularly great chances at success as the years go on. Only 12 percent of family businesses last to a third generation and only 3 percent get to a fourth or beyond, according to the national journal Family Business Review.
With so much to consider and often small staffs, those who run family businesses can have little time to consider the long view. Only 57 percent of family businesses have a succession plan in place, a 2016 PricewaterhouseCoopers survey found.
But such family-business leaders find a deeper reason to want to keep their company running. The Minnesota nonprofit Family Enterprise USA found in a survey last year 81 percent of owners considered their business to be part of the legacy they leave their children. Nearly half of the respondents led businesses in their third generation or beyond.
Ted Clark, the executive director of the Northeastern University Center for Family Business, said a business run by one person who has the authority to make decisions will do well, as will one in which power is spread so evenly no family member can make a power play, he said. In the middle – and those more likely to fail, he said – are ones in which a few family members could easily squabble over the direction of the business.
“We're pretty fortunate. I'm an only child,” said Bettencourt, the Klem's owner. “We're very fortunate in that respect.”
The right combination
Salmon Health and Retirement of Westborough has found the right balance with sharing power over the third-generation company. Matt Salmon was made CEO in 2014, working alongside his brother, Andrew, the director of network development, and sister, Kate Salmon-Robinson, who led special projects before retiring last year.
The Salmons reached the decision to install Matt as the head of the company only after having detailed family meetings first. Just before Matt became CEO, the company formed a board of directors including outside members as well as those from the family. The board will not expand beyond its four Salmon family seats, meaning future generations will have to determine which member represents them on the board.
The Salmon family business began in the 1950s and has expanded to include assisted living and care facilities in six locations from Worcester to Sharon. Neither Matt, Andrew nor Kate went into the business initially, and Matt said none necessarily planned to at all. Andrew and Kate both worked as nursing home administrators at other companies, and Matt was a physical therapist. A CEO from outside the family ran operations for more than a decade before Matt took the position.
“There was never a plan, certainly from my generation, to work in the family business,” Matt said. “We all came on our own path.”
So did the fourth and fifth generation of Worcester's Davis Publications, which started in 1901 as a printing company and now publishes arts textbooks.
Wyatt Wade was a teacher and furniture designer before joining the company in 1979 and taking over in 1994 from his father-in-law, Gil Davis. His son, Julian Wade, was a restaurant manager, where he gained an appreciation for the work going into helping to run a company.
Wyatt never urged Julian to join Davis when he was younger. “I just knew that's not the way to do it,” he said. “It has to be attractive for them to want to do it.”
Julian had no inclination to join the company anyway. “Why would you want all your family to be your bosses?” he said.
Julian joined Davis in 2011, gained experience during a challenging time for the company, and became publisher in 2016.
“I got to learn every nitty gritty detail of this job because we had to,” Julian said. “That was an extremely formidable time.”
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