Generation next?
Many distribution owners may be cashing out, but the future of family-held businesses remains bright
By Industrial Distribution Staff -- Industrial Distribution, 5/1/1999
At first glance, family-owned distributorships appear to be in rapid decline. Roll-ups and other acquirers are gobbling up small and mid-sized firms at a frenetic pace. Many entrepreneurial owners, beset by shrinking margins and nearing retirement, want a way out. The exit rate is alarming: 62,000 distributors across various wholesale-distribution sectors sold out or merged in 1997-98 alone, according to a consultant's research.In extreme instances, the extent of mismanagement and cronyism in family firms is startling. Lost customers, spurned suppliers and fearful employees are the result, not to mention bitterly divided families. Take the case of Industrial Belting and Supply, Inc., once a formidable power transmission house in Grand Rapids, Mich. As ID reported in April, IBS has closed its doors and laid off nearly all of its 140 employees, including the son of majority stockholder Charles W. Yob.
The company has debts of at least $5 million, and sources close to the firm told ID that too many family members remained on the payroll for too long. Deficient leadership and management led to a deluge of problems, they say.
Yet in the midst of this tumultuous climate, a closer look shows some positive trends in family businesses. Many first-generation owners, perhaps more than ever before, plan for the future by creating a structured transition to the next generation.
In this special report, Industrial Distribution examines how family-run distributorships are surviving and preparing for a second or third generation of ownership. This often involves strategic planning, using outside advisors and directors rather than insulated insiders, and directly addressing often thorny family-business conflicts.
Increasingly these days, junior no longer automatically occupies the top executive suite. Non-qualified or uninterested family members are not necessarily key shareholders. In some instances, owners also consider alternatives such as employee stock ownership plans. Yet while progress is being made in areas such as financial and succession planning, it is clear that more needs to be done.
The first article in this special report considers different routes that distribution owners take in preparation to hand over the family business.
The next article profiles Century Fasteners, a $45 million firm in New York that is evolving from an entrepreneurial-minded company into a more structured corporation. In that case, second-generation owners have let go of some of their responsibilities and brought in top managers for key positions they once held.
A third article examines common issues faced by the next generation of distribution managers and owners who have entered their families' businesses, and considers their thoughts about the future.
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