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Massachusetts Family Business Official magazine of the
CONTENTS
12 GETTING THERE FROM HERE Two Local Businesses Began by Sustaining Families, and Now Shape Their Industry
12
4
From the Board FBA Awards Judging Is Done
16
Home Sweet Home
Two Generations Of Helping Homeowners
18
State Aid
Falmouth Day Care Center Continues To Second Generation With Banking Program
20
Book Review “Telling It Like It Was”
22
Family Suit
How To Keep It Civil When Lawsuits Abound
18
16
SPECIAL SECTION: STRATEGIC GROWTH
6 8 10
Telling Your Tale A Dollar Earned A Capital Idea 10 3
From the Board
The Judges’ Thoughtful Work Is Done By Margery Piercey
What a wonderful summer! We hope that business was humming and that you and your family found time for much-deserved vacation. During the summer, the FBA received more than 550 nominations for the Family Business Association Awards for Massachusetts 2012, and the judges have completed their thoughtful work. Soon we’ll be celebrating the finalists and MARG E RY P I E R C E Y winners! I asked Brian Nagle, executive director of the FBA, to shed some light on the applications and the judging process. The award applications respect the privacy of family businesses and require no financial information. While applicants have the opportunity to report significant growth or the financial impact of hardships endured, the information on which the judges assess the success and contributions is predominantly qualitative. Brian shared that the applications are reviewed and scored by an independent panel of three judges none of whom are affiliated with the FBA as directors or sponsors. The judges are the only ones who review and score the applications to determine the finalists and winners. The winners will be announced at a gala event on October 25 at the Royal Sonesta in Cambridge. For those of you who have attended the autumn FBA Awards event in the past, you’re sure to remember the tremendous
business insights offered by keynote speakers, the wonderful menu and, of course, the announcement of award winners. But a highlight of the evening, for sure, is the wonderful video vignettes of all of the award finalists. These glimpses, often featuring members of at least a couple generations of the family, add such color, dimension and perspective to the event. Finalists have shared some poignant, thought-provoking and often humorous perspectives. Whether you’re a nominee, a finalist or flying quietly below the radar, you’ll enjoy the event. Perhaps the best testimony to this is the numerous family business folks who, although not finalists or past winners, have attended the event year after year. They come for the warmth, insight and camaraderie that exist among the remarkable population of family business owners at this one-of-a-kind event. Since the Massachusetts Family Business magazine’s last issue, the press has recognized many past FBA Award winners, finalists and nominees for business successes, philanthropy and landmark events. In July, past FBA award winner Lafrance Hospitality opened Ten Cousins Brick Oven restaurant in Westport. Another FBA award winner, Anton’s Cleaners, was recognized in June by Boston Center for Refugee Health and Human Rights at the Boston Medical Center. Anton’s was honored with the annual Ubuntu Award, recognizing outstanding humaneness, hospitality and sacrificing for the benefit of
others. Further, Red Apple Farm, owned and tended by four generations of the Rose family, celebrated 100 years! Many other family businesses have done great things for their communities and industries of varying scale. All of your contributions to Massachusetts are tremendously significant. One truly significant contributor was the remarkable family business leader and philanthropist Jack Conway. We were saddened to learn of his recent passing. Jack’s leadership, charisma and mentorship in the business community will be greatly missed but have set a lasting example. Jack Conway & Company, a past award finalist, continues under the leadership of Jack’s daughter Carol Bulman, who became CEO in 2009. The following pages of the magazine feature your family business peers and advisors sharing thoughts, ideas and encouraging stories of growth through their first-hand accounts and insights. The cover story charts the growth of two familyowned firms from corner-store favorites to middle-market powerhouses with strong brand recognition. We feature a discussion on owner compensation and advice on how to avoid problems when bringing in new capital. As we await the results of the judges’ thoughtful work, we look forward to hearing more about your great accomplishments! ■ MARGERY PIERCEY, CPA, IS AN FBA ADVISORY BOARD MEMBER AND A MEMBER OF THE FIRM AT WOLF & COMPANY, P.C.
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SPECIAL SECTION: STRATEGIC GROWTH
Does Your Product Have a Lasting Story? By Jim Signorelli
B
y the late 1960s, Xerox had risen to become a highly successful global brand. Having a Xerox machine in the office became a necessity. Then, with a well-established name, the company began to cultivate other ambitions. Xerox wanted to get into computer technology and data processing. The company spent many years and millions
6
of dollars before it finally threw in the towel. It should come as no surprise that once a brand is strongly associated with a certain product, it is difficult, if not impossible, to change perceptions. Yet marketing history is rife with examples of companies expecting well-established brand names to help introduce new products.
Chiquita had to admit defeat after trying to convince us that Chiquita stands for more than bananas. Country Time Lemonade was forced to stop trying to sell Country Time Apple Cider. Ponds barely got out of the starting gates with Ponds toothpaste before it quit. There are thousands of stories like these. But one could argue that Apple is prov-
ing to be the exception, as it has gone from a brand of computers to a brand of phones, tablets, televisions and who knows what’s next. Nike is yet another exception, as it has grown from making running shoes to becoming a successful seller of athletic equipment and apparel. Richard Branson keeps adding to the list of products that his brand Virgin is helping make successful. How does this happen? It happens because Apple has never been just a company selling computers, Nike has never just been about selling running shoes and Virgin can sell just about anything it wants to. Why? Because they aren’t selling brands, they are selling stories. A brand has one layer, a brand story has two. Both have outer layers consisting of functional benefits or the results that can be achieved by using a given product. However, the brand story has an additional inner layer that gives it distance and longevity. It’s like the golf ball’s compacted core that keeps it in the air longer than a tennis ball when hit. The brand story’s inner layer is more than just air. It’s made up of very real values and beliefs. When we buy brands, we buy products differentiated by function. When we buy brands that have become stories, we buy important meanings. If your brand is nothing more than an outer layer, no doubt, growth has an expiration date. The good news is that it’s never too late to find and communicate your brand’s meaning, perhaps something Xerox should have thought about before trying to sell computers. That said, there are some challenges that must be met: Your inner layer must be authentic. It’s one thing for your brand’s inner layer to be associated with the value of “wow service.” But that value is quickly devalued when a customer is put on hold for 20 minutes waiting to talk with customer service. It’s one thing for your brand’s inner layer to be associated with the value of simplicity, yet another when your customer is presented with too many buying restrictions. What you believe and what you do must be inextricably linked. Keep in mind that the truth behind your brand story is constantly being scrutinized via
social media. Your truth must therefore be demonstrated and reinforced through every point of contact. Inconsistency is the bane of authenticity. Audiences don’t care what you think your inner layer is. They care about what they think it is. Unlike outer layers, inner layers are more a function of what your audience sees for themselves as opposed to what you tell them to see. When we purchase a given brand, we are, in effect, hiring it. How much credence would you put in a job candidate who proclaims, “I believe in teamwork” or “I value hard work”? It’s not enough to be told what someone believes. That belief must be shown or demonstrated. Too often, we see advertising tag lines like, “excellence is all around you,” or “where service matters.” However, the best brands don’t get in their own way with brag and boast statements of selfdescription. Instead, they communicate their inner layers through mantras like, BFM 4.75x4.75 ad v2_Layout 8/9/11 11:11 AM “Think Different,” “Just Do1it,” or “Never
Stop Exploring,” ideals that resonate with existing beliefs that their audiences share. These are more than just tag lines. They are true theme lines that speak to the significance of their brands’ stories. Your brand must solve problems and provide opportunities. But if all you’re doing is telling prospects about what your product does and/or how it does it is better than similar products, you are telling them a story that is all plot with no important theme. To stand out as special, your brand must complete the story with the consistent proof of your brand’s belief system. Every product then becomes a new chapter of a bigger story. Think story, not brand or product, and you’ll last longer and go further. ■ JIM SIGNORELLI IS CEO AND FOUNDER OF CHICAGO AD AGENCY ESW STORYLAB MARKETING, WHICH HAS BEEN NAMED TO INC. MAGAZINE’S TOP 5,000 LIST THREE YEARS RUNNING. HE IS ALSO A SPEAKER AND AUTHOR OF “STORYBRANDING: CREATING STAND-OUT BRANDS THROUGH THE POWER Page 1 OF STORY.” VISIT WWW.JIMSIGNORELLI.COM FOR MORE INFORMATION.
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7
SPECIAL SECTION: STRATEGIC GROWTH
Paying the Owner Why Setting a Market-Rate Salary is Essential
By Christina P. O’Neill
I
n family businesses that are bootstrapped into existence, owners may choose to forego market-rate salaries for some time to grow the business making lifestyle sacrifices in order to do so. This approach sounds like the ultimate expression of commitment, but it has its downsides. G R E G CRA B T R EE 8
We interviewed business consultant Greg Crabtree, author of Simple Numbers, Straight Talk, Big Profits! on the topic. FB: How can a business owner know when to let go of the bootstrapping mode – and to see when the business is healthy enough to make the transition into market-rate expenses? Crabtree: Your business is not viable until you are paying the owner(s) a
market-based wage for what they do and the business is making a least 10 percent profit on top of that amount. Otherwise, you have a low-paying (or non-paying) job with all the headaches of ownership. We teach our clients to put a time sequenced plan in place that will get them to that level. If the business is 10 percent profitable or better, they will be able to get their salary paid, but it may be a few years before they get to harvest the prof-
its, as they will likely have debt to pay back, and we want them to build a strong cash balance of two months of operating expenses. FB: You stress the importance of establishing market-rate standards for running a business. However, market-rate salaries are higher when unemployment is low and vice versa. Is it actually easier to assemble the tools to grow a business during bad economic times because the cost of resources is lower? Crabtree: It is always a good time to start a new business. I have never seen the market fully served, regardless of the economy. You see a lot of new businesses started as matter of necessity in high unemployment because people have run out of job opportunities and they become accidental entrepreneurs. FB: Why take the risk of owning your own business? Why not take a marketbased salary working for someone else? Crabtree: Coming at this from an entrepreneur’s perspective, I will take my own business any day. If I am able to build a business that serves a need and can make 10 percent to 15 percent profit, I will get between 50 percent and 100 percent return on my investment plus a marketbased wage. There are very few corporate opportunities that can match that. FB: You consistently emphasize that business owners should make decisions and changes when it is right for the business. What’s critical in making business decisions? Crabtree: We see that business owners who adapt to market changes the fastest are consistently the most profitable and stable. Real-time business data helps them make decisions much quicker in the business cycle and with more accuracy, because it is based on data and not a guess. You can be right with guesses, but it’s like playing Russian roulette – eventually, you lose. FB: In a family business in particular, those who can forego a salary and take eq-
uity instead have more of themselves invested in the business, but they may also be regarded by other family members as having the advantage of being financially able to forego salary. Does this create a rift between the equity members and the salary-dependent members?
“Your business is not viable until you are paying the owner(s) a market-based wage for what they do and the business is making a least 10 percent profit on top of that amount.” Crabtree: You should never confuse return on equity with getting paid a salary for what you do. This is the biggest cause of brain damage in family businesses. For the family businesses we work with, you may get an opportunity because of the family connection, but it should not allow you to get paid more than another person hired for that job. It is also not always an overpayment situation. We have many times lobbied for an increase in pay for a family member who was being underappreciated for the role they played. If they are financially able to forego their pay, I would still pay them and help them establish a giving plan to accomplish either family wealth transfers or charitable giving with their wealth that is accumulating. I am more of a fan of keep wealth in the hands of the oldest generation as long as possible and helping them develop a “family venture capitalist” mindset to invest in the opportunities that make sense as they come up. FB: In “lifestyle” companies, the owner-managers draw enough in salary and/ or distributions to sustain their lifestyle and are happy with that arrangement, but what happens when more ambitious family members come along and want to grow the business? Crabtree: This is the reason why you do not confuse compensation with ownership. Ownership governs the business and sets the course of the business based
on stockholder control. When you violate this rule as a “family business” you are destroying the governance of the entity. Regardless of age, the minority shareholders must give way to the majority unless they want to buy them out. I have seen lifestyle businesses become thriving and growing businesses and vice versa. FB: How can a business owner account for worth in a way that quantifies it? Properly-quantified worth makes it easier to determine compensation packages, and makes an exit plan easier to execute. What particular challenges do family businesses face in accounting for worth? Crabtree: There should be no difference in valuation of the business and there really should be no difference in determining compensation packages. When we get family businesses to play it straight up regardless of family relationship, everybody wins (except for Cousin Eddie who gets fired, because he is no good at his job). FB: What are the keys to success for family business entrepeneurs? Crabtree: It’s a simple process, as defined in my book: 1. Pay market-based wages to owners so that you are looking at the real net income number. 2. Now that you know true profit, if you are underperforming, set out a plan to improve profitability to meet your minimum profit target (usually 10 percent or better). 3. Labor productivity is the key to increasing profitability; understand the dynamics of how to improve labor productivity and maintain it as you grow. 4. Now that you are profitable, manage the cash by the four forces of cash flow. Take care of taxes first, then eliminate line of credit debt, then build cash to equal at least two months of operating expenses, then you are free to make profit distributions! ■ CHRISTINA P. O’NEILL IS EDITOR OF MASSACHUSETTS FAMILY BUSINESS. GREG
CRABTREE IS CEO OF
CRABTREE, ROWE & BERGER PC, AND LEADER OF ITS BUSINESS CONSULTING TEAM. 9
SPECIAL SECTION: STRATEGIC GROWTH
Common Pitfalls When Raising Outside Capital
By Cynthia Adams Harrison and Bradley Fisher
M
any family businesses will find themselves at a strategic crossroads as they begin to plan for the next stage of growth. Does the family stay the course, sell the business or bring in capital to perpetuate the business’ growth? Can the family take on additional risk, and if so, how much? Is CY NT HIA A D A M S HAR R ISO N the family unanimous in the decisions they make together? These are just some of the many questions families will grapple with throughout this critical and emotional process. B R ADL E Y F I S H E R The decision to bring in outside capital is no doubt one of the hardest decisions family businesses will ever face. It impacts each family member’s legacy, livelihood, career, level of control, estate planning, and most importantly the 10
overall family dynamic. Raising outside capital can also be expensive and risky, especially if the company is taking on a loan or bringing in new investors for the first time. Below are some common pitfalls we have seen families face when bringing in outside capital as well as our suggestions for the best ways to mitigate them:
envision the company five, 10 or 20 years into the future and ask themselves: How will partners impact our situation? How will this decision impact our original core values, mission and vision? How will our decision-making capabilities as a family impact or change how we organize ourselves to address these changes?
Dilution of the Mission and Vision of the Family Families often don’t realize the role their companies play in their family life. The company reflects family core values and connects multiple generations. In fact, in many families, the company is like another child or family member, which adds a critical dynamic in the family system. Therefore, obtaining outside capital can potentially expose the family to outside scrutiny and loss of their previous levels of control. It can also alter the family system and relationship dynamics in unforeseen ways. The influences may be subtle but may carry significant implications. Families need to
Damage to Inter-Family Relationships Families will often discount or ignore the impact outside capital can have on specific individuals and interest groups within the family. This can accentuate difficult relationships and bring conflict to the surface. It is important to look at the dynamics between individuals and groups who are active in the company versus those who are more passive. When cousins are actively involved, inter-branch conflicts can be particularly explosive. Even small injections of outside capital can shift the power structure and ignite long-term implications for the
family. Family assemblies and councils are excellent structures to surface differences of opinion, educate family members on potential opportunities and consequences, and assess shareholder buy-in. Loss of Control Bringing in outside capital can impact a family’s ability to control the company. The best way to minimize or avoid control problems is to talk through governance issues and potential consequences for shareholders, internally as a family and externally with third-party advisors, before making a deal. The deal documents should also be clear and simple in terms of the economics, ownership and roles and responsibilities. A family should also consider the emotional impact that a loss of control will have for shareholders. Communicating with family members throughout each stage of the process will ensure the family is united going into the final stages of the deal. Many families will come to sign deal documents after months of preparation and negotiation, only to have certain shareholders refuse to move forward. Estate Planning Challenges Outside capital often requires formal appraisals of the value of the company. Once these valuations are in place, it can be difficult to argue for discounts and other advantages when it comes to transferring assets between the generations. This can severely restrict the family’s trust and estate planning options down the road. The key is to start planning early to avoid creating trust and estate vehicles too close to a valuation event. Consulting a tax and estate attorney as well as a tax specialist will set the stage for the family. Leaving Money on the Table The last thing that families ever want to do is leave money on the table. So, this is an area they tend to focus on first, though many still manage to walk away feeling disappointed. Families should establish a deal committee of family and non-family members and then seek outside help from a trusted advisor to guide them through the process. This will enable the family to evaluate the financial terms absent of emotion, while also considering the non-price
factors that can enhance the overall value of the transaction agreement. Undercapitalizing the Business One of the biggest problems family businesses encounter in the process of raising money is not raising enough. An undercapitalized company is often a crippled company. Families might want to consider taking more capital than they think they need in order to avoid going back for more. ■
All investment advisory services are provided by Silver Bridge Capital Management, LLC, a registered investment advisor affiliated with Silver Bridge Advisors, LLC. DR. CYNTHIA ADAMS HARRISON IS MANAGING DIRECTOR OF THE CENTER FOR FAMILY AND PRIVATELY OWNED BUSINESSES, AND BRADLEY FISHER IS MANAGING DIRECTOR AT SILVER BRIDGE, A-BOSTON BASED INDEPENDENT WEALTH MANAGEMENT FIRM.
Building Family Trust for Generations For almost 150 years, generation after generation of New England’s family businesses have turned to Hemenway & Barnes for trusted advice about complex estate, tax and succession issues, charitable planning, and more. Our clients turn to us to help protect and preserve their assets, to ensure the well-being of their families and to distribute assets in accordance with immediate and long-term needs and goals. Meeting the challenges of sustainable family prosperity and unity requires great thought, care and planning. Whatever the challenge, families trust Hemenway & Barnes to help them find solutions.
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Will What Got You Here Get You There? By Christina P. O’Neill
And Where is ‘There’? 12
Roger Berkowitz, CEO of Legal Sea Foods, doesn’t take himself too seriously. He channels that into the Legal brand Photo courtesy of Legal Sea Foods. Photographer: David Yellen
T
he first generation started a small business that sustained the owner’s family and became a local favorite along the way. Decades later, the current generation of management has established a super-regional or a global market, and has also taken a leadership role in its industry. The next generation is emerging or already involved. What’s the next step? On Boston’s seafront, two powerhouse family businesses in different arenas of the seafood industry have grown far beyond their local beginnings. Legal Sea Foods, a business-to-customer cultural juggernaut, sprang from a small fish shop founded in 1950 in Cambridge’s Inman Square. In 1968 the first Legal Sea Foods restaurant opened next to the fish shop. Today, Legal has 32 restaurants up and down the Eastern Seaboard, 4,000 employees and a reported $215 million in sales as of last year. Stavis Seafoods, a business-to-business enterprise with global reach, started out as the Stavis Ipswich Clam Company, founded in 1929 to deliver fresh clams to local customers. It’s now a global importer of fresh and frozen seafood, and was one of the first U.S. based importers to source seafood from South America, Asia and Africa. The company, which employs 120, doesn’t give out revenue figures, but is willing to say they have grown by multiples since the third generation took over in the 1980s. Both companies are “in the fish business,” as their leaders say. The product is perishable, the supply chain can be volatile, world markets are highly competitive (local, as well, with Legal’s entry into the wholesale market), and customers and industry onlookers are often – well – opinionated. In other words, the fish business is a great theater of operations for family-owned companies that take customer relations personally, are willing to take risks, and want to stay true to their roots. Uncaged Melody – Taking Risks Roger Berkowitz, president of Legal Sea Foods since 1992, is a strong believer in the need to experiment, regardless of the size of the company. “Businesses, like people, evolve. They age, they mature, and you have to keep evolving to keep it fresh. In our case, that’s a metaphor, but you’ve got to be vital,” he says. Just because something worked well ten, fifteen or even five years ago, doesn’t mean it works today, and what appealed to Baby Boomers may not appeal to Gens X and Y.
The company’s Legal Test Kitchen, launched in 2005 in the Seaport district, offers a new menu every six weeks. Former company consultant Paul Karofsky cites Legal Test Kitchen as a beta-test risk that Legal started out small but turned into “an extraordinary business advertisement.” Go online, however, and the reviews on Yelp and other sites range so widely – from lofty praise to attacks with relish – that one wonders if they’re all writing about the same restaurant. Legal Sea Foods is big enough now that it should have a modeling system in place to minimize the downside, right? Berkowitz demurs. Charts and spreadsheets only get you so far, he says. “Those are designed to minimize risk, and that’s good to a certain point, but if you minimize all the risk out of it, you don’t have a business,” he says. Legal’s expansion beyond its home region was an example, as the company had to establish its brand in the psyche of new customers. “At no point should you assume that what works in your own back yard works anywhere else,” he cautions. However, the back yard seems pretty happy. A July 2011 article in Boston Magazine noted that the openings of several Legal Sea Foods restaurants across Boston resulted in more interest in the brand rather than cannibalizing each venue’s business. Legal Sea Foods has become a multifaceted marketing phenomenon that utilizes catalogs and the web for retail customers, and it has entered the wholesale business as well, targeting supermarkets and food-service suppliers. Its long-established quality control center addresses the food safety and labeling issues that have garnered so much media at-
tention. Berkowitz has become an integral part of the Legal Sea Foods brand, and when the press (which includes us) goes to rattle his cage, there’s no cage. More on this later. And Fish isn’t Square and Covered with Bread Richard Stavis, the fourth-generation leader of Stavis Seafoods who joined the company fulltime in 1985, says risk-taking started with his grandfather Isadore Stavis, who founded the business. It was one thing to be able to feed a wife and three children from the business, but another thing when the issue of succession loomed. More on this later. When Richard’s father Ed and his Uncle Fred joined the business in the late 1950s, Isadore had already trademarked its BOS’N brand of frozen seafood and started distributing it nationally. Ed and Fred expanded the company’s line of frozen seafood and added regional distribution and domestic sourcing. In the 1970s Stavis Seafoods established some important strategic alliances, most notably with Canada-based Comeau Seafoods, a processor and distributor with whom it later split due to a desire to gain more processing control. But it wasn’t until the 1980s that Stavis Seafoods “crossed the Rubicon,” in Richard’s words, to become more international in its buying scope. Fred went to Chile to source farmed salmon, a first-to-market innovation at the time. Consumers were ready. TV chefs Julia Child and Jeff Smith were putting the basics of good cooking practices into the hands of millions of eager culinary novices and expanding their food horizons. “When people
The genesis of Legal Sea Foods in the late 1960s. Roger Berkowitz (left, with sideburns) is behind the counter. | Photo courtesy of Legal Sea Foods. 13
realized that fish was not square and covered with bread, it opened a whole new market,” Stavis says. Importing became easier in the 1980s, but so did access to competitive information, thanks to the advent of the Telex and its successor, the fax. “Back then, there was less transparency and visibility compared to today, when all your competitors can see what you’re paying,” he notes. They can also see who you’re selling to. Until 1992, Stavis delivered to both restaurants and wholesalers, at which time it became evident that the volume of restaurant sales didn’t cover delivery costs. The company decided to keep its direct delivery business to wholesalers rather than restaurants, due to wholesalers’ concerns that restaurants would buy directly from Stavis once they saw the name on the box. Stavis products still go to restaurants, but that’s now done through distributors. The company also sells to retailers who have central purchasing capabilities. As the company grew, it moved away from the partnering model it had adopted early on due to the increasingly shorter duration of partnerships. “Deals have a shelf life,” Richard notes. “The arc of this is, we would help them develop, and they would leave, and we’d get new ones.” The company also prioritized promoting its own brands rather than those of its vendors and became more vertically-integrated, in tune with an expanding market in which fewer, larger players took market share away from smaller ones. What They Do Right While they are in separate industry market niches, both companies have practices in common. Listed in no order of priority: • They established a margin of what they considered tolerable risk, which made it easier to decide what works and what doesn’t. • They differentiated their markets, decided which ones were the most lucrative, and then established their brands with these chosen constituencies. • They have chosen quality requirements they have decided are essential, despite ever-present market pressure on pricing. If they had to lose a business relationship to hold the line on quality, so be it. • Their leaders have taken proactive roles in their industry segments and have become agents for change. 14
• The leaders draw the line on dealing with mainstream ‘noise’ – they see the difference between diversifying into uncharted market segments and trying to be all things to all people. Taking a Stand Long before concerns about seafood safety and truth in labeling reached the mainstream, both companies made significant investments in provenancing – i.e., knowing where the catch of the day came from – and in quality control. “The industry has matured,” says Stavis. “There are fish eaten today that were unheard of five years ago.” With the market expanding, he sees more room for growth for his company, which his generation has already transformed from a regional distributor to an international importer and national wholesaler, supermarket and process chain supplier. A pet peeve of both company leaders is the consumer resistance to aquacultured fish. Historically, seafood was wild-caught and imported, creating many small businesses, until a few players grew bigger, crowding out the Mom and Pop businesses. The growing industry needs the predictability in supply that aquaculture could provide, Stavis says. And to those consumers who shun farm-raised fish, he asks rhetorically, “Do you only eat wild boar?” Gavin Gibbons is spokesperson for the National Fisheries Institute, an information source for the industry. “When you think about wild capture and aquaculture, consumers think about aquaculture as a release valve. One without the other is not necessarily good,” he says. “As [demand for] seafood grows, consumers will understand that.” Fish farming is the future of seafood, he adds. Another issue for Stavis Seafoods is the pressure on price, a byproduct of the infor-
mation explosion. Stavis describes the situation as “the awkard teenage years,” in which pricing information is not used maturely or responsibly. There are industry costs that must be allowed, or an environment is created which encourages cheating, using tactics such as adding moisture to increase weight, or short-weighting, which would appear to be a variant on the old manufacturing proverb: “You can get it fast, you can get it right or you can get it cheap. Pick any two.” Berkowitz has taken a public stand, much reported in the press, against the reasoning that underlies government standards for sustainability of certain species. In an interview, he notes that the government still relies on stock assessment methods developed in 1912, long before the advent of low-frequency sonar that can identify fish species and biomass over 120 square kilometers in 70 seconds. A highly-publicized dustup at a January 2011 dinner that Berkowitz hosted for the Culinary Guild of New England pitted him against sustainability advocates. But he wasn’t out for votes, anyway. If the values you hold for your business are being challenged by the industry not getting a fair shake, he says, “you have to speak up.” The discourse over the restaurant business is somewhat more high-frequency. “You’re only as good as your last meal [served] in our business,” he says. “Chains do what few independents do. The few who do well end up growing,” he says. Legal buys directly from boats, handles product in state of the art facilities, and some of its standards are higher than those of many of the independents. “There will always be people who prefer a singular restaurant, but we try to leverage the little things that make the difference. … We did a lot of the right things when we were small that enabled us to get large.”
Isadore Stavis’ clam shop, the genesis of Stavis Sea Foods. | Photo courtesy of Stavis Seafood
What Then and What Next? Berkowitz’s family’s legal battles over ownership of the business during the 1990s, which also garnered press attention in Boston Magazine and the city’s dailies, have since been resolved in court. “The one thing I always talk to our sons about, is that when the family takes care of the business, the business will take care of the family,” he says today. “The business is not here for our pleasure to do what we want. We are stewards of the brand.” And with Legal’s penchant for taking on new things, where it will go next is anyone’s guess. Stavis Seafoods’ second generation owners, Fred and Ed Stavis, each had a partnership with a 50 percent vote. In making decisions, “They’d talk about things and whichever felt strongly enough, the two would go that way. It created a workable system when it could easily have broken down. They depended on analysis as a basis of decision-making.” Fred, Richard’s father, was the relationship expert and dealmaker, while his Uncle Ed “is the best commodity buyer that ever existed.” They held employees to a high standard, put forethought into training their successors. The third generation was mentored by their uncles, not their fathers. They instituted a no-spouse rule. Stavis Seafoods’ succession challenge is all about the math. The first generation had one owner, Isadore (Isadore’s father worked at the business as well, but was not an owner). The second generation had two. The third generation, which completed its transition in 1996 by buying out Ed and Fred, has four, each with a 25 percent ownership stake (a fifth did not join the business). In addition to Richard, the CEO, there are Emily Stavis, Ed’s daughter, the import manager and senior buyer; her brother-in-law Stuart Altman (spouse of Stavis’ sister Sara) who serves as executive vice president; and Mary Fleming, Fred’s daughter, who serves as CFO. The fourth generation has eight children now, ranging in age from 13 to 24, and Richard, who has married for a second time, says there may be more. Running a company with eight co-decision-makers is unwieldy, and he doesn’t want to undersell the talent he says runs throughout the company. “Our kids won’t be as involved as we were,” says Richard, who, as the oldest son in the third generation, was the family choice
Richard Stavis, CEO of Stavis Seafoods. Note the shirt. It’s a company policy not to include titles on business cards, either. | Photo courtesy of Stavis Seafood
to take over. Now, one of Altman’s daughters works at the company in the summers, but there are no apparent designees for succession yet. Additionally, employee turnover is low compared to the industry standard. The company has grown from 21 employees when Richard joined, to almost 130 today, and Richard Stavis says the key questions now are how to bring family members in. “As individual owners, we have more flex-
ibility,” he says. “Family members have entrée but they must rise to the occasion.” The only thing that won’t change is change. The battlefields and the opportunities will be different, and companies and markets will rise and fall. The next generation of family business owners who inherit a growing concern, will do well to address the shifts of markets by applying the constant of tried and true business practices. ■
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15
No Place Like A Home Mother-Daughter Real Estate Team Sticks to Roots, and Blossoms
S
By Phyllis Hanlon
hortly after World War II, Edie Hill’s father was on his way to Wanamaker’s, a local New Jersey department store, to purchase a new suit, when a sign announcing “Houses for Sale, Free Delivery” caught his eye. Instead of coming home with some new clothes, he bought a house, launching – unbeknownst to him – a career in real estate that would extend to his progeny. Edie Hill serves as operating principle at Keller Williams Realty Boston Northwest, a successful agency in Concord, leading in units sold in the Acton, Boxborough, Concord and Sudbury areas with 65 sales associates; her daughter Christina is team leader and designated broker for the agency. Although both women have made their marks in real estate, each came to the industry in somewhat different ways. The seeds of the real estate field were sown when Edie was a child playing with her dolls in the family living room while her father conducted transactions with other small developers. The lessons she learned at that time would come to shape her life in later years. Time passed during which Edie married, moved to Massachusetts, bore three children, and ultimately divorced. Left with a daughter and two sons, all under the age of seven, she was forced to accept welfare. “Standing in line waiting to get food stamps was awful, simply awful,” she says. But it didn’t last long. Launching a Career With a high school education, only a few months of college and no work experience, Edie resorted to the one profession in which she felt comfortable: real estate. “Having listened to it all my childhood, I had no other options,” she says. 16
Her first job at a small company in Stow made her realize that, in spite of her childhood exposure, she needed to learn how to sell real estate, so she joined Foster & Flag in Acton, a large agency that provided intensive training and much-needed mentoring. Edie continued working at the agency for the next 10 years, which had by then become Foster & Foster, gaining valuable experience. In 1984, she and another sales agent opened EA Hill and grew the office to 20 sales associates, ranking
second or third in market share. In the meantime, Edie’s daughter Chris was working toward her degree in public relations and marketing at Boston University. At her mother’s urging, Chris reluctantly earned her real estate license as well. “I swore I’d never use it though,” she says. “I thought I wanted to work in a corporate environment.” Following that dream, Chris moved to Austin, Texas in 2000 to take her ideal job with computer company Dell. “No sooner
had the plane hit the ground when the market crashed. One day they were hiring with bonuses and the next day, they were laying off,” she says. So, like her mother before her, she returned to what had become the family business, and got her broker’s license. “I began selling real estate and a light bulb went off. I knew why mom loved it. You are an independent contractor, have your own business and manage all aspects of it,” she says. Thrilled with her daughter’s new career direction, Edie invited Chris back to Massachusetts to join EA Hill. However, Chris adamantly refused, insisting she was tied to the Lone Star state permanently. So in 2001, Edie sold her agency to National Realty Trust (NRT), becoming a vice president at the local Coldwell Banker office. Under a five-year non-compete clause, she agreed not to open another agency during that duration and returned to selling. She quickly became a top agent and had an opportunity to mentor others. “That’s the thing I like best about the job,” she says, “watching and helping others grow.” Fun and Interesting Teamwork While Edie had become immersed in selling real estate in the Bay State, Chris began rethinking her decision to remain in the south. She eventually pulled up her Texas stakes and headed north. Back home, the natural choice was to join her mother at Coldwell, where she also began selling real estate. Working together forged a strong bond between the two, and they began to research real estate companies in preparation for the end of Edie’s noncompete agreement. “Neither one of us had a desire to own a real estate company, but looking at the structure and culture of Keller Williams, we didn’t want to work anywhere else,” says Chris. The company’s focus on family, time/life balance, education and mentoring coincides with Edie and Chris’ beliefs, so six years later mother and daughter opened Keller Williams Realty Boston Northwest. The two women see each other every day, which in some cases might result in a
tense relationship. And Chris admits that at times, it can be difficult “having your mom hold you accountable,” but she realizes that is one aspect of her mother’s role in the company. “The great part is that we’re on the same page most often. We can work together without a lot of back and forth conversation. When you’ve grown up with someone, you have 100 percent trust and know them inside and out. I’ve learned so much from my mom,” she says. “Most people don’t get to spend time together as they age. It’s exciting to do that with someone you love and care about. We’re doing it as a team. That makes it more fun and rewarding.” Those feelings are obviously mutual. Pride in her daughter and her accomplishments comes through clearly in Edie’s voice. She is quick to point out the significant role Chris has played in the success of the office. “My daughter’s leadership has been outstanding,” she says. “She manages the office, does training and teaching. She is running the company day to day.” It’s not unusual to find Edie and Chris dining at a local restaurant after spending the day together in the office. Chris remembers how her mother insisted on eating together when she and her brothers were young. “As kids we fought that, but those family dinners often ended up being two or three hours long. I think it’s the one thing that held us together,” she says. Mother and daughter operate on the same principles. Chris says, “My favorite part of the work is helping sales associates grow their business, helping them discover their own greatness and build confidence with clients at a high level. After all, my experience goes back to when I was 7 years old sitting in the back of a car as my mom was selling real estate.” Supporting Industry Change Both women belong to a laundry list of professional, real estate-related organizations and have served in leadership positions on many of them. Edie has also been instrumental in bringing about some important changes to the industry. In the mid-1990s, she sat on the Greater Boston Real Estate Board of Directors that created
the Multiple Listing Service (MLS). At the time, her agency belonged to an existing MLS that covered a small geographic area. “I had to belong to four different MLS so my agents could have information and town coverage they needed,” Edie says. Additionally, Edie, and the other members of the board, searched for a new option to the old lock-and-key system that allowed agents to access available properties. “With the old system, you had a little key to open the box. If you lose the key, the system is no longer secure,” she says. “With the electronic key box, you have a key pad that is tied to the agent’s number. When someone is terminated, the number is removed from the system.” This dynamic duo open their hearts and wallets to those in need, particularly women. Edie has personally aided several women in need of funds to pay for education and childcare, and Chris has served on the board of directors for Domestic Violence Services and School Business Partnership. Their office has raised considerable funds for KW Cares, an international foundation created by the agency’s parent company, that offers financial assistance to agents in need. Although she enjoys the hours she devotes to her real estate career, Edie makes time for some R&R. “I’ve spent a great deal of time in Maine when between companies. I love the coast,” she says, noting that she owned a condominium in downtown Portland at one time. “I will be back there when I retire. I love to be on a Maine beach, walking along the edge of the water or reading a book.” While Chris focuses her energies on work, hoping to open another office and offer training on a national level, she also takes time to run and is looking forward to participating in the Boston Marathon within the next five years. For the time being, Edie plans to remain involved with the agency and expressed the hope that she’ll see the company grow under her daughter’s leadership. “I’ve had a fabulous life. Although it’s not been easy, it certainly has been interesting,” she says. “I don’t know what’s around the corner, but I have lots of time – damn right!” ■ PHYLLIS HANLON IS A FREELANCE WRITER. 17
SMALL BUSINESS BANKING PARTNERSHIP HELPS FALMOUTH DAY CARE CENTER CONTINUE TO SECOND GENERATION
A
small-business banking initiative administered by the State Treasurer’s office has helped a 30-year-old familyowned day care center transition from the first generation to the second. Cape Cod Five Cents Savings Bank lent $400,000 to North Falmouth-based Little Kids, Inc. to finance the transaction, through the auspices of the Small Business Banking Partnership. Created in part Left to right: Diane Gummow, former owner of Little Kids, Inc., and mother of current owner; Greg Inman; Tammy Inman, current by State Treasurer Steve owner; Treasurer Steve Grossman; Dorothy Savarese, president, Cape Cod Five; Barnstable County Commissioner Mary Pat Flynn. Grossman, himself the Photo courtesy of the Commonwealth of Massachusetts
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We are honored to be named FORTUNE ® magazine’s “World’s Most Admired” life insurance company. From our financial representatives who help clients achieve financial security to the Northwestern Mutual Foundation whose charitable donations help society at large, we are thankful to all who make everything we accomplish possible.
David C Mc Avoy Managing Partner The Boston Group (617) 742-6200 nmfn-thebostongroup.com 05-2779 © 2012 Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life and disability insurance, annuities) and its subsidiaries. Northwestern Mutual Investment Services, LLC (NMIS) (securities), a subsidiary of NM, broker-dealer, registered investment adviser, and member of FINRA and SIPC. David Charles Mc Avoy, General Agent(s) of NM. Managing Partners are not in legal partnership with each other, NM or its affiliates. David Charles Mc Avoy, Registered Representative(s) and Investment Adviser Representative(s) of NMIS. FORTUNE® magazine, March 21, 2011. 18
Massachusetts Banks Participating in the Small Business Banking Partnership As of June 30, 2012
former head of a fourth-generation family business, the program moves Treasury cash reserve funds typically held by large national and international financial institutions and deposits them in amounts of up to $10 million in Massachusetts banks. In exchange, the banks sign a memorandum of understanding showing their intent to lend to small, creditworthy Massachusetts-based businesses. All of the Treasury deposits in the program are protected through either insurance or collateral, and the interest rate earned on the deposits is comparable to what the state receives at out-of-state financial institutions, according to the treasurer’s office. Taxpayers’ money is never at risk, said Grossman said in an interview: “We didn’t make the loan – Cape Cod Five did,” he said. As of mid-August 2012, 48 banks had received just under $263 million and made more than 2,500 loans with a value of more than $352 million under the program (see sidebar). Grossman said that he expects to have $300 million in deposits in state-based banks by September. Little Kids had been owned and operated by the husband-wife team of Cubby and Dianne Gummow for three decades. The couple wanted to step back from the business and to sell it to their daughter, Tammy, and her husband, Greg Inman, who had attended the preschool program at Little Kids. Now the friends Tammy and Greg grew up with are bringing their own children to the center, said Tammy. Little Kids will be able to increase its enrollment from 85 to 90 children and fill two new positions, bringing its staff count to 14. “Being able to carry on our family business has always been a dream of mine, and without the help of Cape Cod Five, this may not have been possible,” Tammy Inman said. ■
Location
Bank
Wired/On Deposit
Arlington
Leader Bank NA
$10,000,000
Loan as of 6/30/12 60
Ayer
North Middlesex Savings Bank
$5,000,000
225
Belmont
Belmont Savings Bank
$10,000,000
20
Beverly
Beverly Cooperative Bank
$1,000,000
0
Boston
East West Bank
$5,000,000
2
Boston
Mercantile Bank & Trust Company
$5,000,000
102
Brockton
Mutual Bank
$5,000,000
117
Cambridge
Cambridge Savings Bank
$5,000,000
32
Chicopee
Chicopee Savings Bank
$10,000,000
184
Dorchester
Meetinghouse Bank
$1,000,000
1
East Boston
East Boston Savings Bank
$5,000,000
33
East Cambridge
East Cambridge Savings
$5,000,000
Everett
Everett Co-operative Bank
$5,000,000
59
Fall River
BankFive
$5,000,000
21 7
Fall River
BayCoast Bank (formerly Citizens-Union Savings Bank)
$5,000,000
Fitchburg
Rollstone Bank and Trust
$2,500,000
0
Gloucester
BankGloucester
$5,000,000
28
Greenfield
Greenfield Co-operative Bank
$2,000,000
26
Haverhill
Haverhill Bank
$5,000,000
13
Haverhill
Pentucket Bank
$10,000,000
52
Hudson
Avidia Bank
$2,000,000
0
Hyannis
Bank of Cape Cod
$10,000,000
29
Hyannis
Cape Cod Cooperative Bank
$5,000,000
88
Leominster
Fidelity Bank
$5,000,000
20
Lowell
Lowell Co-operative
$5,000,000
1
Lowell
Lowell Five Cent Savings Bank
$5,000,000
1
Lynn
Eastern Bank
$5,000,000
20
Marlborough
Marlborough Savings
$5,000,000
4
Medford
Century Bank and Trust Company
$10,000,000
103
Newburyport
Newburyport Five Cents Savings Bank
$5,000,000
19
Newton
Village Bank
$2,000,000
0
North Adams
Hoosac Bank
$5,000,000
116
Orleans
Cape Cod Five Cents Savings Bank
$10,000,000
71
Oxford
Hometown Bank, A Co-operative Bank
$5,000,000
8
Pittsfield
Berkshire Bank
$5,000,000
44
Reading
Reading Co-operative Bank
$5,000,000
45
Rockland
Rockland Trust Company
$5,000,000
426
Rockland
South Coastal Bank
$5,000,000
54
South Weymouth
South Shore Savings Bank
$10,000,000
128
Southbridge
Savers Co-operative Bank
$ 5,000,000
27
Southbridge
Southbridge Savings Bank
$ 5,000,000
39
Springfield
Nuvo Bank and Trust Company
$250,000
5
Taunton
Bristol County Savings Bank
$10,000,000
59 82
Taunton
Mechanics' Co-operative Bank
$ 5,000,000
Wakefield
Savings Bank, The
$ 2,000,000
3
Walpole
Walpole Co-operative Bank
$10,000,000
71
Westfield
Westfield Bank
$5,000,000
22
Worcester
Bay State Savings Bank
$5,000,000
36
$262,750,000
2,503
Source: Department of the State Treasurer
19
Book Review
Telling It Like It Was The 24-Hour Turnaround How Amazing Entrepreneurs Succeed in Tough Times By Jeffrey S. Davis & Mark Cohen 120 Pages By Christina P. O’Neill
I
f you enjoy the real stories behind successful companies, you’ll get through this book fairly quickly. The authors profile six entrepreneurs who faced failure before they enjoyed success – sometimes serially. The authors are Jeffrey Davis, co-founder of the FBA and CEO of Mage LLC, and Mark Cohen, independent HR consultant. They give their subjects free rein to speak in their own words, and then evaluate the characteristics that contribute to their success. The end chapter is for readers who want to apply the same evaluation to their own companies. The authors issue this caveat – they do not mean to imply that a troubled company can be turned around in 24 hours (one could conjecture that if that were the case, the problem wasn’t that bad to begin with). Instead, their intention is that if the principles they outline are applied, a turnaround can begin in 24 hours. There are two striking things about the accounts in this book. First, the subjects’ unbridled and refreshing frankness when talking of past failures, and second, how many key decisions seemed counterintuitive at the time – people either landed on a bad square on the chessboard and made the best of it, or deliberately placed themselves there because they saw advantages not evident to others. And for all of them, family values provided a strong foundation for not only who they are, but what their companies have become. Jerry Hyman, just out of college, took jobs that seemed to have no career path, but the $10 million company he joined in 20
1981 as a minimum-wage counter clerk is now $600 million TriMark USA. He became CEO in 2005. Ken Ferry left an established mega-corporation to become CEO of a business fixer-upper, and held staff meetings at the location where there was the most employee discontent. That company is publicly-traded ICAD Inc., which reported $28.7 million in 2011 revenue. Karen Bressler took charge of Agar in the aftermath of a difficult company relocation, taking the company from old, traditional and inefficient distribution processes and ultimately transforming it into New England’s #1 food distribution company. And Joel Rabinowitz shut down one business that had flourished and then foundered to start another, based on a handshake deal with a backer who had watched the former business implode. From a risk-management standpoint, none of these individuals, at a certain point, would seem to have had a prayer. The authors provide an insightful analysis of the processes they went through and the personal talents and disciplines that led to their success. Davis and Cohen go beyond simple catchwords like “persistence” and “opportunity” to analyze how their subjects used the situations at hand. The eighth chapter is the reader’s workbook. It’s a scorecard based on the most crucial threads in the entrepreneurs’ stories. Guiding principles include: • having a vision that reflects the leader’s personality. • personal/family history, ambitions, goals, dreams, industry and economic reality.
• a clear set of guiding principles for employees; communicating relentlessly. • a strong financial plan. • raising the bar. • being the final decision-maker; asking for help. • providing growth opportunities; implementing technology. • facilitating continuous positive action. Readers can then evaluate their companies’ strengths and weaknesses. By applying the same unflinching candor to their own situations, they will be on the road to success. ■ The book is available on amazon.com and happyabout.com
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Family Ties
Litigation Need Not be the Third Rail for Family Business Disputes By Lawrence G. Green
D
isputes between and among members of a family business can be most vicious in nature, with ego and family history driving parties apart. Once litigation begins, positions may further harden, and as everyone’s “dirty laundry” comes out, the results can be LAWRENCE G. GREEN disastrous. One side may win, but family ties may have been irreparably breached. Any victory may well be pyrrhic as the business may have suffered due to the preoccupation with and cost of the litigation. It need not be this way. With assistance from independent board members, business counselors and attorneys, family business members should make every attempt to resolve their differences short of litigation. When that fails, mediation services may be called upon to facilitate negotiations of difficult issues in a confidential manner. Yet even when all else fails and the dispute goes to court, litigation need not be the third rail. Through the recognition of common interests and the establishment of sensible ground rules at the outset of the litigation, parties may proceed to obtain a resolution of their dispute in a manner that protects the business and does not cause irreparable breach of the family relationship. Establishing the Ground Rules Mutual recognition of fiduciary duties: Under the laws of an increasing number of states, shareholders of a closely held company owe fiduciary duties to one another and to the company. Recognizing this principle, once litigation ensues, the parties, with the assistance of competent counsel, should collectively agree not to allow the litigation to interfere with the ongoing operation of the company. Every person must 22
understand that he/she may be held accountable for breach of fiduciary duty if he/ she takes action in the court proceeding that is prejudicial to the company. Mutual recognition of the need to protect proprietary information: Court proceedings are public, with filings accessible to the press and to competitors. All courts have procedures to permit impoundment of a company’s proprietary information and trade secrets, and the parties should utilize these procedures to ensure that a competitor will not obtain access. Pre-trial efforts should otherwise proceed pursuant to confidential protective orders, designed to prevent third parties from obtaining access to sensitive information. Mutual understanding regarding the airing of “dirty laundry:” Unlike proprietary and confidential information, it is difficult for “dirty laundry” to be impounded. The parties should agree up front to avoid references to dirty laundry in public court filings. It is the rare case where both sides are immune from such issues, and the parties must understand that airing of dirty laundry is akin to nuclear proliferation: it is an ever-escalating process where no one wins. Avoiding the press: More generally, there should also be agreement up front that the parties will not play out their dispute in the press, but that instead the resolution of the matter will be for the court. Undue publicity of a family business dispute is almost always contrary to the ongoing interests of the company and to the longer term preservation of family relations. Avoiding ad hominem attacks: Another ground rule to be established at the outset is that the case should be tried on the merits, with ad hominem or personal attacks to be avoided. Family members will have a much greater likelihood of reclaiming relationships post-litigation if they have refrained
from personal attacks during the course of litigation. Simply put, civil litigation should be kept civil. Judges and juries have greater respect for parties who take the high ground. Monitoring Adherence Throughout the pendency of the litigation, the parties through counsel should be monitoring their adherence to these ground rules, and the parties should also be monitoring the pulse of the company. There should also be periodic check-ins to explore settlement possibilities. The fact of the matter is that well over 90 percent of all litigations settle prior to trial. The parties and counsel should make every effort, with the assistance of an experienced mediator, to come to terms. If a stalemate cannot be broken, creative possibilities should be explored, such as one side buying out the other, or alternatively, having the company sold to a third party. Most critically, there must be recognition throughout the litigation process that the parties will still be family members post-litigation. With the assistance of counsel, the parties should consider the consequences of a drawn out and costly litigation victory upon the family relationship. Going to Trial If, in fact, the case goes to trial, the ground rules should be reviewed by the parties and counsel in advance, and refined for the court proceeding. Difficult or unresolved issues may be addressed at the final pretrial conference. Judges will work with and not against parties if there is joint recognition of the need to have procedures in place that best protect the corporate and family interests. ■ LAWRENCE G. GREEN, ESQ., IS A PARTNER AT BURNS & LEVINSON LLP.
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JiM Kenney, CPA MeMBeR of THe fiRM AudiT & AssuRAnCe
At Wolf & Company, we pride ourselves on insightful guidance and responsive service. As a leading regional firm, our dedicated professionals and tenured leaders provide Assurance, Tax, Risk Management and Business Consulting services that help you achieve your goals. Hear about our experiences working at family businesses. Visit wolfandco.com/family.