Brian was happy with his social role at first, and he and Darryl--who had essentially raised him after their mother's death--got along well. "My brother was my best friend. My father was working so much; [Darryl] acted as my father figure. He was the only guy here who'd listen to me, give me guidance," Brian says. They worked together on refreshing the store, adding an upscale grocery section and hiring dozens of new employees.
Brian had assumed he and Darryl were relative equals in the business, but he started to realize that wasn't the case. One catalyst for that was an unexpected bid for Sam's by a California company in 1998. Darryl had the title of CFO, Brian the title of COO. (Fred, with his old-school style, eschewed a nonsense thing like a title.) According to the deal, Fred would have remained at Sam's, operating the store. Brian would have helped him. Darryl, though, would have become the California company's vice president of operations, with a board seat. From Darryl's point of view, this was natural; he'd been at the business longer and had a stronger financial background. The deal fell through. But later, as Brian started to consider where the deal would have left him, he started to bristle. "No one told me s---," he says. "But the older I got and the more people I talked with, I realized I got the pretty good shaft."
Until that point, Brian hadn't cared about his future role in the business. But he'd recently turned 30 and gotten married, and he decided he had to hack a path for himself at Sam's. He buckled down and studied the business, and joined a young executives group. He started hurling ideas at his father and Darryl: licensing the Sam's name or doing a deal to sell fancy steaks alongside their wines. More aggressively, he wanted to cut payroll and bring in an outside board of directors. As Brian heard it, Darryl's response was, "This is a family business; we can't just go out and do things." Darryl saw it differently. He was confident in his financial background and wondered what his English-major brother could bring to that side of things. He also was committed to the idea of a family business as one where you took care of your people, bloated payroll or not, and one where the family was in charge.
By the millennium, the brothers' closeness of the early years had deteriorated to what Brian calls "passable friendship." They barely saw each other outside of work, except for a Cubs game here and there, Brian says. Nevertheless, they were smart enough to put aside their problems in 2003 and write a succession plan. Fred was approaching 70, they were about to expand the business, and Fred wanted to pass Sam's down cheaply. "Entrepreneurs and business owners, mortality, they don't want to talk about it. But in a lot of cases if you don't do it properly you end up having to sell the business if something unforeseen happens," Darryl says. He and Brian hired a valuation firm and bought Sam's from Fred in a paper transaction. In exchange for the business's ownership, they issued Fred a note that would pay him the equivalent of what he drew from the business as an owner each year.
Brian didn't read the succession document carefully; he says he assumed the deal was fair. Had he paid closer attention, he would have discovered it wasn't a balanced handoff. Although the ownership split was 50-50, voting shares weren't: Darryl had 66 percent of voting power to Brian's 33 percent. The document gave the brothers outs in case they wanted to sell, but again, Darryl had more control. A right of first refusal dictated that if a brother wanted to sell his shares, he had to offer them to the other brother before an outside buyer. A "drag along" clause said that if the majority shareholder--Darryl--wanted to sell to an outsider, and the other brother failed to exercise his right of first refusal, the majority shareholder could force a sale. Brian didn't get such clout. ("We all read the agreements and we all knew what was going on...I was running the company and I had the full support of Fred," Darryl says.)
The sale didn't improve their relationship. By 2004, Brian had set up his own office at the back of the store, away from the second-floor offices of Darryl and the rest of the managers, and away from the desk he'd shared with Fred since he'd joined Sam's full-time. Darryl and Brian were speaking less and less. Adding to the tension, in December 2004 the Illinois Liquor Control Commission slapped Sam's with a 15-count citation, saying the company took illegal paybacks from distributors and operated an illegal warehouse. The Rosens responded furiously, saying they were innocent; still, the case dragged on until May 2006, when the Rosens paid a $300,000 fine, a record amount for the state commission.
As the brothers were fighting, Sam's as a whole was going in new directions--which led to more arguments. After decades with the single store, the Rosens opened suburban stores in Downers Grove in 2004 and Highland Park in 2006. The move helped Sam's keep pace with big chains like Trader Joe's, Costco (NASDAQ:COST), and Whole Foods (NASDAQ:WFMI), which were opening stores within a few blocks of the Sam's flagship. The Rosens' three stores were making almost $70 million a year and employed 215 people. Still, Brian thought it could get bigger. Darryl thought they should slow down and absorb the growth. "You can't stay in the middle. Once you start expanding a business, it's very hard not to expand anymore," Darryl says. "My plan was to take a year to retrench and absorb the growth that we had. We had three generations in one store, and now we had three stores. We're not Crate and Barrel. We're not Costco. We're smaller businesspeople and were better served taking our time."
Brian, who felt like he'd spent years screaming and not being heard, was reaching his limit. "We were the family hardware store when Home Depot came to town," he says. "Competition is everywhere with the Internet and a global economy. You have to be able to prepare to play on that level or you're going to get crushed. I wanted to do all those things. And no one in my family did." Beyond just the growth, Brian was railing for corporate structure like his colleagues in his young executives group had. Darryl had maintained the casual approach to the business, with no five-year plan, for example. Brian thought this was absurd, while Darryl thought it was efficient. "The fact is," Darryl says, "when you run a business like ours, you have a level of diligence to yourselves and to the bank, and when you don't have outside investors, the bank is what determines the level of what kind of accounting you do. If the bank is happy with doing an inventory three times a year, and producing a financial statement three times a year, that's what you do. If the bank doesn't care about vacation accruals, you don't do vacation accruals."
