Workshop
Before the industrial revolution, almost every business was a family business. Cobblers' sons became cobblers, farmers passed their fields and businesses down the generations and so on. But with the industrial revolution came corporations and with them came the opportunity for alternative career choices for the younger generations. Despite many family businesses folding to this external pressure, many have managed to hold their own and their legacies continue to this day, despite such trying times in many parts of the world.
But the pace of change – from customer demand and technology to the climate crisis – means that businesses are having to adapt faster than ever before. For family businesses, there's a specific tension to address: how can you change and innovate without compromising the heritage and tradition that the business has been built on?
According to a 2021 report by professional services firm PwC, family businesses are struggling with both digital technology and embedding environmental sustainability into their business models. The report claims that if family businesses don't prioritize sustainability, then their ‘license to operate’ could be at risk. ‘And it would appear Covid-19 has increased family business owners' desire to protect their business and create a legacy,’ the report says.
That value-action gap is also down to the amount of time a family business CEO spends in a leadership role. While non-family businesses have a higher turnover of leaders, family businesses tend to have the same generation in power for more than 15 years, with some extending to more than 25, according to research by Harvard Business Review magazine.
The relational dynamics in a family business can do one of two things: lead to a focus on longevity and keeping the business alive for future generations, or lead family businesses to turn away from technology and external support, perceiving them as disruptive. With this in mind, how can they better position themselves for technological and sustainability innovation?
We catch up with a few family businesses to find out what they've learned.
Meet the panel
CB
Case Bloom is the co-founder of Tucker & Bloom, a bag and accessories brand that Case founded with his father David Bloom. David, who's now retired, had a background in product design. Case now looks after Tucker & Bloom's factory.
KJ
Kristine Jingozian is one half of Rose & Rye, a mother-daughter duo selling Armenian baked goods in Los Angeles, which launched in 2020. Kristine's sister and father are involved in the business, and she also works with her aunt on Farine, a cake studio.
WS/JS
Wilhelm Seibel and Johannes Seibel are respectively the fifth and sixth generations of the family behind Mono and Pott, two flatware and cutlery brands based in Germany. Johannes' brother is also part of the business.
DR
Doug Renfro is the president of Mrs Renfro's, part of Renfro Foods, a third-generation producer of flavored salsas, condiments and dips that was founded and is still based in Fort Worth, Texas. He works closely with his cousins, Becky and James.
MB
Morten Bennedsen is a chaired professor of family enterprise at business school INSEAD, and the academic director of the Wendel International Center for Family Enterprise. His research focuses on governance in family businesses.
History
Give us a very brief history of how your family business has evolved.
WS/JS: ‘It started in 1895, with my great-great-grandfather starting to manufacture flatware in Düsseldorf and Cologne. We've gone through a long history, including a recession and two world wars. About 60 years ago, my uncle had the idea of manufacturing flatware under a brand, which became Mono. Pott is the second brand, started by a family based in our neighborhood in 1904. They had no successor in the 2000s so, in 2006, we decided to continue their heritage as well.’
DR: ‘There are so many iterations to the business, because the world changes constantly. People often ask if these are our grandmothers' recipes, and they aren't, because nobody was eating chipotle in the forties. My grandfather used to sell sauces and, eventually, he and my grandmother started a distribution company from their home. In the seventies, my dad and uncle got into producing taco sauces, which [was] a precursor to what we do now.’
KJ: ‘Before Rose & Rye, my mom's sister and I worked on a project called Farine, which my mom and [her] sister had started in 2016. We were working big events like christenings, company gatherings and weddings, so Covid was a big hit to the business. It had been a long dream of mine to open a rustic diasporic bakery and to breathe some new life into Armenian baking, with more high-shelf ingredients. Today, Rose & Rye makes Persian halva [a rich, soft dessert] and a number of flavors of nazook [an Armenian pastry].’
CB: ‘My father had experience in bag and product design and, after 9/11, the travel industry collapsed and he lost his job. I started this business with him because of that – I was a college student at the time and went to school for business. Over the years, when my dad was running the show, I learned a lot about bag construction and how to design a product that would last.’
Long-term planning
How can family businesses build long-term strategies and forecasts to withstand some of these external pressures?
WS/JS: ‘There's a certain degree of luck, but the second ingredient is entrepreneurship. As a family-owned business with traditions, we're not a startup that needs to grow within a short period because we've just got investment. We need to perform – but not in a fast, investment-driven situation. In a way, it's a safer setup.’
KJ: ‘This is a big part of why we're doing this at all. For my mom, it's something that she wants to establish for my sister and I, so that we have a line of work and something we can create. Legacy is a part of it, and I want to take care of whoever comes after us. There's always a question of what we're giving to the next generation.’
MB: ‘Family firms are often value-driven, and this has helped many during the Covid-19 crisis. The family firm has opportunities with its stakeholders that rely on relational contracts. In other words, it's the sense of being in the same boat and pulling together, which is stronger in family firms, and this has helped them through the crisis.’
Open thinking
Family businesses experience more tension than other types of companies when it comes to balancing how they traditionally operate with new ways of doing things. How can they resolve this?
WS/JS: ‘We've always wanted to stay connected to our founding story, which is about design and local production. But there have been developments through the 60 years. We've changed our price point. In recent years, we've reworked our portfolio because we wanted to narrow it – instead of products for everybody, we focused on our hero products. Our product stays the same, but we love to contextualize and communicate it in a new way.’
KJ: ‘After we transitioned to Rose & Rye, Farine, our cake studio, also opened back up [after the pandemic lockdowns]. My mom was dealing with Farine and I was dealing with Rose & Rye, and how we approach things like customer interactions and sales is so different. My mom is taking orders on the phone, whereas I'm thinking about fully integrating online, with minimal customer interaction.’
CB: ‘The most important part for me is instilling the culture of my family. I come from a line of people who made [things], and I look at that as part of my history. The thing that we've built is a unique perspective on [US] manufacturing, and I want to continue refining that, because our customers are getting something that isn't mass market. The long-term goal is growth, but in a way that respects the culture of makers.’
MB: ‘For some family firms, the tradition and loyalty towards the founder and the products and services that made the firm successful can be a roadblock to innovation and reinventing the business. As a rule, families should accept that every generation has to reinvent the business with the aim of adjusting it for the future. One way to help this mindset is to engage the next generations in innovation and in developing new business opportunities.’
Emotional health
How can families manage conflict and keep a balance between work and home?
DR: ‘Estate planning is an awkward discussion, but we need to be proactive about it. Becky, James and I control 82% of the votes and we take after what my dad and uncle did: we don't spend a significant amount of money unless it's a unanimous decision. If we don't agree on anything major, we just don't do it. In a family business, if you ever bring someone in as a swing vote, you've permanently altered the dynamic in the family.’
MB: ‘The key is to seriously plan, both for the business and the family sphere. This starts from a very young age, with education. By planning, aligning expectations and providing opportunities during the formative years [of the next generation], it's more likely that new family members can work together in a cohesive fashion.’
WS/JS: ‘There's no perfect way to run a family business – it just depends on the people and the business itself. I know couples that don't talk about work when they leave the business, and others who live and work 24 hours a day. It's also about not taking yourself too seriously and recognizing that [your] experiences might not be the same as the next generation's.’
Staying relevant
In certain parts of the world, people are moving away from family businesses. What do you think can be done to retain interest for future generations?
MB: ‘There's been a change in the perception of joining the family firm, most visible in the US and in Europe. The key for current family [business] leaders is to make the family firm an attractive option for children. Because, while the older generations joined the family firm as a call of duty, younger generations will choose among many more options, including the type of work they want to do, remuneration and where in the world they want to live.’
WS/JS: ‘There's currently a war for talent happening. Corporate jobs are becoming less attractive and people are looking for something tangible and on a smaller scale. People want responsible businesses where they can have a work-life balance. There's a chance for family businesses in this next period. We've been seeing a lot of new small businesses and there'll eventually need to be successors – but we can't tell whether this option will still be attractive in 30 or 40 years' time, because entrepreneurship in a family business and in a startup [is] very different.’
DR: ‘We have 14 members of the next generation. We've said that they have to go and work somewhere “real” for at least two years and, if they want to come back into the business after that, we can talk. Some of the fourth generation have been very successful, from civil engineers to management consultants. I can't see them suddenly saying they want to work in a hot and sweaty salsa plant in Texas. One of the fourth gens is working in our warehouse, too. We're in a transition stage at the moment – we're all still young enough, but we wonder whether someone is going to come back.’
Introducing family-washing
When it comes to business, does family-owned always mean good?
Retail giant Walmart and car manufacturer Volkswagen are two of the world's largest family-owned businesses. Yet, the term ‘family business’ is often associated with a small or locally owned company and thought to be synonymous with an ethical or responsible business.
So, without the appropriate evidence, why are family businesses thought of as responsible by default? ‘Family-owned businesses are considered more employee-friendly, trustworthy and [to] have better customer service than larger corporations, so I can see why family-washing exists,’ says Judith O'Leary, founder of PR agency Represent Comms, who has worked with family businesses for more than 20 years. ‘Consumers are savvy and can see through family-washing,’ she says, adding that families should put themselves at the front of their brand story, rather than a standard of ethical business that they might not be able to reach.
‘The biggest issue we have is that the head of the business is often a hard-working individual who doesn't believe they should be the public face,’ she says.
Focus area
According to the most recent global survey of 2,800 family businesses by professional services firm PwC, four out of five family businesses claim that they're concerned about how they can embrace innovation and technology, but only half are planning to invest more. This value-action gap shows that while family-business owners might want to plan for the long run, they don't always have the tools to be able to do so. The focus seems to be on growth – more than half are prioritizing expanding into new markets over the next two years, while half of all family businesses surveyed plan on introducing new products and services.
But a lot of family businesses are thinking about growth without contextualizing it in the wider economic circumstances or even their own longevity. The focus on growth seems to run counter to the fact that only a quarter are actively involving the next generation in decision-making.
Counterintuitively, social impact seems to be lowest on their priority list: only 16% of family businesses plan on increasing social impact over the next couple of years, 15% plan to prioritize a reduction in their carbon footprint and 8% plan to support their local community through increased investment.
Profile
Zaro's Family Bakery, US
Why this fourth-generation New York City bakery is choosing to move with the times and cook up something new.
Zaro's bakeries are a familiar sight around New York City. The first, in the Bronx, was followed by sites in Penn Station, Grand Central Terminal and even New Jersey. For years, the Zaro family served the commuter market: those who'd pick a coffee up before work, a pastry for lunch or something sweet for the ride home. But, as commuter numbers have dwindled, the fourth Zaro generation has had to work hard to keep the business afloat.
In 1927, Joseph Zaro opened a bakery in the Bronx after moving from Poland. He eventually brought his wife, May, and three sons to join him, and they lived above the original site.
‘It was just 24/7 working in the bakery,’ says Brian Zaro, one of the three great-grandsons running the business today. During the second world war, one of Joseph's sons enlisted to fight, while the other two – Phil and William – stayed with the bakery. Eventually, they expanded out around the Bronx, until they had 20 locations (though now there are only 14).
Fast-forward a few decades and another external circumstance propelled Zaro's into what it is today. ‘In the middle of the seventies, there was a socio-economic downturn in the Bronx, and our grandfather Phil knew that if he didn't do something drastic, that his family business would most likely cease to exist,’ Brian adds.
Phil saw a newspaper ad for a vacant store and took a risk in opening a bakery in Grand Central, where it still stands, run by three of his grandchildren: Brian, Scott and Michael.
Zaro's specializes in kosher baked goods, known for its bagels, babka (a sweet bread), challah bread and black-and-white cookies. At its peak, Zaro's locations were collectively selling 1 million cups of coffee and 1.5 million bagels every year. ‘The business has survived a lot of difficult times. There have been severe economic downturns, and then 9/11,’ Michael says. ‘But, thankfully, it's always weathered the storm.’
Covid changed the game entirely. ‘For the first time, we saw our reliable customer – the commuter – have their world changed, so our world changed,’ he continues. Zaro's revenues took a nosedive, with the Grand Central shop down by 50%. It forced Brian, Scott and Michael to rethink the business' customer base. ‘We need to find ways to meet the customer where they are, rather than making them come to us.’
So, the Zaro's team now have a supermarket line and are trying to figure out how to get their products direct to customers through online ordering. They've also negotiated a license agreement at LaGuardia Airport – so another bakery operator can use Zaro's brand identity and products.
Despite all of these new ideas, one thing that hasn't always landed is new types of baked goods. ‘We've tried funkier things, like an ancient-grain bagel, but our customers weren't interested,’ Michael adds. It's because, he says, most people who come to Zaro's have been coming for years. They want a simple filled bagel or a freshly baked challah, knowing that they can rely on Zaro's for consistency and high quality.
Profile
Patounis, Greece
How one family in Corfu sustained the demand for olive soap throughout three centuries.
The skincare market has exploded in the past few years. Science-backed beauty brands are on the rise, and online-only brands are challenging more traditional business models. Plus, demand for environmental sustainability and traceability has led many brands to tinker with product formulas.
Among all of this change, one Greek family-owned company has stuck to its roots, producing soap made from olives. Made with equipment dating back to 1891, the formulation of Patounis soaps has been passed down through five generations. They're still made by hand, says current owner Apostolos Patounis, who runs the company with his sister, Olga Patouni, and wife, Elena Bratou.
In 1850, two families began soap production on the Greek island of Zakynthos, eventually expanding out to Corfu in 1891. In the thirties, the families split the operation. The Patounis family still makes soaps in the original Corfu factory. It's an unlikely success by modern business standards: the soaps require labor-intensive manufacturing and the business has to pay for the upkeep of its factory. There have also been huge changes in the soap and skincare markets.
‘The hardest time was in the seventies, with the emergence of synthetic detergent products,’ Apostolos says. ‘They offered practicality, while being cheaper and easier to manufacture. At the time, most of the traditional soap industry collapsed.’
But Spyros Patounis, the business' fourth-generation owner, chose to continue making his soaps with natural ingredients, mainly locally sourced olive oil. It's paid off in the long run.
Today, many people are looking for natural products that aren't harmful to skin or the environment.
Apostolos and Olga have to strike a delicate balance, creating a brand message that focuses on the advantages of traditional soap production, while also keeping an eye on the wider market. ‘Recently, we decided to suspend the manufacture of one of our soaps due to the environmental impact of palm kernel oil,’ Apostolos says.
Since 2008, the factory has been listed as a monument of industrial heritage and, in 2017, the soap-making technique was included in the National Inventory of the Intangible Cultural Heritage of Greece. As the person responsible for the cultural heritage of the factory, Olga focuses on the continuation of this story. Apostolos, on the other hand, is looking to pass the tradition down to the next generation: 17-year-old Spyros, 15-year-old Andreas and 14-year-old Eirini.
‘As a young engineer, I decided to work in construction. However, soon I realized the privilege of the heritage that I had, and I decided to return home to join the family business,’ Apostolos says. ‘I practiced next to my father for nine years. I learned how soap is made, and now I feel that my choice to come back has been justified. So, I now train my three children, hoping that one day, one of them will recognize the importance of such a long history and will take over.’
A version of this article was first published in Courier issue 49, September/October 2022. To purchase the issue or become a subscriber, head to our webshop.
