Last month, Growbiz reported on Key West Marine Hardware, a family business through and through. Business owner Nick Formico says his grandfather opened the store in the 1960s and then raised Formico’s mother and uncle in the business, as well as himself. “I grew up in the store. I used to work here every Saturday. I put up products and priced inventory and whatnot.”
Formico went off to college in Tallahassee to study business. “My plan was not to come back to Key West but then my grandfather was suffering from Parkinson’s and couldn’t work anymore.” At that point, his grandfather had already handed the store down to Fomico’s uncle and mother but was still placing orders for the store. “This was in 2010, and I had graduated with a degree in business management, so I took over his position of ordering.”
A few years later, Formico became vice president, working hand in hand with his uncle on day-to-day operations. “In 2020, My uncle asked me if I’d be interested in taking over the business and I said yes.” The family business is thriving. [Read more here]
In recent years, we’ve also reported on other family businesses. For instance, the roots of Fullei Fresh, a Miami-based hydroponic sprouts grower, go back three generations to 1938 in Cuba. Olivia Wong’s grandfather started a business of growing sprouts. Her parents Manny and Silvia, of Chinese descent but born in Cuba, started Fullei Fresh (then called Fully) in the U.S. in 1978.
The company, now led by Olivia Wong as the CEO, is now a category leader and one of the largest hydroponic sprout growers in the U.S. The company sells to distributors, wholesalers and retail chains throughout Florida. It develops new healthy food products, such as sprout powders. [Read more here.]
Meanwhile, Stephannie Cetoute took over the reins of the family business, Amer Plus Janitorial Maintenance, in 2018. While she had a background in economics and finance and from time to time helped out her father who started the business in 1998, going in “full throttle” to run a business for the first time was all new territory, she said. “Once you see it firsthand, you realize how much work it is, number one, but then how much you have to continue to grow and learn.”
Her father had been running it as mom and pop business and “once I got into the company I realized there wasn’t much of a foundation to grow on,” Cetoute said. “I had to start putting some structure and systems to build upon.” It’s been a learning journey for her, but Cetoute has been hard at work setting the company up for growth.
That journey includes diversifying the business, which was focused primarily on serving the restaurant space. Now Cetoute is very focused on opportunities in government contracting. [Read more here.]
These three companies are among the success stories. Yet, only about 30% of family businesses survive into the second generation, about 12% make it to the third generation, and only about 3% of all family businesses operate into the fourth generation or beyond, according to The Family Firm Institute.
So how can a family business become a thriving enterprise while embracing the advantages of keeping it all in the family?
Family business challenges
One of the key challenges is access to capital under reasonable terms and conditions, said Jerry Haar, a business professor at Florida International University’s College of Business who has studied family businesses. Another challenge is generational, as offspring are choosing to work on Wall Street, Corporate America or even launching their own startup, rather than joining the family business.
Still, what family businesses can offer – and what Key West Marine Hardware, Fullei Fresh and Amer Plus certainly exemplify — is superior customer service, a most precious commodity to consumers, and a lasting legacy for the community.
Family businesses also have the advantages of being able to move quickly in a changing marketplace. “You have the speed and agility in decision making because you have a shorter chain of command. You can make decisions very, very quickly,” said Haar, in an earlier interview with Growbiz.
And for the family businesses that do make it until the second or third generation and beyond, there is a big upside. Because so many of these businesses were created after World War II, the reins have been passed to a generation that benefited from more business and technology education than the founding family.
“There may be a lot fewer of them, but those that do exist will have the speed, agility, the innovativeness and the creativity because those who are taking the reins have had the benefit of this modern business education and a different kind of generational exposure to the way the workplace should work,” Haar said.
You start to see a bigger focus on benefits because heirs of family businesses understand the need for attracting and retaining talent. The younger generation will bring in experience with technology and social media. They may better understand the need for technological modernization and growth through acquisitions.
“It’s not like Silicon Valley where you are trying to drive up value, get yourself an offer and do an exit,” Haar said. “No, a family business is something you pass on like an heirloom from generation to generation.”
Importance of Non-Family Board Members
That’s not to say there aren’t challenges. Haar has seen instances where the oldest son is deemed to take over the business, but the sibling that has the real acumen to do it is not considered.
To keep decisions like this from happening, a corporate board of a family business should include non-family members, advised Haar. A study he conducted showed that when you introduce non-family members to the board, there’s a greater likelihood that the company will be more entrepreneurial and have a greater proclivity to look at export markets for expansion.
“And you probably want as your COO someone who is not a family member, because they see things in black and white. There’s no emotional context involved in it,” Haar added.
Businesses may be able to lure back the younger generation that chose to work on Wall Street or in Corporate America. Maybe that startup they launched didn’t work out as planned. “They can come back home, be close to family, have a smaller world to work in with all the good things that a family is, and the potential to make quick and impactful decisions,” Haar said.
Family Business Best Practices
Here are some additional best practices family businesses can and should follow, according to Haar:
- Monitor, evaluate and consider purchasing software and other technology that can improve firm performance.
- Compile a pool of candidates who can replace employees who leave the firm.
- Develop an actual strategic plan for the firm — that’s not just for large firms.
- Consider acquiring a competitor or a firm whose products and services are complementary to that of the family business.
- Consider being acquired if there is no successor available or interested in the firm.
- If #5, determine the actions necessary (perhaps hiring a turnaround specialist) to increase the value of the family firm to gain the best sale price.
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