Baltic Business Quarterly Autumn 2018

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Running in the Family

Family Enterprises: Secret Force in the Baltic Economy

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B A LT I C B U S I N E S S Q U A R T E R LY | A U T U M N 2018

BalticBusiness Quarterly A U T U M N 2018

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by ALEXANDER WELSCHER

FAMILY MATTERS Blood is thicker than water: family-run firms often outperform those led by outside managers.

This goes for Baltic businesses too.

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Photo: Shutterstock

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What makes family businesses stronger than others?

The

roles and responsibilities in Jānis Vinters’ family business are clearly defined: “I am more like a general manager leading from the top, while my brother is the executive director”, says the owner of Latvian farming company Z/S Līgo. “My brother has a technical education and is very smart in mechanics. I can plan and develop the company from above, and I don’t have to think about every small detail. My brother will take the right decision”, Vinters explained recently in an interview with Latvian magazine Ir Nauda.

Founded as far back as 1989, the family-run company with around 35 employees is engaged in grain cultivation, grows hybrid cucumber seedlings in greenhouses and produces biogas. Both Vinters brothers got involved with their father’s family farming business from the very start. And ever since they have found a way to work well together and to keep alive their commitment to the company. Each of them does his own duties; only decisions involving larger sums of money are always taken jointly.

The strong family bonds have proved to be extremely productive in business. 30 years after it was founded, Jānis Vinters today runs one of the most valuable agricultural companies operating in Latvia. His farms in the Lielplatone parish near Jelgava stretch over 2,000 hectares and – in 2016 – achieved the highest profitability among all producers of agricultural products in Latvia, according to the TOP 500 ranking compiled by the business newspaper Dienas Bizness. In another ranking, the daily Latvijas Avīze put the equity capital of the sportsman-turned-businessman – he previously pursued a career as a rally motorcycle racer – at 8.3 million euro. This makes Vinters the richest farmer in Latvia.

Achieving success – but not fame

The rise of Z/S Līgo might be exceptional but is far from unique in the Baltics. Estonia, Latvia and Lithuania have seen many family business success stories over the past quarter of a century. Despite the prevalence of large corporations in many markets there are always some

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family-owned businesses that not many other companies can compete with in their particular niche. Think of any field, and you’ll find a successful family business that has a competitive edge and is doing extraordinary things, whether it be in hospitality, food and beverage, agriculture or other sectors. Yet many of them tend to stay in the shadows and remain unknown, even though they play a major role in driving the national economy forward.

“Family-owned companies have always been an essential part of the economies of the Baltic countries and have proved to be successful and resilient. Even during Soviet times when there was no business and market economy, many people were producing various agricultural and forestry products”, says

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entrepreneurship researcher Aivars Timofejevs of the Stockholm School of Economics in Riga. Back then, some very small micro-enterprises were tolerated in sectors such as agriculture and food processing.

In times of perestroika, the planned economy was opened up even more in an effort to make the agricultural sector more efficient and save the crumbling Soviet Union.

Family farmers in Latvia in 1989 were allowed to obtain farmland and were given the right to start up independent farms. Jānis Vinters had just turned 18 back then. “I was the youngest farmer in Latvia”, he recalls. Initially, he was granted 15 hectares in a programme that cancelled the existing restrictions on private property ownership.

Flourishing family business

After fully regaining independence in 1991, the reintroduction of the market economy in the Baltics provided the opportunity for many more new family-run enterprises to prosper in various fields. However, not all of them survived, due to several economic crises in the 1990s and the Baltic boom and bust cycle after the EU accession in 2004 that has only recently been fully overcome.

Nowadays, globalisation and digitalisation pose new challenges, but also contribute to the emergence of new family businesses – with modern social media accelerating the transformation of hobbies into businesses. And in the thriving start-up scene in the Baltics, family and friends often provide a key lifeline for entrepreneurs, whether it’s financial, operational or emotional.

Photo: Shutterstock

Besides the necessity-driven entrepreneurship during times of crisis, socio-cultural factors also contributed to the establishment of family businesses in Estonia, Latvian and Lithuania. “Family is still an important

part of life for people in the Baltics. We are more family-oriented and focussed on family ties than other European countries where people tend to be more individualistic”, explains Timofejevs.

Long-term strategy

In this rather collectivistic cultural environment and imposed sets of social patterns, family culture often became the organisational guideline for all involved in the business. This can be seen with Jānis Vinters who describes working together with his brother as “wonderful” because he can trust and rely on him. “If it was someone from outside, you’ll still go and check whether everything is being done as it should be”, he says in the interview with Ir Nauda. The family bonds were tightened even more closely some years ago when his wife Signija took over responsibility for the greenhouses.

The picture is similar in many other businesses where the boundaries between family and company are fluid.

The vested interest of its members in the success of their own company induces dedication, perseverance and a whole lot of extra effort. In addition, family businesses tend to have a strong orientation towards socially and ethically responsible activities. This means that they conduct themselves – whether consciously or not – in a way that is future-oriented and sustainable.

Their long-term outlook is measured in decades or generations, not just quarters or months as in many stock market listed corporations, as studies and empirical research in the Baltics and elsewhere show.

Strengths are also sources of concern

However, family-owned businesses are not immune to challenges. Besides the standard business concerns, family companies also have to deal with their very own issues such as generational disputes, sibling rivalries, and succession issues. “Family businesses fail for family reasons” is a widely used saying in this context. Through a clear definition of roles and responsibilities, Jānis Vinters has managed to overcome any adversity so far. Sooner or later, the businessman in his late forties will have to master another challenge that is already a pressing problem for family-run companies in many other countries: passing the business on to the next generation.

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Sector: Fashion Retail Founded: 1991 Employees: 59 Meeli Leeman (51) has been passionate about tailoring and sewing since she was very young.

At the age of 20, Meeli and her husband, Urmas Leeman (52), bought oversized nightgowns and altered them to create much smaller underwear – a kind of garment that was completely new to women who had just escaped Soviet fashion egalitarianism. With the success of their first products to support it, the company went on to produce children’s sweatpants and hoodies.

Urmas supplied Meeli with patches from textile factory leftovers and sold them to department stores.

The production kept growing and they decided to stick with children’s clothing up to the present day. Now Lenne has success selling clothes in Estonia, Ukraine, Latvia and many other countries – either in stores or on an online shop.

“I have been part of the company since I was born”, remembers Meeli and Urmas’ daughter, Sirli Vaidla (28). “Even when I studied Psychology and worked in a kindergarden, I was always involved in my parents’ business”, she recollects. Sirli started as a sales assistant and became a concept manager. To her, the advantage of a family business is the effort everybody puts into it. “It’s not your average job, you’re not doing it for your own good but for your family’s wellbeing.

That means you also don’t quit if business gets tough. All for one and one for all – in a family business that really has meaning”, Sirli says.

Even though the family admits that they often discuss problems at home, “we can’t separate work and private life. Business is discussed at home and personal matters are discussed at work”, explains Meeli. But no matter what, all of them are proud of their family business, and the third generation is already involved too. “Our granddaughter and grandson – still kids – are working here as models for photo shoots of our collection”, sais Urmas. MA

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SIX OF THE BEST

Photo: Diana Unt Photography

LENNE

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MOROZOV & SON Sector: Furniture Founded: 1993 Employees: 50

always think they are right”, admits Sergey Morozov with a grin. Meanwhile, both of them have found their place in the collaboration. “I am really proud that my son joined our company,” says Jury.

“I have worked in many different places and I realised that nothing is better for me than working in our own company,” says Sergey. In the beginning, working together with his dad wasn’t always easy. “Parents expect more than a normal boss would – and it’s hard to convince your parents of your opinion. They just

All three generations emphasise the importance of the company’s values: trust, common goals and respect to each other’s ideas. They know they can rely on each other. “We work together – not for each other,” Sergey says. “That is the main difference between a family business and a normal company.” MA

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Photo: Kaspars Garda

The familiy’s garage – this was where Nikolay Morozov (87) and his son Yury (57) built their first wooden table. In 1993, they established their company JNM which designs personalised furniture, made from any wood in the world. This initial name stood for Yury.Nikolay.Morozov and indicates the family approach that has been defining for the company’s approach since. They decided to change the name

of the company to Morozov & Son when Yury’s son, Sergey Morozov (32), joined it. Celebrating its 25th birthday this year, Morozov & Son employs 50 people and is an internationally acclaimed brand.

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DU BROLIAI Sector: Retail Trade Founded: 1987 Employees: 45 In 1987, Vaidotas Jankauskas (64) and his brother, Liudas Jankauskas (67), established one of the first private property companies in what was still the Lithuanian part of the Soviet Union: a restaurant in Palanga called “Du Broliai” (“Two Brothers”). Business developed well, and after a while, the two opened a fashion retailing shop in Palanga. In the re-established Lithuania, their brand quickly developed into a luxury fashion shop with over 40 employees and a chain of stores in Vilnius. “Du Broliai” now represents the products of some of the most important fashion houses in the world, such as GuccI and Prada, and is Lithuania’s leading retailer in this branch.

It was clear from the start that Andrius and Thomas, the two sons of Vaidotas Jankauskas, would come to work with their father. “When we began in the late 1980s, having a private property was a very brave step because, even after Gorbachev, everything was still in the government’s hands. It was practically impossible to hire a person”, Andrius says.

For Vaidotas, Thomas and Andrius, the main advantages of a family business are loyalty and unity. “To hire and fire a worker is much easier than to deal with family members”, says Andrius, “but we grew up together and with the company. So we understand that we always have to find compromises.” MA

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LONAS Sector: Mattress Manufacturing Founded: 1993 Employees: 120 Since 1993 already, Lonas has stood for good sleep and relaxation. Kazimieras Jakutis, now 57, and his wife Birutė Jakutienė (58) have been fostering the traditions of mattress manufacturing and the creation of innovations for greater comfort and healthier living for 25 years. Besides its highly acclaimed mattresses, Lonas also develops and produces designer beds. The business is based on family values and traditions – all

of the four sons (Adas, Liudas, Domas and Saulius) work in different positions in the company. They all joined the firm at different age, but their longlasting relationship with their parents’ enterprise started in their teenage years.

“From my young days I was near to my parents’ business, but I didn’t dream about working in the same company when I was at university”, says Domas Jakutis (30).

Somehow, tradition proved to be stronger than an independent career. “Life is life and now I have been in our company for eight years – and am very happy with it!”, says Domas. His father Kazimieras Jakutis

never expected anything else. “I imagine that our sons will pass the company on to their children one day”, he says.

It is important for him that Lonas will stay in the family’s hands. “Only then can I be sure that my cherished values will remain in place.” Kazimieras believes in a good relationship with his workers, but knows that family members share a different level of responsibility. “All family members strive 120% for the success of the enterprise.

We have no other way if we want to be successful in the future. It’s like a marriage – a love relationship for a lifetime”. MA

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Sector: Food / Fish Founded: 1988 Employees: 150 Turn your hobby into a career – this is probably what almost everybody wants. And it is exactly what the passionate fisherman Mati Vetevool did in 1988 – he opened a company named M.V.Wool which deals with fresh and frozen fish production, as well as the sale of various fish. In 1994, his son Meelis Vetevool joined the company, and both reorganised the entire structure of the enterprise. In addition, Mati’s grandson Hendrik Rajangu joined the firm to become a sales manager. “My granddad did not force me to work in his company, but he always gently pushed me in that direction”, he admits with a smile.

M.V.Wool AS has become one of the biggest fish production and sales companies with the longest tradition in Estonia.

Its products are exported to international markets like France, Belgium, Italy and Sweden. The company made a turnover of over €23 million in 2017. “It was hard to become as successful as we are now”, says Meelis. “During the first 5-7 years, my father and I had a lot of difficulties.

The situation within the company wasn’t always easy, and everything had to be organised in the right way.”

Mati always believed in the market and in the family. “For me, there are just no better employees than my family – we have one goal and we all trust each other”, he says. What he also appreciates about his family business is that every single one of the family members is 100% focused on what they do. He adds, “In my opinion, this focus is the main difference between employees in a normal enterprise and family members.” MA

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Photo: Diana Unt Photography

M.V.WOOL

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AMBERGS Sector: Furniture Founded: 1993 Employees: 18 In 1993, Ritma Ritenberga and her business partner, Ingmārs Tēraudkalns, established their company, Ambergs, in Riga. The main idea was to sell furniture, fitted kitchens and plumbing imported from Germany to Latvia. Today they have more than 60 German partners with brands like Rolf Benz, Hülsta, Pogenpohl, Leicht and Eggersmann of which Ambergs is the exclusive representative in Latvia. The company sells equipment to designers, project developers and real estate agents. For Ritma, 1993 was a turning point – not only in her business but also in her personal life. She was a widowed chemistry teacher who wasn’t earning enough and so desperately needed a change. “When I decided to build my own company, the most important thing was that my two kids got a good education”, she says.

Laura Ritenberga-Kinder (35) and Rolands Ritenbergs (30), Ritma’s two children, started work in their mother’s company when they were 9 and 14 years old. “We used to go with my mother to trade shows to represent the company – it was normal for us, we just slipped naturally into the company life”, says Laura. Both kids could not imagine doing anything else. “Back in the day, my children learned from me. Now, with all the new technology around, I actually learn from them”, adds Ritma.

As in every other relationship, there are ups and downs. “In a family business though, you have to deal with other family members, you can’t just walk away and get another job, it is another level of conflict management and cooperation”, Rolands says. What Ritma loves most about her company is that she always stays in touch with her children. “As Laura lives in Germany and does her work from there, I don’t get to see her very often, but due to the job we are in contact all the time. I experience both of my adult children more often as it would be in the case of not working together”, she says, smiling. MA

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by LARS BJÖRN GUTHEIL

Startups vs Family Business Everybody is talking about startups. But although fresh IT entrepreneurs rule the news and might get points for sexiness and innovation, they can hardly be called the backbone of Baltic business.

Here are five reasons why family businesses deserve more attention than you may have thought.

Startups operate an “anything goes” approach.

Their aim is to develop a new item or solution and make it successful overnight – the faster the better.

The typical perspective of startup founders is no longer than three years. The motto: get big or die trying. And if it doesn’t work out, start again with a new idea.

2

Once a startup company has reached a certain market status, it is quite likely that the owner will be willing to sell the company to a solvent buyer. Very often, founders then lose their influence over what they built up.

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Unlike startups, small and medium-sized family businesses plan over the long term and have a conservative approach. They therefore tend to rely on traditional products and services that will still be needed in many years. Not only do they have a profound knowledge of their industry and pass their values from generation to generation, but they also spend considerable time in their business environments and communicate frequently with employees. This is why family businesses often stay alive for decades.

For typical family enterprises, their own business is a holy grail that can never be shared with any other company. As the business is all the family has, family-run firms have a greater focus on their stakeholders, protect their jobs and do everything in order to protect the company’s independence so that the next generation can succeed at the helm.

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3

As the whole idea of a startup is to internationalise as quickly as possible, while choosing the company’s name, an entrepreneur has to come up with a coined term that can be understood easily by global audiences and will be found by the usual Internet search engines.

4

Yes, it may be ‘cool’ to work for a startup with a big name – not to forget the coffee machines and football tables.

Only few employees actually receive good salaries though. And working hours can be a mess, not to mention work fluctuation and the usual generation gap.

For example, have you ever seen a startup company that employed many people over 50?

5

Innovation is key for a startup.

Do something new or don’t do anything at all. To become more productive and innovative, startups usually work in small teams full of creative people, use agile work formats and are always open to suggestions from their employees. Yet, only a few startups survive the first five years.

Apart from the fact that many family businesses have been active for decades and chose their name while Google and Facebook were still unknown, finding a name is usually an easy task for them as it is usually simply the family name itself. What might sound silly to the average entrepreneur is the family enterprise’s strength: would you sell an average or even bad product if your own name was written on the packaging? According to a study from Duke University, companies that are named after their founder or largest shareholder perform better than their peers. Ford, Porsche, Miele and others have taught us how family names can drive enterprises to achieve great things.

Yes, it might not be very trendy to work for a company without a famous name, maybe even in a small town far from the capital. But when you realise that you can plan for the long term, if not a lifetime, things might look different. In a typical family enterprise, owners have a special relationship with their employees.

By honouring knowledge and loyalty, family-owned firms tend to elicit not only higher employee engagement levels from staff, but as a result of this, they also secure higher productivity levels as well.

Small businesses have a bad reputation when it comes to innovation, but that’s an unfair judgement. According to recent research released in Forbes Magazine, family enterprises are typically spending less on R&D than nonfamily firms of a similar size, but they get more bang for their buck. For every dollar or euro spent on innovation, they secure more patents, more new products and higher revenue than their peers. Family businesses have given us the automobile and the washing machine, navigation systems, the glue for smartcards and the RFID-chip.

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