Running any business is challenging, but when you add the dynamics of family ownership into the mix, it creates an entirely different set of hurdles.
That’s the message from executives involved in a range of West Michigan-based family-owned firms, who say they often take a long-term view when making company decisions in order to balance concerns about profitability with preserving the family legacy.
Earlier this month, MiBiz convened a discussion of family-owned business executives and their advisers. Participating in the roundtable were:
- Ellie Frey Zagel, director of the Family Business Alliance, a Grand Rapids-based advocacy organization for family-owned businesses in West Michigan
- J.D. Loeks, president of Grand Rapids-based Celebration Cinema, which owns and operates 12 movie theaters around the state
- Mark Periard, senior vice president and director of wealth management at Legacy Trust, the Grand Rapids-based financial adviser that sponsored the roundtable
- Amy Proos, CEO of Grand Rapids-based Proos Manufacturing Inc., a sheet metal fabricator and custom stamper
- Tim Schowalter, president and CEO of Pioneer Construction Co., a Grand Rapids-based general contractor
- Charlie Secchia, principal at Sibsco LLC, a Grand Rapids-based development company and family office
- Paul Vander Heide, owner of Vander Mill LLC, a maker of hard ciders in Grand Rapids and Spring Lake
- Jeff VanderLaan, CEO of Grand Rapids-based concrete contractor Kent Companies Inc.
- Craig Wassenaar, president and COO of Skytron LLC, a Cascade Township-based supplier of medical equipment founded by the Mehney family
Here are some highlights of the discussion.
How do family-owned businesses prioritize profit versus preserving legacy?
VanderLaan: If you don’t do one well, then you can’t have the other. I think the knife cuts in both directions. If you’re not a good, high-quality operator, if the transition goes poorly and the next generation drives the business into the ground, there’s no legacy left to handle. The legacy doesn’t exist if there’s not good values and good culture, and that ultimately is what drives profit.
Loeks: Strategy needs culture. Culture needs strategy for practice. I think that’s very true. If you don’t have a robust strategy and culture, and can create a legacy based on that, there’s no way you can be profitable, and vice versa.
Wassenaar: I don’t know that any of us can afford for those two things to be a conflict. I think it does, without a doubt, change perhaps where and how you invest and the time horizon, how much do you expect in returns, but they’re the same. You don’t live in order to breathe, but you do need to breathe in order to live. Money kind of works the same way. The better the quality of your oxygen, so to speak, you have the capacity to do more interesting things and have a more meaningful impact, and so it’s that constant reality. How do you keep leveraging those things back and forth, whether your objective is community building or family building or providing a good living for your kids? When you start looking beyond just a number on a spreadsheet to ‘what can you do with that,’ that’s when things start to get more interesting.
How do you go about managing family dynamics?
Vander Heide: I get asked that a lot because I work literally next to my wife daily. People say, ‘Oh my gosh. What is that like, never getting away?’ My response is always that I couldn’t ask for a better business partner than my wife. We have a different skill set, and we work really well with (each other). They say between spousal relationships, money is the number one thing that people argue about. We’ve never argued about money. She’s the accountant, and I try to spend whatever I can get my hands on. We both have a common interest in making the business successful. In many cases, that comes first. We don’t even have to talk about it.
Loeks: The number one thing that we do that I think maintains family harmony is I have breakfast with my dad every week. We often don’t talk about business. We talk about it if we need to. We talk about golf or travel or politics or religion or all kinds of different topics. But no matter what we talk about, it’s without a doubt the best investment in our work week because we understand each other. Even when we disagree with each other, we respect each other and we understand each other because we take that time to do those things that families should be doing together…(not) just making decisions about hiring and firing and what products to invest in.
Wassenaar: I think in our situation, the Mehney family is very close. They work hard and they play hard. … I play the role of just being a buffer. … I counsel a little bit and help to bring those ideas together. Maybe not every business has that, but that’s a role that I play. They all know that I play that, and they appreciate it.
What makes West Michigan’s family-owned business sector unique?
Schowalter: I think that the family business culture kind of feeds off of itself here. It’s about more than making money. It’s about building a legacy that lasts for generations. And when you have so many of them around, you kind of look at them and say, ‘I want to aspire to be able to take this company to even another generation.’
Think about some of the families in this community that have taken it to the fifth generation. You’re like, ‘Wow. How many people get a chance to actually do that?’ Once you’ve sold the company or transitioned to a non-family business, that opportunity is done, and so is 70 (or) 80 years of growth to get to that point. You no longer have the option to go back and make it a family business. Theoretically you could, but you really never do. There’s a certain level of pride and respect for the family business in this community that drives us all to keep going.
VanderLaan: At least in my experience, from a very young age, I was exposed to the business, so it became … an integral part of who I was and my experience growing up and my education. It taught me how to work, because I went to work with my dad for the first time when I was 11 years old. Then you have an opportunity to see firsthand what your father’s built and what your grandfather had started to build, so you’re instilled with a sense of obligation.
Proos: I have customers who may be third generation. I have customers that have been around for 50 years. My customers, my suppliers, even my employees — I’ve got a handful of employees that reported to my father, and maybe my grandfather. They’ve just grown forever. We work through those generational differences, too. (They) reported to my dad, and now they report to me, which looks a little bit different, but still there’s a lot of respect and trust. That’s how it is.
How do you balance your entrepreneurial spirit with maintaining the legacy of these companies that in some cases go back generations?
Proos: I think part of it is just bred in us. I mean, our founding fathers, that’s kind of how they started the businesses. They were entrepreneurs and they were willing to take a risk. I think part of it is maybe in the gene makeup. We’re all doing that same path. We’re following that same thing. I think at least for our company, the size that we are, we have opportunities for the people within the organization to take those chances also. We don’t focus so much on what your position is, but kind of what lanes you’re in. … If you want to try something new, you can. What does that breed? It breeds innovation and it breeds some new discoveries.
Wassenaar: The core business has changed with each generation. It went from Dave Mehney Sr., who was a doctor in the real estate development business and was very good at it, unlike some doctors probably. Then, Dave Mehney, back in the mid ’60s, brought Kawasaki motorcycles to the Midwest. Now our core business is medical devices. Real estate development to motorcycles to … medical devices. Now, we’ve got a bunch of other things that I call the hobby businesses like Thousand Oaks, Patterson Ice Center and Great Lakes Marine. Those are all things they just enjoy, but the family is so entrepreneurial.
Do you think that entrepreneurial spirit skips generations?
Loeks: I think there’s a bias toward continuing in that. The difference in a family-owned business and a family member working in a family-owned business is that it tends to take a much longer view of things. You’re not here to be a pit stop between jobs, but this is something that you intend to hand down to the next generation, which causes you to make a lot of different decisions. It causes you to think, ‘I need to keep up. I can’t just jump ship to the next company because I’ve got to innovate.’ You’ve got one chance to make sure that your enterprise is going to continue.
Schowalter: When you ask if (entrepreneurism) is contiguous from one generation to the next, I kind of think of it as more of different styles, having the right person there at the right time. The founder of the company had to be a special, special person to grow a company from nothing. Then there comes a guy or gal who is a risk-taker and just sees this opportunity and capitalizes on it and just puts the hammer down. … And then there’s the third person that might come along, and either destroy the company or build on it. That third person is usually a bit more risk averse and more willing to say, ‘OK, let’s stop and let’s evaluate what we have here, and let’s put some structure behind it.’ Then, in my case, I’m fourth generation. I can’t screw it up. My job is to not screw it up.
Frey Zagel: I would say that maybe the second generation is the one that puts the systems in place.
At what point do family-owned companies need to professionalize and perhaps put some outside managers and structure in place?
Schowalter: You put some structure in it, and then you ride that for a while. You ride your innovations for a time, until everybody else catches up, really. Then there’s another leader that might come along and retool and innovate some more. These quantum leaps of innovation happen within companies, and you have to kind of give the folks within the company some time to execute as opposed to, ‘OK, we changed this, and next year we’re going to change this again and again and again.’ I think it comes back to the style of the person who is in that next generation, what are their unique talents and gifts they can bring to the table.
Vander Heide: I think also recognizing what gifts or talents you don’t have, and being able to find the right people to take up the slack. There are certain things that I know I’m not good at. We recently went through kind of a strategic planning process with some of our team leaders, and a difficult question was asked (of) me, which was, ‘Where do you see this company in 30 years?’ And my comment was, ‘Well … it’s probably not going to be me leading it.’ That might not be one of my three daughters, either. But I think keeping a business in a family and being successful throughout generations is sometimes recognizing that you need help … recognizing what your strengths are and making sure that you’re not letting the nostalgia of being in a family company limit the opportunity that the company may have by being resistant to other folks getting involved.
How have you seen your companies change over the generations?
Proos: I think the roles change so much from generation to generation. I looked at when my grandfather ran the business, he probably had three employees, maybe six. Then my dad had the business and he had maybe 15. The roles change, as do the generations. We’re at about 95 employees now. I can’t be that person that the generations before me were, so I have to find my own spot and how do I give value to my company. That is perhaps not the same thing as what my father did and my grandfather did. I think that’s a hard pressure that’s put onto family-owned businesses. I think we’re expected to lead the company in sales. We’ve had to lead the company in a variety of ways.
VanderLaan: I think each generation has its own style, but what makes many of the family businesses successful is because the values remain the same. The entrepreneurial spirit. The fact that you grew up with the business. It’s part of who you are, it’s part of your blood. … There’s a quote that’s attributed to my grandfather who passed away in 1993: ‘We’re in the people business.’ That’s the core of our business that has been passed down generation to generation. My dad realized it. I’ve come to realize it in my own way. We’re implementing that on a day-to-day basis, and that I believe is what ultimately makes us successful. My dad is very vocal about saying, ‘You’re doing a great job, but your style is different from mine.’
How important is the culture in a family business?
Proos: We can develop skills in somebody, but we need to sell them on our culture, what the values are of our business, how we treat our employees, how we treat our customers, how we treat our suppliers. All those are things that make people want to work with us. That’s a primary thing. That’s how we’re recruiting people right now in this economy. There’s a million jobs that are open right now, so you’ve got to find someone that fits with your culture, because if they don’t fit with your culture, your business will suffer from it.
Loeks: I don’t know that we look at culture as this outside thing. It’s not its own separate silo. It’s more just part of our DNA. Every company has a culture, of course, but talk about why you can do a handshake deal in Grand Rapids. … It’s a small enough community that if you don’t treat someone with respect and integrity based on a handshake deal, it’s going to haunt you just as much as breaking a contract, and because we take a really, really long view of things and are not into making a quick buck and get out, we’re able to avoid that sort of cutthroat culture that you’ll find in bigger cities.
Schowalter: Really your culture becomes your reputation. Your reputation is always viewed as what people on the outside look at you, but if you’re living your culture, truly, that internal culture will kind of spill over and become your actual reputation.
How strong is the urge for family members to work outside the company?
Secchia: Well, I think a lot of us did work outside the family business for a period of time. I know I did. I think some others may have, but someone mentioned you reinvent yourself every generation, and I think that’s true. A lot of entrepreneurial skills that maybe, deep down, a lot of us possess, we are actually using them because with each generation, our companies are changing. … I look around the room and I can think of what construction or what movie theaters were like 50, 60 years ago, but today it’s a different industry. … If you look at what the companies are actually doing today, what used to be the big division might now be the small one, and what’s now the big division might not have existed. We do get a sense of entrepreneurial skills, in my opinion.
Proos: We’re putting our own mark on these businesses. It’s not just following what our fathers did. We’re putting our mark. We’re spinning it into what we want it to be and what we think the future holds.
Loeks: I think family members working in family businesses is a wonderful thing, but there are a couple of rules that are absolutely critical in making that a success. I’ve been on both sides of these rules. One is it has to be a job that creates value for the organization. To make up a role in order to keep someone busy and introduce them to the business will make that individual miserable. Second, is they have to be capable of performing the job to the satisfaction of the organization, otherwise the organization will be miserable. Unless you have a job that needs to be done and a person capable of doing it, it’s just going to be a recipe for disaster, and you should think about either putting that person in a different role or whether they’re a right fit for the company as a whole.
Succession planning is a consistent topic of conversation in business. What are the best practices for succession planning when it comes to family-owned companies?
Periard: I think one of the challenges we would deal with on the legal side was just watching that lead generation pick those next successors. You’re a family. You love all your kids the same, but you’ve got to pick somebody to run this, and you’re grooming them. Somebody’s got to take that lead. You’ve got 10 different cousins, all of whom might be interested, and that’s a challenging position. … That’s a big duty or burden to put on that lead generation, but that’s one of the things (they need to address) to make sure the business could succeed.
Schowalter: I think there’s a balance between starting too early and starting too late in succession planning. You have to start early enough establishing your intent. At the end of the day, your kids at a certain age need to know that at a certain point in time, a decision will be made, and my intent is that one of you will take over. Those basic things. Otherwise, the next generation might go into it thinking, I wonder if we’re all going to take over.
Frey Zagel: The best practice is at least a 10-year runway for your successor. Basically, you’ve kind of said, ‘Hey, I think you’d be great. We’re going to figure this out in 10 years.’ It allows you to learn and fail with kind of those bumpers. It also allows you to say, ‘I’m not in. I’m out. This is not my passion. This is not what I want to do. I just want to go do something else.’ It’s making sure there’s enough time to be able to make a decision and for that successor to make a decision and still find somebody else before that senior generation retires.
In some instances, is succession planning for a family-owned business the same as any other company?
Secchia: Twenty-three percent of family businesses have a succession plan. What percent of non-family businesses do? I don’t think Ford Motor Company had a succession plan because they chose Jim Hackett seemingly out of nowhere. What I’m getting at is I think family businesses actually have better succession plans than non-family businesses do, because they have something to choose from.
Wassenaar: We run ours as if we’re not even thinking about a family structure. They call it talent management. It’s a bigger term than what it needs to be, but it’s important for us to look at all the employees. Succession planning isn’t just a quick look at who’s going to rise to the top, but it’s all the different positions in the company, and we make people aware that we are following a process, and we communicate with people. Some people rise to the top, and we want to spend more time and effort with those people to invest in them even more, and I think the family member participation will take care of itself for us. We are very focused on succession planning. I have been in other businesses where maybe that wasn’t as much as a focus, but we’re doing it in a structured way.
Periard: As an outsider, I see periodically a co-president situation. There wasn’t the courage to make the decision. It can work, but I think it really creates some challenges in certain businesses. It kind of pushes the decision forward, or creates some awkward lines of where you’re going with the business.
Loeks: I see (a co-president scenario) working best when you perhaps have two totally different families that can articulate that the business is actually more important than the personal relationship. It’s when it’s two family members who are saying, We’re actually doing this. The problem we’re trying to solve is family harmony. Well, put two guys in these equal positions, otherwise it might be awkward for us.’ That’s a recipe for disaster because ultimately you need to make tough decisions on the basis of the company, not on the basis of the family.
What role has philanthropy played in West Michigan’s family-owned business community and vice versa?
Frey Zagel: We believe in our community, so much so that we put our money where our mouth is. We live here. Our kids go to school here. We give back philanthropically. It’s not about which country club you belong to. It’s ‘how much have you given this year?’ I’m passionate about this — it’s an amazing place to live. Not every culture fosters philanthropy like we do.
Loeks: Yeah, and I think a lot of that has to do with taking a long view and looking at money as a vehicle to accomplish things, versus an entity in and of itself. When you take a much longer view — giving money to 501(c)(3)s or just using your resources to do good work — we may invest in a movie theater downtown. It’s certainly not where we get our highest return on investment in the near term, but we can take the view and say, well, we’re investing in creating a stronger, more vibrant urban core, which also helps benefit a much larger region. And if that results in making this a more attractive place to live, work, and play, we’re going to see more people living here. If more people live here, then in the long term that’s going to benefit our company in all kinds of ways.
Periard: It wasn’t just giving the charitable dollars. It was time and energy, too. There’s a group (of family leaders) in the late ’80s, early ’90s … that gave their own money, but they also twisted the arms of others to do these bigger projects, these capital improvement type things that we’re still benefiting from. You think about the (Van Andel Arena), and the number of people that came together for that, and the anchor that that provided. That was a lot of donations … family business people in there, but who were then donating not just money, but time and effort.