Room To Grow
As a teenager, Justin Glaze had little interest in his family's business, Westfield (Mass.)-based Decorated Products. The company makes metal identification stickers for heavy equipment such as boilers, and Justin's passion was racing four-wheel all-terrain vehicles called quads. Then he had an idea that brought the two together. He asked his father if Decorated Products could start selling durable decals that racers could use to customize their quads.
At first, Jeffrey Glaze thought his son's idea was farfetched. Then he got to thinking. The decals would give Decorated Products a route into the consumer market. And after recalling his own rocky entry into the company his father founded in the 1950s, he realized that the decals were a chance to draw Justin into the business. So in 1999, Jeffrey created a division called Go For It Graphics. More than just a unit to produce the decals, Go For It was designed as a sort of laboratory where Jeffrey could explore new markets and employees could learn new printing technologies. Justin could get to know the company as he attended trade shows and advised the company's graphic designers about what quad racers wanted. By the time Justin, now 21, joined Go For It Graphics full-time last year, "he had his own area of expertise, which he is respected for," says Jeffrey. "And a place that was his own." As technical adviser, Justin is lending his knowledge of racing to the business while gaining familiarity with other aspects of the company's operations.
Business extensions, or labs, are a way to bring younger members of the family into the business while benefiting both the company and the next generation. Done right, a lab lets up-and-comers use their skills and interests to develop a product or market that's related to the core business. They can learn about the company while discovering their own strengths and weaknesses and building relationships with other employees. That'll help smooth the transition should your child eventually become part of senior management.
A lab can boost the core business as well. The younger generation's fresh eyes can spot opportunities that owners caught up in the day-to-day running of a business may have missed. "The older generation sees the company selling golf clubs, while the younger generation sees them selling relaxation," says Ira Bryck, director of the University of Massachusetts Family Business Center in Amherst. "That broader view opens up opportunities." As the Glazes discovered, it can also lead to new revenue streams. In 2005, Go For It Graphics accounted for 10% of Decorated Products' sales of $3 million.
That doesn't mean everyone will welcome the idea. Other employees may see the venture as pure nepotism and be reluctant to chip in. Tensions can also rise at home, especially if your other children are involved in the company. And no matter how good the idea, if you're ambivalent about the new venture, the project won't fly.
For a lab to succeed, you and your offspring need to treat it as serious business. You'll want to draw up a plan that includes a budget and the goals and expectations of both your child and your other employees. The goal is to provide the support the next generation needs without clipping your child's wings. With a little effort on both sides, a lab can bring your kids into the business you love and help them take it to the next level.
The idea for a lab often comes from the younger generation, but as CEO you'll need to believe in the business payoff and be able to get behind the project. "The older and younger generations have to agree that there is a need for this offshoot, that there are customers that want it," says Andy Birol, owner of Birol Growth Consulting in Solon, Ohio. "And the project should clearly be leveraging skills that the business or the child has."
The need was acute at Underwood Travel Associates, a 35-employee travel agency in Carnegie, Pa., that books business trips and tours. After September 11, Underwood's only steady business came from a client who organized NASCAR racing tour packages. That made a strong impression on David Underwood, 36, who had joined his father Jeffrey's company in 1999 as a salesman and was eager to make his mark. "In a family business you don't feel part of the team until you see yourself making a big impact on the bottom line," says David.
The Underwoods knew they had to develop new revenue streams, but they also needed a buffer against the cyclical nature of the corporate business. Early in 2002, David persuaded his father to buy the NASCAR client's tour company, bringing Underwood's corporate travel expertise to a niche retail market. But it soon became clear that the operation was a cash-flow disaster. The previous owner had spent thousands to buy hotel rooms and race tickets a year in advance but collected money from customers only a month or two before the trips. While Jeffrey was willing to take out loans to carry the operation for a time, he had to concentrate on Underwood's main business. That left David to do the heavy lifting for the new venture. "I made it clear to David that if we were going to do it, he would have to be the one to figure things out," says Jeffrey.
David got to work. He renegotiated with the hotels to pay a deposit when he booked and the balance when his customers paid him. He also negotiated installment plans with the racetracks, timed so that his last payments were due after his clients paid for their trips. The previous owner discarded unused tickets, but David started selling them on eBay. By 2005 the NASCAR business, called Choice Racing Tours, accounted for about 15% of Underwood's $30 million in revenue.
Both Jeffrey Underwood and Jeffrey Glaze quickly saw the potential of their sons' ideas. More often, the younger generation has to push hard to win over parents and older employees who aren't comfortable with change. Larina Kase, owner of Performance & Success Coaching in Philadelphia, says laboratories give the often gun-shy older generation more time to get comfortable with the notion of change. "The older generation is more likely to see any change as messing with what works, and they're afraid of that," she says.
Joseph Fontana learned that firsthand. Fontana, now 40, joined his family's business, Detroit-based Michigan Box Co., after college. He rotated through manufacturing, logistics, and customer service jobs before settling in sales. But Fontana was much more interested in technology and graphic design, and as personal computers took off in the 1990s he began thinking about applying his tech savvy at work. At the time, Michigan Box mostly produced plain white cardboard boxes for pizzerias and bakeries. Fontana began using new industrial printing technologies to develop boxes that were more sophisticated and personalized. He suggested that clients try high-gloss boxes with photos of their products or four-color designs.
Clients liked the designs, but Fontana's mother, Elaine, then CEO, and the company's board were much less receptive. Both the business and the local economy were shrinking, and they didn't want to take a chance on unproven products. "I didn't think I was in a position to start something new," says Elaine. "People fear change, especially when it has to do with technology, and we had to be convinced."
Undaunted, Fontana made mock-ups for clients, sometimes farming out work to a graphic design firm. He brought his mother to sales meetings to hear how clients responded to the suggestions and to trade shows to see that competitors were moving in this direction. "He was stubborn as hell," says Elaine. In 1999, after two years of pitching, Fontana got an order from a local bakery for a glossy, colorful box for a line of Greek pastries it was selling in supermarkets. That sale changed some minds. The board budgeted $10,000 for computer equipment and software. Last year, custom orders accounted for 40% of the company's $17 million in revenues, and Fontana was named CEO. Even so, he knows the two-year delay has meant a lot of lost dollars and clients. "If I'd been allowed to carry the ball and had money to invest where I saw fit, it would have accelerated the whole process," says Fontana.
A formal business plan can help the younger and older generations agree on the venture's goals as well as the resources it needs. If your child wants seed money, ask for a rough budget, along with a timetable and revenue projections. Of course, you needn't give them exactly what they want, but some financial support is a good idea. "I would insist on the parent having skin in the game," says Birol. "And I don't just mean money; I mean some emotional buy-in of the idea."
Your offspring should demonstrate the skills needed to run the venture, but that doesn't mean they have to fly solo. From the start, your child should know he can seek advice when he needs it and is responsible for reporting progress on the venture. "You need to schedule periodic check-ins and have an open-door policy," says Kase. The younger generation should feel they have room to make decisions and potentially small mistakes without your whole business taking a hit. "There is some coddling going on," admits Jeffrey Glaze.
The plan for the venture should also include how the project will be staffed. Ideally, you'll hire one or two new employees to focus on the new business and show its importance. But many companies wait until a project is generating revenue before spending on new hires, so it's likely that current employees will be asked to help. This is where your visible support will make a difference. "The parents set expectations and the employees follow," says Kase. All the employees will get excited about the venture "if the parent says it will be a good learning experience for the whole company." But if employees sense any reluctance on the CEO's part, they are more likely to push back instead of pitch in.
At Michigan Box, Fontana found revving up the sales team was almost as challenging as winning over the board. "Some of them were intimidated because it's a more complicated sale. There are more things to do, and it takes longer," he says. "But when we showed them what it was all about, they started to get it." Some staffers embraced certain new projects but resisted others that seemed too ambitious. Fontana says it was a gradual process of training people, showing them the potential this new venture offered, and coaxing them past their fears. "One by one, people had their 'aha!' moment," he says.
Things ran less smoothly at Ovation In-Store, a maker of store displays in Queens, N.Y. Marc Weshler, 35, started a lab to develop real-time Internet-based displays to complement the company's traditional plastic and cardboard constructions. After he had the idea in 2001, Weshler crafted a business plan that explained how much money he needed, what kind of technology he wanted to develop, and who potential clients would be to get his father, Benjamin, to seed the idea. He built a prototype and made his first sale in 2003.
But the plan hadn't spelled out whether any of the company's 65 employees would be involved with the venture. At the time, Ovation's business was slow, and the designers and engineers Marc needed to work on the project were eager to do something new. But Marc's sister Melissa, the executive vice-president for operations, saw things differently. She thought employees were neglecting current clients in favor of an unproven venture. Eventually, after the Net displays started bringing in money, Marc's lab was integrated into the main company and the staff reorganized. In retrospect, Melissa concedes that she was "territorial." And Marc, now chief marketing officer, says: "I didn't do as good a job communicating the project down as I should have." Had their plan addressed what staffers and other company resources Marc could use, neither he nor Melissa would have felt ambushed.
Finally, your son or daughter should be prepared for you to pull the plug if the venture doesn't reach agreed-on milestones or income goals. Says Birol: "The child might not suffer the same adverse consequences as another employee would if the business doesn't work, but there should still be accountability and standards by which you measure the venture's success."
David and Jeffrey Underwood recently hired someone to run Choice Racing Tours. David has taken a senior role in the main business, running corporate sales and scouting for other niche travel services to develop. And the lab has created a ripple that has spread throughout the company. Choice Racing's success has helped all employees step out of their comfort zones. "We are more willing to try new things in general, now," says David, adding that Underwood recently launched another niche business, Choice Music Tours, for high school bands.
Back in the main fold, David says he can see that the experiment gave him the leadership credibility he had craved. "The other employees used to come to my father when they had questions, even on something I was familiar with," he says. "Now they'll come to me first." And Justin Glaze has found that his father's company is a far more exciting place than he imagined. "I've learned the whole business by doing Go For It Graphics, and it's all interesting to me now," he says. That sounds like an experiment gone right.
By Eileen P. Gunn