Resilient in Hard Times: The Family Business
As the recession delivers stinging blows to many small businesses, some ventures — the ones owned and operated by families — may be in a unique position to survive and even prosper.
Family businesses often have been around for a generation or more, giving them the experience of riding out economic ups and downs. And they have another advantage that sole proprietorships do not have.
“They can have the strength of the entire family, meaning all sorts of thinking and fiscal resources,” said Jeffrey A. Miller, a family business consultant based in Coral Cables, Fla. “There may be a consolidated family ethic, sometimes traceable for hundreds of years, which in tough times will help them hold steadier than businesses where people aren’t related.”
Of the nation’s seven million or so businesses employing 100 or fewer workers, about 20 percent are owned and operated by more than one family member, said Joseph H. Astrachan, executive director of the Cox Family Enterprise Center at Kennesaw University in Atlanta.
One of those businesses is the Knight family’s 500-acre Smiling Hill Farm, located near Portland, Me., that sells dairy and lumber products. Six 12th-generation Knight siblings in their 40s and 50s — including two sets of fraternal twins — own and manage the farm. Four members of the 13th generation also work there.
Last year’s sales were down about 23 percent from 2007, said Warren Knight, one of the owners. “In challenging times, the history is what keeps you going,” Mr. Knight said. “You don’t want to be the generation that failed,” adding, “Our father, Roger Knight, always says the last crop we raise will be asphalt.”
Mr. Knight’s father recently took each sibling aside to relate cautionary Great Depression stories that his father and grandfather had told him. “At first I listened politely and told my father he was watching too much television,” Mr. Knight recalled. “But he was doing what we all are — drawing on accumulated knowledge and experience.”
As Mr. Miller sees it, people who have always existed with a family business seeing to their needs sometimes relate to it as a living entity.
Penny Murphy, the third-generation owner of Pioneer Linens — a luxury linen retailer in West Palm Beach, Fla., that she operates with her son, daughter, and 25 employees — said that she considered the company an “imaginary friend.”
At the El Dorado Furniture chain in South Florida, nearly 20 members of the Capó family work with about 700 nonfamily employees. Six Capó brothers, 39 to 60, own and manage the company started by their father, with whom they fled Cuba. Any family member who wants furniture for personal use must pay wholesale costs plus shipping and delivery, the chain’s chief information officer, Jesús Capó, said. “We consider the business a niña linda — we don’t touch it,” he said, using the Spanish phrase for pretty little girl.
Alan L. Carsrud, executive director of the Global Entrepreneurship Center at Florida International University in Miami, described family ventures as “the totem pole that the family dances around.” And in hard times, he said, they often have the advantage of minimal debt because they shunned borrowing in good times. “It’s the family wealth,” he said. “You’ve put everything at risk if you borrow against it.”
With sales of $140 million last year, down from $167 million in 2007, the Capós will soon open an 11th store that they believe will position El Dorado for a real estate upturn. The construction costs exceed $10 million — all coming from the company’s savings, not loans, Mr. Capó said. “We’ve always had the refugee mentality that you don’t know if everything will be taken away tomorrow.”
At Smiling Hill Farm, the Knights have a line of credit, but hope not to tap it. “When business was good, we were salting money away and waiting for the other shoe to drop,” Mr. Knight said. “Our parents instilled in us the perspective that good times don’t last forever.”
And while their intent is to not lay off workers or cut their pay, the Knight siblings are all now deferring some of their own compensation, Mr. Knight said.
In tough times, family businesses can pull together in ways that ventures with unrelated workers may not do as easily. “A family business can become like a turtle that pulls inward under its shell,” said Patricia M. Cole, an associate professor of family business and family therapy at Nova Southeastern University in Fort Lauderdale, Fla.
Tom Juenemann, executive director of the Institute for Family-Owned Business in Portland, Me., agreed. “In addition to reducing their pay, they can work more, or bring aboard family members with a vested interest in the business,” he said.
In Washington, Pietro Polles is depending on his wife and children to help sustain his dream of running an Italian-style trattoria called Sorriso.
After retiring as an information manager at the World Bank, Mr. Polles said he studied cooking in Italy and opened Sorriso in 2004. Sales grew from the start, reaching $1.2 million in 2007.
But sales began to level off last March. After sales dropped sharply last fall, the family took action.
A departing assistant chef was not replaced, and Mr. Polles began working 12-hour days, cooking lunch and dinner seven days a week. Mr. Polles’s son, Stefano, and daughter, Isabella, who had worked in Sorriso part time, deferred their education and careers to work full time — she waits tables, he trained in Italy to make pizza. Their mother, Rose Marie Polles, a retired office manager at the International Monetary Fund, also began working full time as a hostess and fresh pasta maker.
At a meeting in October, the family and the restaurant’s 11 nonfamily employees agreed that Mr. Polles and his son would work longer hours while the workers cut their workday by about an hour. “I haven’t let anyone go, which would only aggravate the bad economy, and everyone is equally important here,” Mr. Polles said.
In some ventures, leadership can be complicated when family members assert themselves in ways that ordinary employees wouldn’t. Kit Johnson, a family business consultant in Boca Raton, Fla., said that she counsels families in such situations to “clarify their communication and make their conflict constructive.”
Ms. Murphy, president of Pioneer Linens, hired Ms. Johnson to meet regularly with her and her 28-year-old son, Alan Murphy Jr., the company’s vice president. They were disagreeing about issues including marketing and promotion expenditures for the yacht division that Mr. Murphy supervises.
And there are generational differences. “Alan is a child of the ’80s and ’90s, completely computer-driven,” Ms. Murphy said. “He wants to get things done quickly, while I have to think them over. We work at different speeds.”
The counseling is helping, Ms. Murphy said. “We are learning to listen to each other.”