Last updated on June 23rd, 2021 at 11:32 am
In today’s era of big business and globalization, it’s easy for some to forget that the majority of businesses in the U.S. are owned or controlled by families.
While many family-owned businesses fit the “mom and pop” archetype that may come to mind, those two identities are far from synonymous. In fact, some of the country’s largest publicly traded corporations are, at least partly, owned by family: Wal-Mart Inc., Ford Motor Company, Dell Technologies, Inc., Tyson Foods Inc. and Nike Inc. among them.
Wisconsin has long been home to many family businesses, with experts tracing the trend back to mass immigration from Germany and other parts of Europe during the 19th and 20th centuries, as well as the state’s geographic positioning along the Great Lakes. The influence of those cultures and the opportunity of inland waterways gave rise to industry, agriculture and trade.
“If you go back in time, what occurred (in Germany), in the trades primarily, was that groups would get together, and they would form a club or a guild. Families would be part of that, and it was traditional that people would pass along not only their name but also their family enterprise. … There was a strong connectivity between your name and who you (were),” said David Borst, executive director and chief operating officer of Family Business Leadership Partners.
Many businesses now in their fourth or fifth generations were originally built on the promise and pursuit of the American Dream, and some were born out of pure necessity to provide.
While the structure and perhaps meaning of “family-owned” has had to adapt to the fast-paced business landscape of the 21st century, many of the values woven into the fabric of these organizations have stood the test of time and remain central to their culture and operation.
It’s these values, such as longevity, flexibility, commitment to quality and care for employees, that set many family-owned businesses apart from their competitors – in the eyes of both customers and employees.
Standing on yesterday, investing in tomorrow
For Pewaukee-based Steinhafels, Inc., building a business over four generations means it’s had time to establish trust with customers.
“I think consumers today are a little distrustful of new brands because there’s a new brand popping up every two seconds trying to tell you that they have the best new product,” said president Andrew Steinhafel. “You start a business to make money, but because we’ve been in business for 88 years in Milwaukee, people know that we’re not here to just make a quick buck.”
Steinhafel represents the fourth generation of his family to lead the business, recently taking over the president role from his uncle Gary Steinhafel. In May, the Steinhafel family sold all of its stock in the company to an employee stock ownership plan (ESOP), which makes the company 100% employee-owned but family-led.
The company’s value proposition covers the full lifecycle of the consumer’s furniture shopping experience, said Andrew Steinhafel, from first interactions with sales associates to product servicing down the road.
“Things happen, and if there’s an issue with the piece of furniture after you purchase it and after it’s in your home, we are here and still in business to take care of it,” he said.
But amid mounting competitive pressure and shifts in consumer expectations, reputation can only take the company so far. The COVID-19 pandemic has greatly accelerated the industry’s shift toward digital, and giants like Amazon continue to set the pace.
“We have a brand that people hopefully trust and they will give us the benefit of the doubt, but when you can’t meet the consumers’ expectations in these different channels or different models, that’s when you start losing people and that’s where you start losing that competitive advantage,” said Steinhafel.
A primarily brick-and-mortar business prior to the pandemic, Steinhafels has had to invest heavily in digital marketing and its e-commerce capabilities, not as a replacement but as a complement to the in-store experience. The retailer is gearing up to launch a new website later this summer that will speed up and improve the process of getting products in front of the consumer.
“When a family business wants to make an investment …. they know that they’re in business for the long haul,” said Dean Fowler, a family business advisor and managing partner of Dean Fowler Consulting, LLC. “Globally, family businesses out-perform publicly traded companies, and that’s one of the reasons: They make long-term investments.”
In contrast, publicly traded firms that aren’t family-owned typically make decisions based on quarterly shareholder objectives, which often prioritize short-term gains over long-term growth opportunities. Family-owned businesses also have a better understanding of their niche market and therefore the flexibility to better meet the ever-evolving needs of customers, said Fowler.
Shifts in grocery shopping patterns are the fuel behind family-owned Kwik Trip Inc.’s rapid growth. The La Crosse-based gas station and convenience store chain, now with 772 store locations in Wisconsin, Minnesota, Iowa and Illinois, opened about 100 stores over the past two years. This year, the company is building 40 new locations and rebuilding 10 of its existing locations.
Kwik Trip distributes and produces about 80% of the products it sells at stores, and with retail growth in high gear, the rest of the business must keep up. As part of ongoing investments in its food production and support campus, the company recently broke ground on a $50 million expansion of its dairy facility.
Carl Rick, training manager and third-generation spokesperson, said internal growth decisions rest on a key question: What’s going to bring a customer through the door 10, 15 or 20 years from now?
“You look at convenience stores in general 50 years ago, it was Cokes and smokes. That’s not what our guests are buying anymore. They’re stopping in for in-between grocery trips,” he said. “We’re going to keep growing because we know people need a place where they can pop-in in three minutes, grab bread, milk and eggs and be on their way.”
The goal is to keep serving customers, even as cars becomes more fuel efficient and the need to stop for gas become less frequent or altogether unnecessary. That puts Kwik Trip in competition with everything from big-box retailers to quick-service restaurant franchises, some of which are themselves family-owned.
Culture of care
Rick, himself, worked in retail at Kwik Trip during college, prior to marrying his high school sweetheart Emily Rick, who is the granddaughter of Kwik Trip first-generation founder and CEO Don Zietlow. Carl Rick joined the corporate side of the company about six years ago after Zietlow persuaded him to make the switch from education.
As the company has grown to nearly 30,000 employees, or “co-workers,” Kwik Trip hasn’t lost sight of the culture that has successfully attracted talent in the first place. Prior to the pandemic, 100,000 applicants would apply for roughly 10,000 positions annually, said Rick.
Sitting at the helm for the past 56 years, Zietlow sets the tone for the rest of the company. At 86 years old, he comes in to work five to six days a week and personally attends the ribbon cutting ceremony for the opening of every new store.
“He drives down through vice presidents, out through directors and managers that this is the culture we want: a warm, caring culture where, essentially, as ownership, if we take care of co-workers, they’ll take care of their guests,” said Rick.
As part of its competitive benefits package, Kwik Trip shares 40% of its annual pre-tax profits across its entire base. The cash bonus ranges from 5% to 9% of each employees’ annual income. Another perk is the “Families Helping Families” program, an employee-funded charity that provides financial assistance to other employees in times of need.
Providing employees a piece of the pie through a profit-sharing plan – or through an ESOP like Steinhafels has – is one way family-owned businesses can mitigate hiring and retention issues specific to family-owned businesses, said Borst.
“There are some people who are attracted to a family business because their hope is that the business will treat them like family, and then there are some who are concerned that the family will always come first, so the availability for promotability and for job continuance is not as strong,” he said. “It depends on the culture you build.”
Concerns of family members standing in the way of non-family employees assumes that there are family members willing to fill those spots. That’s not always the case.
For many businesses, the next generation lacks the qualifications or interest to carry on the family enterprise.
“Statistically, only 30% of family-owned companies make the transition with family ownership from one generation to the next,” said Fowler.
If the owner’s intention is to keep the business in the family, Borst said, it’s important to begin planning for it early on. He suggests exposing the next generation to portions of the business while they’re young by bringing them to work or involving them in menial tasks.
Ollie Ellsworth was an infant when his parents Paul and Patsy Ellsworth launched Germantown-based Ellsworth Corp. in 1974, in the basement of Paul Ellsworth Sr.’s home. By age 10, he was helping out in the warehouse, labeling adhesives.
Now in its second generation of family ownership, the distributor and manufacturer of industrial adhesives and specialty chemicals has operations in five continents with 1,100 employees globally. Ollie serves as president of GDI Adhesives and Glue Dots International, two brands under the Ellsworth name, and Paul and Patsy continue to head the company as president/CEO and director of HR, respectively.
Family business culture has taken on deeper meaning for the Ellsworths as their company has grown into international markets. Uniting employees of various geographical and ethnic backgrounds under one company culture and vision is complicated, said Ollie, but it’s all part of a greater purpose to create family-supporting jobs.
“Realistically speaking, the majority of foreign employees view working for a capitalistic American company as the ultimate hope for a more prosperous future for their families,” he said.
The company’s first-generation leaders have made an effort to personally bridge cultural gaps and bring their international workforce into the fold in a way that perhaps a public company could not. And it goes both ways.
Ollie Ellsworth points to the example of the company’s 2019 sales meeting in India. Paul and Patsy were there to greet employees and spread the message of “one big family.” In return, they were invited to participate in a dance ritual as part of India’s Holi festival taking place at the time. That’s what extending internal culture globally is all about, said Ollie.
On the customer-facing side, one main reason Ellsworth Corp. and other family-owned manufacturers in the region can compete on a global scale is their ability to customize, said Fowler.
“Dow Chemical might make adhesives that work in large applications that aren’t modified, but Ellsworth Adhesives has the ability to blend and mix those adhesives to meet unique needs of other companies,” said Fowler.
In that way, doing businesses at a smaller scale puts family-owned companies at an advantage from their big-business competitors, even in an era of mass production.
“Rather than trying to be a global solution across a mega platform with billions in sales, you’re looking for a few million in sales, where a specialty product or a specialty service is going to bring you revenue for the next 10 or 15 years,” said Martin Gallun, chairman and owner of Mayville-based Metalcraft of Mayville.
Over the past 12 years, Gallun led the metal fabricator’s growth from a $100 million business to a $500 million business, using some of the philosophies he learned from his father, the late Edwin “Ned” Gallun, Jr. Ned purchased Metalcraft in 1973 and served as CEO until 2008, when he passed ownership down to the second generation of his family. The company was originally founded in 1920.
Ned’s philosophies included listening to the voice of the customer and empowering employees to make the necessary changes, said Martin Gallun.
“Rather than a top-down approach, it’s more of a bottom-up approach, getting the people involved and taking ownership, and then taking pride in our successes,” he said.
Building a team
In January, Gallun stepped down as CEO and promoted then-president Randy Gloede to the dual role. The transition away from the business’s day-to-day operations allows Gallun to focus on top-line growth opportunities, such as strategic acquisitions.
Joining the company in 2010, Gloede had proved himself early on as an ambitious leader and effective outside board director, holding leadership accountable to take smart steps rather than “big, bold, foolish steps,” said Gallun.
“As you get bigger, it’s about bringing along the right people,” he said. “If you think you know it all and think you can do it all, then you wind up doing it all. I learned very quickly that there’s a lot I don’t know, and I don’t need to know it as long as I hire the people that know what I don’t know.”
Today, Gallun controls 60% of the shares of the company and owns about 25%. Other shareholders include his two sisters, current and former employees, and several nonprofit benefactors.
Gallun’s two sons will work at Metalcraft this summer while they’re home from college, but time will tell if they ultimately have the desire and capability to take over someday. One is working toward degrees in computer science, astrophysics and computer engineering and the other in biomedical engineering.
“So, they’ve mentioned it might be a plan B for them,” he said.
Bringing on non-family professional management is critical to the momentum of a family-owned company, Fowler said, noting it allows the business to keep growing regardless of the interest or competency of the next generation.
“Family members can be outstanding leaders, but it doesn’t mean that all family members by virtue of being members of the family are necessarily good leaders,” Fowler said.
Good talent also makes a family business more attractive to outside investors, either through an IPO or venture capital, and increases the value if the goal is to sell.
“Most businesses are transferred not to an outside third-party buyer; they’re instead sold to management, which is often family,” said John Emory, president of Milwaukee-based Emory & Co. LLC.
The investment banking firm is hired by middle-market companies to broker the sale of those businesses through private auction. With many of its clients being family-owned businesses, Emory has found that family business owners generally approach the sale process with a particular set of considerations that differ from those of entity-owned sellers.
For example, family business owners are often willing to forgo a higher purchase price in exchange for a buyer that would better fit the company’s culture. They’re interested in a “good steward” of the business, someone who will take care of employees and keep the physical facility in its current location, rather than shutting down or relocating operations, said Emory.
In some cases, owners are looking for a buyer who is willing to invest in the company’s future growth.
“A lot of times the family business owner realizes that there’s a big capital-expenditures need to either protect what they’ve built or grow to the next level, but they are nearing retirement age and they don’t want to put a lot of their own capital at risk,” he said.
The need for major capital investment is a common reason family business owners end up pursing a sale of the business. Another major catalyst for family business sales lately is the fear owners have of increased taxes, said Emory. And sometimes, selling the business is the best way to avoid managing potential conflicts between next-generation rivals.
Whatever the case may be, most buyers see value in having a management team in place and usually for those leaders – family members or not – to continue in their roles.
Legacy of impact
“In the heart and soul of most businesspeople, there is a desire to leave a legacy after a person is gone,” said Borst.
Building a strong business and selling that business to transition or spread your wealth is one way. The other, more sustainable way, he said, is to pass down the business entity and name through the generations.
As the first female family member to be involved in family-owned Badger Liquor and the first woman to hold a management position with the company, Lacey Sadoff has carried on the torch while also paving the way for other women to build careers in a male-dominated industry.
Badger Liquor was founded by Sadoff’s great-grandfather shortly after prohibition was repealed. Eighty-six years later, the Fond du Lac-based company is the state’s largest wholesale wine and liquor distributor, with father-daughter duo Gary and Lacey Sadoff as third- and fourth-generation owners.
Beginning her career at Badger Liquor in 2008, Lacey noticed there were virtually no female role models or mentors in her line of work. She got connected with other family-owned distributors across the U.S. at conferences put on by Washington D.C. lobbyist group Wine & Spirits Wholesalers of America, and eventually, she noticed more women in the room.
In 2016, Sadoff and a handful of her peers formed WSWA’s Women’s Leadership Council, which aims to attract and support women in the industry with networking opportunities and other professional resources.
She’s also worked to increase female representation within her own company, which now has more women in executive and management leadership positions than ever before. Being family-led means having the ability to influence that kind of change in company culture, without having to fight the red tape of a more corporate setting, she said.
“Part of the power of family business, especially in Wisconsin where people want to know and trust that things are being done for the right reasons,” she said. “You have all the power in the world to do the right thing and manifest change.”
Interested in Family Business?
Hear more from Carl Rick of Kwik Trip, Lacey Sadoff of Badger Liquor, Andrew Steinhafel of Steinhafels, Ollie Ellsworth of GDI Adhesives, and Martin Gallun of Metalcraft of Mayville during the BizTimes Family & Closely Held Business Summit on June 29. Click here to register.
The summit will run from 2 p.m. to 6:30 p.m. at the Brookfield Conference Center and also features breakout sessions on mastering growth goals, living through the sale of your business and navigating proposed tax changes.
The event is sponsored by Davis|Kuelthau, The Riverwood Wealth Management Group at Morgan Stanley, National Exchange Bank & Trust, SVA Certified Public Accountants, supporting sponsor Vistage and event partners Family Business Leadership Partners and the University of Wisconsin School of Business Family Business Center. Visit Biztimes.com/family for more information and to register.