FAMILY BUSINESS

The Success Gene

Why some family businesses thrive year after year after year.
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Even successful family businesses tend to resemble fireflies. They flicker brightly for a brief moment, then die away. Consultants call this the rule of thirds: Only about a third of businesses make it to a second generation, a third of those live to see a third generation, and on and on. A precious few family businesses, though, do manage to beat the odds. They are passed down, revived, and reinvented from generation to generation, while all the others have long since gone bust, been bought, or just slowly faded away, done in by family feuds, hard times, or changing tastes.

We have taken a close look at half a dozen fifth- and sixth-generation family businesses. It turns out they are a very special breed. They tend to make and sell products that last: guitars, pool tables, furniture. They have managed to keep much of their manufacturing in the United States. And they are able to put today's challenges -- globalization, say -- in perspective. "You think this is bad?" they might say. "You should have seen what happened during the Great Depression!"

These families have a lot of pride in their forebears' accomplishments, yet they are unusual in the business world for their modesty. They are quick to credit the hard work of previous generations yet speak humbly of their own contributions. That's awfully refreshing in our modern gilded age of high-fiving tycoons shuttling between their private jets and megayachts. Then again, these families are about a lot more than just material success. They have a powerful sense of duty both to the past and to the future.

Hussey Seating Company
Founded: 1835
North Berwick, Maine

Tim Hussey, 51, CEO, sixth generation

"We started as a plow company and grew to be a good-size agricultural implement business in the 19th century. The third generation started to diversify into all kinds of structural steel products -- fire escapes, ladders, ironwork, and steelwork for building construction. My grandfather came into the business right after the first World War. He and his father got into ski equipment -- ski jumps and chairlift towers -- and we had a whole line of waterfront equipment -- docks, diving boards. In the 1950s, when the school boom really started to take off, we got into indoor retractable bleachers, and that's when the company really grew.

"The business followed the school boom and then the civic center boom and then the stadium boom. Over a period of about 15 years, starting in the late '80s, we did about half of the major league stadium and arena new construction in North America. We were doing maybe a million dollars in 1960 and $80 million by 2000.

"When the stadium boom ended, we went down to $50 million and downsized from 500 employees to 200. Restructuring was painful. The stadium and arena business was high-flying and got nice headlines, but it wasn't as profitable as the school business. The export business has picked up, and we're looking at other markets and products.

"Part of the value proposition of the company is making sure we've got innovation in our product lines -- whether it's a closed-deck bleacher or flexible handicapped seating. International competition from Asia and Latin America is growing, and we can't be the low-cost guy. We need to offer something unique.

"We're doing some manufacturing in China and Taiwan, but our bread-and-butter manufacturing is still in Maine. The Chinese and Mexicans still have a hard time competing with us because we're so highly tooled, we have high volume, we've been doing this forever, and we're the best in the world at it. I tell employees that as long as we can be the world leader in bleachers, we'll continue to do them here.

"We have an annual shareholders meeting. The majority of our board has been outside directors for the past 40 years. This has been a valuable thing, and I really encourage other family businesses to do it. All my direct reports are professional managers. We have experienced people in sales, finance, and operations. I just hired a new CFO -- our current CFO is retiring after 29 years.

"I remember my grandfather telling me stories of the Depression, when the company almost went out. It was just a handful of employees, and he would go out and sell the fire escape and then come back, design it, go on out to the fab shop with a welder or two and weld it up, and then they'd go over to the nearby town and install it, and he'd collect the money. That was part of his kind of entrepreneurial perseverance, just sticking to it in tough times and finding a way to make things happen.

"Another thing I learned from my dad is the importance of integrity -- in how you conduct your life and run your business and make decisions. The first three generations were active Quakers. And those Quaker values of integrity and high standards have been part of the culture here. My dad knew in his heart to do the right thing. You can't always define that, but you know it when you see it."

C.F. Martin & Company
GUITAR MAKER
Founded: 1833
Nazareth, Pennsylvania

Chris Martin, 52, CEO, sixth generation

"Our business in America started in Manhattan. The family moved to Nazareth in 1839. They had come from a small town in southern Germany, and they didn't feel comfortable in a big metropolitan area. My great-great-great-grandfather was able to more consistently make perfect guitars than anyone from that era. People still say C.F. Martin set the standard for quality for American guitars.

"I was going to become a marine biologist and worked here summers. People were saying, 'Aren't you going to join the family business?' I remember I went to a trade show with my father when I was 14 or 15. My dad said that someone from CBS wanted to talk to us about selling the business and asked me what I thought. I said, 'I would like to think about joining the business -- I can't guarantee that I will.' And we went over and met this gentleman at the show, sitting at a big desk, and my dad said, 'This is my son, and he may want to join the business someday, so we're not for sale.' I have a 3-year-old daughter named Claire Frances, so if she ever wants to be C.F. Martin, she can. She comes to work with me every once in a while, and we go out to the plant -- right now we're watching a ukulele being made.

"When I took over, in 1986, the business was barely breaking even. We'd ridden the folk boom and then the folk-rock boom through the '60s and early '70s, and then business started to trail off with disco. Production peaked in the late '70s at around 20,000 units; by 1983, we were down to making and selling 3,000 guitars a year.

"The guitar started regaining popularity thanks to things like MTV Unplugged. We've got about 600 employees here in Nazareth and about 250 in Mexico, where we make our strings, our backpacker guitar, and our Little Martin travel guitar. Last year, we made 85,000 guitars.

"My father made a bunch of acquisitions. Aside from buying a string company, which was an astute move, none of these panned out. And when they didn't work out, he would take the people who were really smart here and send them to try to fix the acquisitions. As a result, the core business suffered. The people making the guitars were like, 'Hey, what about us?' And they'd hear, 'Oh, we've got to go fix the drum company! We've got to fix the banjo company!' It was really a distraction.

"I also found a very hierarchical situation: top-down, traditional, the boss tells the worker and the worker does it and goes home. As much as I knew there was a better way, forever and ever the old way was what everyone knew. I went on an Outward Bound course for a week, and I really learned the value of teamwork. I came back, and I was all fired up: If the Martin Company was going to move ahead, we needed to involve the workers more. We went through a lot of formal training, all the way down to the hourly level, about employee involvement. And since I came in, we've given out about $15 million to the employees in profit sharing.

"We hired a gentleman from Bethlehem Steel to formalize our quality assurance program a couple of years ago. One day he came in and said, 'Chris, people work really hard here, and I keep telling them, "Hey, we're not trying to make the perfect guitar!" ' And I said, ' Vince, we are trying to make the perfect guitar. "

Iwan Reis & Company
TOBACCONIST
Founded: 1857
Chicago

Kevin Levi, 37, general manager, fifth generation

"Our store opened four years before the Civil War. It was started by my great-grandfather's uncle. We are the oldest business in Chicago that's still owned and operated by the same family, and we're the oldest family-owned cigar shop in the country. We've been doing mail order since the 1950s, and today mail order is probably half of our business.

"I started working here 14 years ago. I had quit a job in advertising after getting a promotion, because it wasn't a direction I wanted to go in. My dad, Chuck, and I split responsibilities. He handles all the financial aspects, and we share most everything else -- advertising, marketing, the website, buying, customers. We have eight employees, and my mom also helps out. In the store, we get 100 to 120 customers per day -- a lot of regulars. We also get a lot of new customers through the Internet.

"I smoke pipes, cigars, and cigarettes -- from 9 to 6:30 or 7, till I get back to the house. My dad is a cigarette smoker. My grandfather smoked cigars till the day he died at 92.

"The 1980s were a horrible time. If you looked at daytime TV, what was on? You had Jane Fonda workout videos, Jazzercise, nobody was eating meat -- it was kind of a health-conscious age. Our business really suffered then. We moved from the ground floor of our building to the second floor and rented out the first floor just to keep us around. In the late '80s, my dad didn't take paychecks for a number of months -- he had to pay the employees. Then, in the '90s, steakhouses started popping up everywhere, and the cigar boom happened. It was a total backlash to the late '80s, and it was amazing for business.

"In addition to retail and mail order, we used to do a small wholesale business selling to bars and restaurants around town, but that all ended January 1, when a no-smoking ordinance in Illinois went into effect. I think the ordinance will improve our in-store business, because we're one of the only places left where people can actually go and smoke. We just finished building a 1,200-square-foot members-only lounge. If you can't roll and change and adapt, you're going to be dead.

"My dad told me, 'We only own two things. We own our inventory, and we own our reputation.' Our employees hear it all the time. When people come to work on our sales floor, we tell them flat out: Don't ever take anything personally, but we're going to watch you. Even though you didn't do anything wrong, we're going to tell you there's a way that we do things -- there's an Iwan Reis way. And a lot of times we're schmucks. We bend over backwards for customers when we probably shouldn't, and a lot of times we lose money because we replace things we shouldn't replace. So we might lose $100, but especially nowadays, with blogs and websites and newsgroups, if that guy goes out there and writes that he had a great experience and we took care of him, that's worth a hundred bucks."

Harden Furniture Company
Founded: 1844
McConnellsville, New York

Greg Harden, 51, CEO, fifth generation

"I was the least likely member of my generation to join the business. I graduated from Colgate in 1978 with little direction or interest in the business. I was a good golfer in college, and that was my primary focus. I eventually recognized that very few ever make it to the tour. I guess furniture was in my blood -- or at least, other than hitting a golf ball, I didn't have any other talents to rely on.

"We make better-quality solid-wood and upholstered furniture. Very few family members are active in the business today. The furniture business is not particularly exciting, and that may have been influential in family members choosing other careers. My father, who ran the company before me, and his sister are still modestly involved, and they lend a lot to the culture of our organization. Just that they are active and visible after more than 60 years here means a lot to our employees and customers.

"The business has changed radically since our founding 164 years ago, perhaps more in the past five years than at any time except the Great Depression and World War II. It is a daunting challenge for a family business to adjust to extreme changes in markets, consumer behavior, globalization, industry consolidation, and an economy that has no mercy on those who cannot adapt. Lower-priced products have flooded our industry -- and their quality has improved dramatically. Durham, a Canadian company that was our No. 1 competition in the solid-wood-bedroom category, has fallen on hard times.

"The most important thing I've learned from the fourth generation is that their almost fanatical commitment to financial conservatism is very valuable when the business and industry are faced with challenges. We have virtually no debt, and a big cushion of cash is a tremendous advantage.

"The sixth generation has yet to reach the age where they would enter the business. Some of them will have an interest in the business, but they will need to convince the more senior generations that they have the ability, energy, and commitment to grow the business. The younger generation's ability to innovate is what will allow Harden to extend the legacy of the brand.

"I honestly feel that our best opportunity is to continue producing domestically. We have to be able to differentiate the brand, and if we abandon our core strengths, then we have nothing left to offer. In addition to being stubborn, I am intensely competitive -- in the business, as a father, as an athlete -- and perhaps my commitment is based more on a determination to win. We are going to survive, and we are going to win. We will never be the biggest, but we will be the best, and we will be one of the few domestic producers who survive."

A.E. Schmidt Company
POOL TABLE MANUFACTURER
Founded: 1850
St. Louis

Kurt Schmidt, 49, president, fifth generation

"My great-great-great-grandfather Ernst Schmidt emigrated from Germany and set up shop with just one lathe. Today, we sell virtually everything you could want for a game room, and we make just about any kind of pool table. I have never had another job. This is all I ever wanted to do. You better love the business that you are in if you want to stick around, because like that ill-tempered dog up the street, sometimes it's not so lovable. We have stuck around because no matter how bad things get -- and they have been rotten from time to time -- the passion is still there.

"We've had several brushes with oblivion over the years, but good relationships with vendors, a strong customer base, good employees, hard work, and some help from above have pulled us through.

"I remember one family board meeting in the late '70s. We had just lost a ton of money for the year. One of the other family members said that maybe the company had run its course and we should consider closing it. Hearing that was such a shock to everyone that the following year, we had record profits -- fear is a great motivator sometimes.

"Our sales typically run from $3.5 million to $5 million per year. Last year was a down year for the company and the industry -- you can pretty well tell how pool tables are doing by checking new-home sales. My accountant says it's the craziest business ever. It has more mood swings than a teenager.

"I get asked a lot what our secret is, and the truth is, there really isn't one. I can only tell you what has worked for us and why we have survived. It starts with instilling a work ethic and pride as to what your family is about. As kids, most of us have had some resentment about the amount of time dedicated to business. That disappears when someone says, 'I have a Schmidt pool table, and we love it.'

"In an old family business, it is almost impossible to have a normal family life. Feelings get hurt, and they turn into deep wounds, some of which never heal. The rewards are different for each person. I will never be confused with Bill Gates or even his chauffeur. I don't take a day off to go golfing or have martini lunches. But I get a real kick out of building something, in this country, with my people, that I know is going to long outlast the original owner. I just watched the movie Top Hat with my daughter. She was amazed at how great Fred Astaire was as a dancer. That movie came out some 70 years ago, and people are still enjoying it. Designing it, building it, watching it come to life, and knowing it will be around entertaining people long after I am gone -- that's the good stuff."

NP Dodge
REAL ESTATE
Founded: 1855
Omaha

Nate Dodge, 44, executive vice president, fifth generation

"The company was founded by the first N.P. Dodge and his older brother, Grenville. The brothers had been working as surveyors for the railroads and ended up representing Eastern investors who wanted to buy land out West.

"Grenville, later a Union general in the Civil War, came out first, and when he saw the Missouri River Valley, he thought it was the prettiest land he ever saw. He wrote his little brother, N.P., who was in high school at the time in Danvers, Massachusetts, and said, 'forget high school, come on out here.' N.P. worked his way across on a surveying crew to get here, in 1854, and the two of them put together a land company and later a bank, in 1856.

"The company has taken on the personality of each N.P. The first N.P. was a land seller and a banker. The second, his son, graduated from Harvard Law School in 1898 and came back to manage some of the real estate assets that the general and his dad had put together. The second N.P. saw that people were defaulting on bank loans for land and that he could take the land and break it into pieces and sell it for more than you could as a whole parcel. He became one of the most prolific land developers at the time. From my perspective, he was probably the hardest-working N.P. The third N.P., Dad's father, started our insurance company, the mortgage banking company, and the residential real estate firm. But I think the best businessperson has been my dad. He has really focused our operation and grown it to the diverse business it is today. And now it's coming up to me, and I'm going to screw it all up!

"In our residential sales division, we have 15 offices throughout the metro area and something over 520 sales associates. We do slightly less than a billion dollars in this area. Along with that, we have an insurance company that does both health and property casualty; we have four title insurance companies that serve 17 counties in this area; we have a commercial real estate company; we have a land company; and we also have an apartment management company that has 4,500 units in this area. My mother runs NEI Global Relocation, a corporate relocation management company, which is our largest operating company, revenue-wise.

"I think the three of us running the business are the beneficiaries of getting along both in our personal and our business lives. We definitely do argue; we definitely do disagree with each other. But we do it respectfully. And I think Dad sets the tone for the rest of us -- that what's best for business and for the family comes first. One thing my dad drilled into me: Whenever people would talk about the company or him or the whole Dodge lineage and all that kind of baloney, Dad would say, 'Let other people worry about who your great-grandfather was; you worry about how his great-grandson is going to turn out."

Last updated: Apr 1, 2008

ADAM BLUESTEIN | Columnist

Adam Bluestein is a frequent contributor to Inc., writing about health care, innovation, and new technology. He lives with his wife and two children in Burlington, Vermont.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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