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FAMILY BUSINESS

The Education of an Educated CEO

When Jeff Koeze took over his father's company, he knew almost nothing about it or any other business. But he knew how to learn, and 12 years later, he runs one of the smartest companies around.
THE COWBOY AND THE PROFESSOR: Scott Koeze (in the black hat) sold the family company to his son, Jeff (in the bowtie). The transition was not seamless.

Roark Johnson

CASH CROP: Koeze's cashews


Roark Johnson

LIKE FATHER, UNLIKE SON: Scott Koeze in his office, sometime in the 1970's; Jeff Koeze in his Getting Things Done-inspired, productivity-maximizing cubicle in the building he put up in 2002.

Twelve years ago, Jeff Koeze surprised his wife, his parents, and himself by agreeing to give up a comfortable life teaching law to take over the then-86-year-old family business. At 36, the professor was going to become a nut man. 

His father, Scott Koeze (pronounced KOO-zee), was sick of running Koeze Co., which was doing about $7 million a year, mostly in mail order, primarily in cashews. That worried Jeff enough that he insisted that his father not stick around any longer than two years. If the elder Koeze ended up refusing to leave, Jeff had a golden parachute: two years of salary. Moving from the University of North Carolina at Chapel Hill, Jeff and his wife, Kate, even chose a house in Grand Rapids, Michigan, where Koeze Co. is based, that they figured would be easy to resell. "I wanted a risk-free out if it didn't work," Jeff says.

Instead, a few months after Jeff showed up, his father went on vacation and didn't come back. Didn't return phone calls, either. "I know your dad -- he's retired," a longtime worker told Jeff.

Koeze was in disbelief. "That just can't be," he replied. But it was.

Thus began the education of an educated CEO, a lawyer and tenured professor steeped in book learning but lacking any business experience; given to endless research, at a company that had been built and run by his shoot-from-the-hip father; accustomed to debating with colleagues and letting the best argument prevail, at a company where workers had no expectation of knowing why a decision had been made.

In his early years at the company, Koeze despaired -- not about going bankrupt but over the fear that he would never turn the place into anything resembling his view of himself: intellectually curious, blunt and transparent in speech, and able to shift rapidly from one challenging task to another.

He didn't want to be a smart guy running a dumb business, even if it did make money. And, anyway, he suspected profits wouldn't last long unless the whole place got smarter.

It did. Here's how, one lesson at a time.

IT DOESN'T MATTER HOW YOU LEARN -- JUST LEARN

Before leaving, Koeze's father managed to throw him this piece of advice: "You can't learn to run a business by reading a book."

But the younger Koeze, so unlike his intuitive and impetuous father, had always turned to books for guidance. Besides, the old man wasn't around to show him the ropes. Workers at Koeze weren't going to be much help; they knew only the old ways, and that wasn't at all what Jeff Koeze had in mind. "I attacked it like I attack every problem," he says, "with a stack of books 18 feet high." (For a sampling of Koeze's influences, see "The Well-Read Entrepreneur".)

Among the workers he inherited, he says, he saw "intellectual passivity." People weren't interested in learning new skills. "My employees were extremely good in the narrow base they'd built up over time. But that narrow base gets outdated pretty fast."

Koeze's wide smile often turns down, into a faint grimace. And his eyes widen and his brows lift frequently to suggest a shared secret. But his voice is steady in volume and pace, almost never excited. "I am neither a firer nor a screamer," he told himself. "If I can't get better at this, I am going to have to sell this company."

Koeze, 48, went to remarkable lengths -- hauling in consultants, a shrink, a philosophy professor; reading a library full of organizational behavior books; trotting off to pricey seminars -- to challenge both the workers and himself to adapt to one another and perhaps forge a better way of working together.

Is selling nuts really so complicated? Koeze packages them as business gifts in fancy glass jars, priced to compete with a nice necktie. Send out a million catalogs. Roast and pack. Take orders and ship. But extreme seasonality, with 96.5 percent of sales coming in the fourth quarter, requires rapid expansion and sudden shrinkage. It's jarring. Year-round employment of about 40 swells to some 130 before Christmas. Koeze needed to launch new products and sell through new channels to expand. And doing a good job at even mundane stuff -- buying packaging, running retail outlets, hiring people -- seemed to a business newcomer to invite endless reading and research.

Koeze's eventual success -- he has boosted sales to $12 million, improved profit margins, introduced new products, and modernized manufacturing and order taking, and many workers have ultimately embraced the boss's rigorous data-driven decision making -- isn't an argument for or against business by book learning. Rather, it's an argument for learning, by whatever means an entrepreneur and his or her company can manage it.

Koeze is now a seasoned entrepreneur, with lessons also learned on the shop floor. But still, his first reference in discussing business is almost always a book. Why, I ask him, is his desk organized so meticulously -- 80-some file folders, labeled and displayed in an amphitheater of to-dos?

"David Allen's Getting Things Done," he replies and gives a faithful and succinct synopsis of the book. Having laid out the concept, he then talks about how he applies it to Koeze Co. He operates with a calendar of meetings but no to-do list. A quick scan of his desk, however, can remind him what's hot on his agenda.

EVEN IF YOU'RE GREEN, TRUST YOUR INSTINCTS

Jeff Koeze's first full year in charge, 1997, Koeze Co. ended the holiday season with $600,000 in unsold merchandise. A lot of it was mixed nuts.

Koeze had to heavily discount the stuff. "A one-time, half-million-dollar working capital reduction" was the result, he says.

Should he have been worried? The company was still profitable. Many of his workers didn't seem surprised or troubled. The financial statements -- they made no distinction between finished and unfinished inventory and thus gave no clue about unsold nuts in prior years -- were no help. Still, it didn't seem right to Koeze to have missed the sales plan by such a wide margin. "I was certainly shocked," he says.

The old method was to estimate the coming year's sales -- essentially tweaking last year's results -- and schedule the plant in long, uninterrupted runs to produce the necessary inventory: cashews, mixed nuts, candies. Even if orders came in that didn't match expectations. It was convenient for production workers but ultimately costly to the company.

Koeze got the production, sales, and shipping people together and told them to fix the problem. "A huge improvement came by just saying this really matters," he says. In 1998, unsold merchandise was $200,000. "A number I can live with," he says. Also a glimmer of hope that his workers, if asked to, could actually help solve a problem. Radical change, including twice-daily meetings to adjust production to sales results as the holiday season heats up, has now brought unsold merchandise down to less than $150,000, even as sales have almost doubled.

IF YOU'RE NOT CAREFUL, YOUR BUSINESS'S HISTORY WILL BE YOUR DESTINY

Scott Koeze had been forced at age 28 to take over the business when his father died suddenly, and he had had a love-hate relationship with Koeze Co. ever since. He had always made sure Jeff felt absolute freedom in choosing a career. Though the two were vastly different in temperament, they sought each other's company. When he was a kid, Jeff recalls, his father left for work at 5:45 most mornings. "But if I could hold him up until 6, Looney Tunes would come on, and he would watch with me for an hour."

As a youth, Jeff sometimes went to the plant with his father, shoveling peanut skins away from the roaster and into burlap bags, and wedging his slender body into tight spots to inspect for rodent droppings. But Jeff never saw himself running Koeze Co.

And it was peculiarly his father's company. Scott Koeze had made some smart moves. He had sold his biggest product line, private-label peanut butter (a $10 million operation), when he realized the business was about to get squeezed by supermarket consolidation. He had built a business selling Koeze's nuts and candies through community groups doing fundraising. And he had built up the catalog business to spread sales nationally.

But he had a touch of the crazy boss in him. Weeks after being hired as Scott Koeze's assistant 26 years ago, Deborah Owsinski introduced her new boss to her husband. " 'I'm so happy to meet you. I love your wife,' " she recalls Scott saying. "And he turned and planted a big wet kiss on my mouth. That sort of set the tone. He was hilarious. I loved working for Scott. He was not predictable."

Not everyone was laughing. Tom Lakos, who runs Koeze's two retail outlets, both in Grand Rapids, recalls Scott Koeze sneaking up on him "just to catch me not working." More than once, the boss yelled at Lakos so thoroughly, over a variety of matters, that a co-worker dissolved into tears.

Inconsistency led to dysfunction. Scott Koeze was known for asking employees to look into his latest whim. Then he would forget about it and express surprise or lack of interest when workers reported back to him with proposals. So people began ignoring his requests.

Jeff Koeze, unaware of this little drama, was perplexed when, as the new boss, "I'd ask people to do stuff -- and they wouldn't do it." He only later found out why. "As it turns out, it was entirely logical behavior," he says.

Indeed, it took Jeff some time to realize he was having a personality clash -- not with any individual but with the established rituals at Koeze Co. It's a problem that blindsides many who enter a new business at the top. Hyperrational, by his own description, and accustomed to university colleagues who were also wired that way, Jeff expected workers at Koeze Co. to behave similarly.

But they had learned from Scott Koeze. "I never had a plan," Scott says. "I got up in the morning, and I ran like hell." It's easy to believe him. These days, he dresses like a cowboy, a lanky man in hat, boots, and a snap shirt. And he can't seem to sit still in his own house, which perches on a hill overlooking Lake Michigan on the Leelanau Peninsula. When I visit, he drags me out for a buggy ride behind a duo of big Frisian horses across his sprawling property.

Coaxing the horses at every turn, he pleads guilty to micro-managing. "I'd say, 'Move aside and let me do it,' " he says. When he discovered that his workers had compiled a guide to handling customer complaints, he told them, "Burn that file. I want to handle every complaint.

"I had people problems, and I knew it," Scott Koeze says. "And I could not take my business one step further. I'd had a bellyful of that business."

Jeff Koeze initially bought a minority stake from his father, financed over 10 years. About five years into running the company, convinced he wanted to stay on, he persuaded his father to sell his voting control. "You know as well as I do, people have done odd things as they get older," he explained to his father. The note for that part of the sale has five more years to run. Jeff now owns two-thirds of the company, and his parents own the remainder.

PEOPLE RESIST CHANGE

If something sounds like a smart idea to Jeff Koeze, he will generally try it. He has always been that way. He opted to switch high schools his junior year, moving to Cranbrook, a private boarding school in the Detroit suburbs, where he knew he would get more challenging studies. He wasn't afraid of being the new kid. "It's every high schooler's dream, right?" he says. "You get to start over."

Shown the wisdom of change, surely Koeze Co. workers would embrace it. Koeze needed the company to be a place where criticism was shared and accepted. He brought in a North Carolina colleague, organizational psychologist Roger Schwarz, who now runs his own consulting firm. Schwarz advocates a particularly open form of communication between businesspeople. No hidden agendas. No sneak attacks in meetings. His theories can be particularly annoying to powerful people, because he argues that leaders, by communicating poorly (sandwiching criticism between dollops of insincere praise or asking questions about a touchy subject without first explaining why), often cause the very behavior in underlings (failure to hear criticism, refusal to volunteer bad news) that most irks them.

When Schwarz asked Koeze's managers to write up accounts of conflicts they had had with one another, an exercise in dissecting unproductive speech habits, some resisted. They viewed Schwarz's methods as BS and weren't wild about opening old wounds. One refused to participate. Koeze didn't see what the big deal was. "The only risk was someone would start to cry," he says.

And though Schwarz regards Jeff Koeze as one of his clients most devoted to the methods -- "Jeff is easily a nine or a 10" on a 10-point scale -- Koeze to this day feels his crew tiptoes around difficult topics. "Notwithstanding all of our training," Koeze wrote as part of a case study for one of Schwarz's handbooks, "I recently described the avoidance of delivering negative information concerning the performance of others as a core feature of Koeze's culture." Without a freewheeling discussion, how could he get the staff to embrace different ways of doing business?

Koeze brought in a local philosophy professor, Michael De-Wilde, who uses literature to get varied groups, including prisoners, to discuss their situations. At Koeze, DeWilde assigned Steinbeck's Of Mice and Men. The workers were soon comparing one another to its characters. "You're like Lennie" (the mentally dim worker who doesn't know his own strength), one Koeze employee bluntly told another. DeWilde says the exercise helped two workers realize they wanted to leave Koeze, and that eased problems in the production shop.

In 2004, DeWilde helped Koeze face up to a service problem at his retail stores. Workers were too passive in service -- they camped behind the counter rather than prowling the store to engage indecisive customers. And they were too aggressive when it came to handling complaints; they were reluctant to simply give an unhappy customer a new jar of nuts. Neither problem was huge, but Koeze knew any failure to resolve a complaint in the customer's favor would risk losing that person for good. And sales weren't going to rise on their own -- his retail workers needed to sell.

Koeze asked DeWilde to fix the service problem, and in a way that would keep him from being surprised by problems a second time. For 10 months, the retail workers met every other week -- in two-hour sessions, fully paid -- and shared their ideas and frustrations. Marcia Huber, who has worked nearly a decade at Koeze stores, says her initial training was "next to nothing." She knew whom to call with a problem but hadn't been told how to solve problems. The occasional upset customer, then, was a source of great worry for her and others.

With DeWilde's help, the salespeople decided that it's OK, when a customer knocks on the door after closing time, to let him or her in; customers could sample anything in the store; and if a customer was unhappy with something, staff should replace it free of charge and without question. "That did take a lot of anxiety out of seeing someone walk through the door with a Koeze bag," Huber says.

Upon meeting DeWilde, she says, "At first we were intimidated by his education." But over time, she adds, "I felt very pleased that the company would put forth that much effort. It built our confidence."

Still, change was often coming too slowly to suit Jeff Koeze.

SOMETIMES, THE BOSS NEEDS TO CHANGE

By his sixth or seventh year at Koeze Co., Jeff says, he felt "a great deal of personal frustration." Being a boss, he realized, often meant delegating to people with skills inferior to your own. It also meant much of your own company is hidden to you, because workers don't share a lot of what they know. Those problems, of course, no boss can fix. He wondered if he should sell.

"I was not well suited to this or any business," Koeze remembers thinking. "There were things that had to be fixed about me. I was probably rational to a fault." As an undergrad at North Carolina, he had flourished at Chi Psi, the school's nerdiest fraternity. For his blunt debating style, his brothers voted him "most obnoxious Yankee" seven semesters in a row.

"He relished earning that distinction," says Donald Beeson, a Chi Psi brother. "He was very direct."

As a professor, among colleagues, Koeze operated under the assumption that the best argument wins any given point. "Formal authority is rarely used," he says. Inherent in that approach is the belief that people shouldn't be told what to do. Rather, they should be taught to decide what to do.

But the approach was foreign to the workers at Koeze Co. It took the help of Schwarz, DeWilde, and others, but Koeze eventually came to see "how unlikely it was that I was going to be able to argue people into doing things my way. The other piece of it is my own reluctance to use authority."

Indeed, he sometimes had to simply give orders. He had to stop researching and just make a decision. "He'll get so anal on numbers, he'll overanalyze it," says Paul Bernhard, an accountant who advised Scott and Jeff Koeze on succession issues.

So, Koeze did change. He took some of the Roger Schwarz medicine he had been prescribing for others: He began to share his thoughts, and that put people at ease. At DeWilde's urging, he also became more patient. And Koeze listened to and changed his own speech. He realized he confused people by verbally debating with himself the very issue on which he was about to give an order. "It's made worse by a habit I have of thinking out loud," he says. "Somewhere in here, there's an order. That's all they're listening for. 'When are you going to tell me what to do?' "

And Koeze stopped yearning for workers he couldn't afford and instead invested in the ones he had. "We can't afford to hire fancy folks," he says. "But we need them." He learned to spot traits in his existing workers -- compulsiveness, curiosity -- that translate into business skills. His dissatisfaction, he decided, "was mainly just me getting snippy with people."

HOW YOU RUN YOUR LIFE AFFECTS HOW YOU RUN YOUR BUSINESS

As he settled into Koeze Co., Jeff Koeze got heavily involved in outside activities, some that too closely resembled running a business. He was serving on the board of an antitobacco group, and he was on his church's vestry. His creative director, Martin Andree, convinced Koeze he was overextending himself. "People's livelihoods and families are depending on you," Andree told him. "You've got to take care of yourself."

Mike Redman, a former Steelcase executive who met Koeze on the church vestry and then came to work at Koeze Co., also warned his new boss, "If you want to grow this thing, you're going to have to give up some of these outside things."

Koeze listened. He relinquished his board seat with the antitobacco group in 2002 and scaled back other commitments. He took up mind-clearing hobbies such as skeet shooting and beekeeping (still allowing himself a stack of books on such topics). The change gave him more energy to tackle projects that had seemed too difficult. He relaunched the peanut butter business, but as a premium brand, Cream-Nut, sold at high-end retailers. He finally got a strategic plan written, in 2007.

APPLIED OVER TIME, CRITICAL THINKING SKILLS SUCCEED

As he became more patient, he realized that some workers had in fact grown. Debbie Stokes, a longtime employee, remembers wondering, upon Jeff's arrival, "Who's the geek with the bow tie?" But as the years went by, she saw a kindred spirit, and she understood that her own compulsive urges to organize could now be unleashed at the office. "It was fun to set up all these new processes," she says.

Koeze Co. became smarter. A lot of running a business is project-based stuff few entrepreneurs do frequently enough to truly master. Reading up helped Koeze and his employees pull off a series of big improvements.

The mail-order catalog, 30 to 40 items on 12 pages when Jeff arrived, is up to 100 items this year, on 28 pages. The million copies are sent out bearing about 70 key codes, which allow the company to track sales by cover art, days the catalogs are mailed, and which rented mailing list was used.

A new phone system is being installed. Before the company signed a contract, Deborah Owsinski, now an executive, read up on the topic and then produced a 10-page request for proposal. It resembled something that a far larger company would issue, says Mike Borowka, director of business development at Quantum Leap Communications, the vendor that won the contract. "They had it all storyboarded out, this whole process. It's a little intimidating," Borowka says.

Koeze asked Owsinski to research incentive pay. She had done so several times for Scott Koeze, only to see her work ignored. But she read up again and became enamored of a book, Punished by Rewards, by Alfie Kohn, that argues against individual incentives for children, students, and workers. She persuaded Koeze to implement a profit-sharing plan without individual bonuses. It rewards collective performance. "I wouldn't run an investment bank this way," Koeze says. "But it works for us."

Fixing the call center in 2007 may have been Jeff Koeze's finest hour. A sample of orders taken showed that a disturbing 35 percent contained errors: the name Whithead typed in as Shithead; the gift greeting with our love rendered as with out love. Those were caught before they went out. Who knows what wasn't caught?

Koeze Co. has a 550-page training manual for the dozens of temporary workers it hires every fall to staff the call center, and some get as much as seven weeks of paid training for their 10 weeks of productive work. But there was a history of bad blood between the auditors and supervisors who correct order mistakes and those who take the orders.

All the measuring in the world wasn't going to fix that. So Jeff Koeze hired Marybeth Atwell, a clinical social worker with minimal business experience, to counsel the opposing groups. As Schwarz had, she examined speech patterns. Auditors and supervisors stood over the order takers, and she suggested sitting down next to them to discuss errors. The auditors and supervisors tended to command ("I need to talk to you") rather than ask ("Do you have a minute?"). And they voiced exasperation ("You made the same mistake you made yesterday. What's the deal here?") instead of constructive suggestions ("I notice you made this mistake on a number of occasions. Can you go back and examine how you did this?").

Order takers, many returning from previous years at Koeze, needed a fresh outlook, too. "If you start a dynamic in the group of hating the supervisor, then nobody benefits," Atwell told them. "A lot of these people are unemployed and really wanting work," she says. "So they bring a lot of their own frustrations."

Order-taking errors declined to as low as 10 percent, and nearly all mistakes are caught before shipping.

A SMART BUSINESS IS MORE THAN JUST PROFITABLE

The cashew company, after a dozen years, bears a strong resemblance to its owner. Numbers-obsessed but compassionate. And smart. In long conversations, DeWilde, the philosophy professor, and Koeze, the cashew man, talked about Aristotle's notion of friendship: surrounding yourself with people who challenge you to be your best. For Jeff Koeze, the business is that friend -- or, in DeWilde's words, "an avenue for him to be who he wants to be." Koeze, he adds, "wants to go to work in the morning. That wasn't always the case when I met him."

And Koeze says he remembers his father's advice -- that you can't learn to run a business by reading books. "I guess I'd say you can, by reading lots and lots of books, and then running it."

Jeff Bailey is a writer based in Chicago.

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