All in the Family

Family-Owned Distributorships Continue to Make Up the Majority of Businesses in the Industry

By Kimberly Griffiths, Associate Editor -- Industrial Distribution, 12/1/2005

My dad owned his distributorship, and my three brothers worked with him. It wasn't an industrial distributorship, instead it was medical supplies, but I believe that the dynamic behind the family-owned distributorship is probably the same as the rest of the distributorships we write about here.

There's a huge responsibility associated with working for, and within, the family business. Not the least is the desire to ensure that everyone is happy and healthy, and that no one drives Pop's business into the ground. Keeping ahead of the competition, selling the newest and best product, prospecting for new customers, and making quota were among the items at the top of that responsibility agenda.

Spending every day with my brothers was one of my dad's greatest joys. He thrilled at teaching them about his business and its industry; how to be good salesmen; and passing on his strategies. My brothers took his lessons to heart, and have become great salesmen.

The family business, especially in this industry, is certainly prevalent. But its numbers are decreasing.

According to Industrial Distribution's 59th Annual Survey of Distributor Operations , the majority of distributorships are still family-owned businesses. This year, 71 percent of the survey's respondents owned family businesses. This statistic holds true across all company sizes. Even among the larger distributors, more than 50 percent are still family run.

While increasing in number since 1998, the last two years have shown a decline in the percentage of family businesses. The 2005 statistic of 71 percent, 12 percent less than 2003's 83 percent, is the lowest level recorded since 2000.

'I think there will be fewer family businesses as time goes on, mainly because of the competition out there,' says Robert Ferrara, president of Atlantic Industrial Technologies in Long Island, N.Y. 'It's more difficult because of the large companies, too. I mean the clearinghouses, warehouses and integrated supply houses. The days of exclusive territories are past. Family distributorships are suffering from that.'

Ferrara and his brother, Tom, bought Atlantic Industrial from their father, Charles, in 1999. The elder Ferrara and a partner founded the company in 1983 marketing air valves. Now, Atlantic Industrial, perhaps better known for its Cirque du Soleil stage in Las Vegas, Broadway productions, and bridge and drawbridge hydraulics, is an engineering-based fluid power distributor. Ferrara is the leading force in sales and projects at the company, and Tom is chief engineer.

'Back when we signed on, the economy was booming, and we saw that, as a high-end distributor, we could continue to grow,' says Ferrara. 'We were attracted by the engineering, and became more project based.'

My dad used to say that one of the best things about working with my brothers was knowing that they would do everything in their power to keep the business afloat.

'We can lean on each other, and trust in that relationship,' says John Green, Jr., vice president of Green Rubber-Kennedy Ag in Salinas, Calif. '[My dad] knows that I'm watching out for him and the business, and I know that my best interests and those of the company are his aim, too.'

Green Rubber was founded by Green and his father, John Green, Sr., in August 1990, and offers products such as conveyor belting, pumps and process supplies, hose and fittings, and safety equipment, but has found its niche providing equipment for food processing plants. In January 2003, Green Rubber formed a partnership with Kennedy Bros., a spray and fertilizer equipment company located in Salinas, took over the partnership as majority leader and changed the business name to Green Rubber-Kennedy Ag.

Says Green, 'We can usually agree on what's in the best interest of the company. You have to separate the relationships of father and son, and vice president and president. It's really a whole different ball of wax.'

Ferrara agrees, saying, 'When you're working with a family member, you have someone you trust, more so than the employees that you value, to do what's best for the company. When I'm away, I know my brother is there, and vice versa.'

Ray Gross, president of Transply, Inc. in York, Pa., lists the family connection as a definite positive to his business.

'If you connected all the familial relationships in our business right now, we have: four couples, two father/son groups, three father/daughter groups, two brothers, two siblings and four nephews,' he says. 'I am with the family all day, and with my wife night and day. I could retire, but if I ever wanted to see my family, I would have to come to work!'

Transply was founded in April 1972, by Gross, his brother Dean, and Gross's wife, Mary Lou. The general-line distributorship provides customers with power transmission products from its nine locations in Pennsylvania and Maryland.

Of course, with a family business, the 'family' and the 'business' tend to happen wherever and whenever everyone is together. Our holiday dinners, birthday parties and celebrations would inevitably veer into strategy sessions, with the 'guys wearing ties' in a corner, comparing notes on customers, attack plans and product knowledge. Dad used to say that their best ideas came from those impromptu meetings.

'We have an informal way of doing things,' says Green. 'We don't have real meetings, but my father and I will talk constantly about strategies, even at dinners and parties. We don't struggle with the direction of the company, though. '

Ferrara and his brother also turn to meals and time away from the office for making business plans.

'We share in the decision when something comes up right there, wherever we are, but for any long conversations, we go for a long lunch,' he says. 'Any disagreements on the business plan are few and far between. With him being the engineer and me in sales, we work on opposite sides of the business, and tend to work it all out.'

Says Gross, 'Most planning is done on Saturday, when we're not as busy. We do have a board of directors and board meetings though. We do very little off premises now. I just don't want to worry about it. My wife may bring some stuff home, but it doesn't happen too much anymore. But then again, it never really stops.'

According to ID's Survey, the larger the distributorship, the less likely it is to be a family-owned business. Eighty-three percent of distributorships reporting less than $5 million in annual sales are family owned, as are 76 percent of those with $5.5 million to $19.9 million, and 52 percent of those with more than $20 million.

The numbers even suggest that a bigger distributorship has to have someone other than a family member in a leadership position to capitalize on success.

The National Federation of Independent Business says that 80 percent of small businesses employing 20 or more people have at least one employee, not including the owners, whose principle job is to direct, manage or supervise the work of others.

For some distributors, bringing in a non-family member is something they eagerly await, but for others, it may take some time.

'I'm really kind of looking forward to having someone else to lean on,' says Green. 'I've known most of these people for years, and some are ideally suited for my current position.'

Adds Ferrara, 'It would be difficult to bring someone into the ownership level, as we own it 50/50 with buy/sell agreements, but having someone in a management level is fine.'

Transply's board of directors is likewise in the family.

'It's not necessarily closed to anyone outside of the family, but that person would really have to prove themselves,' says Gross. 'Saying that, we have hired with an eye on the newer talent, since we know that, as a family, we may not follow all the best business practices.'

As sometimes happens, my dad's succession plan fell apart, but my brothers continue to work together. They still look to my dad for guidance and expertise, and I think, miss spending time with him.

'We do have a succession plan, and I will be the successor,' says Green. 'I've taken on a bigger leadership role on the everyday stuff, but I think, when [my dad] retires, that things will stay in stride. And he'll always be available for consulting.'

Adds Gross, 'All the newcomers have a good work ethic, and have moved up in the company ranks. Since they didn't start the company though, they're not as aggressive as I am, but I wouldn't want them to live my life as theirs.'

Ferrara's children, still in high school and younger, are not showing an interest in the family business, and, he says, 'I wouldn't push them into it. It's not where the money is anymore.'

According to The Family Firm Institute, more than 30 percent of family-owned businesses survive into the second generation, 12 percent are still viable into the third generation, and only about 3 percent operate into the fourth generation and beyond.

'When it comes to the family, you trust their judgment,' says Gross. 'Because really, who else is there to trust?'

Adds Ferrara, 'There are so many lives that we're responsible for with a family business. For me, it's my own family, my brother and his family, our parents, as well as the employees. It's a different level of stress.'

'When people look at us, they don't see the father/son relationship, but I feel it all the time,' says Green. 'It is the sum of the expectations of the man who was my baseball coach and who is now the president of the company. I got where I am by working hard and getting the respect of those around me, but my father has always had higher expectations for me. Working for another employer would probably be easier, but getting where I am is something that I'd never change.'