In 2014, seven years into his tenure as CEO of the Leonard Holding Company, Neal Leonard was forced to make the decision his family had tried for years to forestall: closing L&H Packing, the cow boning and trading company co-founded by his grandfather in San Antonio a half-century earlier. A prolonged drought in Texas had reduced the cattle population to new lows. The once-prosperous business had become a drain on the family's resources and a distraction from its pursuing other business interests.
Neal's father, Ken Leonard, originally established the Leonard Holding Company in 1994 for estate and tax planning purposes. About a decade ago, the family began recognizing it as the parent company for three business units: L&H Packing, Surlean Foods and their private investments.
Surlean, which develops and produces customized products for chain restaurants, accounts for the lion's share of Leonard Holding's revenues. Looking for a profitable way to dispose of animal waste from its slaughtering business, in 1997 Leonard Holding formed another company, New Earth Soils & Compost. New Earth provides compost for gardeners and contracts with municipalities to divert waste from landfills. More recently, with an eye to greater diversification, Leonard Holding set up a separate operation to invest in real estate and private equities.
Today, the three units that make up Leonard Holding are flourishing, a tribute to the family's ingenuity in creating two new businesses from the byproducts of L&H Packing, and its willingness to close a failing business that held great sentimental value for the family.
"L&H Packing had been struggling for years because of the drought and dwindling herds of cattle," says Neal, 42. "Shutting it down was very hard and very emotional for the family. We also had a lot of employees to think about. It was sad but also fortunate, because it got us thinking about how to grow our other businesses, something we had started doing about a decade earlier."
Entrepreneurial legacy
Neal's grandfather Al Leonard and his partner Dwayne Harral started working in the meat packing industry as young men. It was their dream to have their own business, and they took the plunge in 1963. Leveraging everything they owned, they raised $20,000 to launch L&H Packing Company. L&H was incorporated in 1966.
Their timing in starting the business was propitious. Over the next decade, the Texas cattle population kept growing, reaching its peak in 1975. The plant the partners had built in San Antonio to slaughter 100 cows a day soon was slaughtering more than triple that number. As their production increased, the partners looked for opportunities to profitably dispose of animal bones and byproducts. They added a rendering facility and new slaughterhouse, and the business prospered.
In 1984 Al bought out Harral and began investing in modernizing the plant. At that point, L&H Packing was slaughtering and boning 260,000 cows a year and was the Southwest's largest lean beef processor.
Al is remembered by his family as a gregarious personality and a prankster, but when it came to business he was all hard work. He passed on his strict work ethic to his three children, Ken, Sharon and Terry, whom he recruited to work in the business when they were kids. Ken started working full-time in the business in the 1970s, eventually succeeding his father as president of L&H Packing in 1988. Al's daughters didn't work in the business as adults, but Sharon's husband, Marvin Eggleston, became vice president of human resources and risk management and Terry's husband, David Scott, was in charge of meat procurement and sales.
L&H Packing was generating huge amounts of manure and other animal wastes from its slaughtering operation, and Ken was looking for a cost-efficient method of disposing of it. He learned about a local man, Malcolm Beck, who owned Garden-Ville, a company that sold natural gardening products. In 1989, L&H Packing signed on as a passive investor, providing capital and plenty of animal waste to convert into fertilizer and gardening soil. The following year, L&H Packing bought a 100-acre site where the waste could be composted.
Al died in 1991 at age 69. Three years later Ken established the Leonard Holding Company, now the parent company of L&H Packing and Surlean Foods. In 1997, Leonard Holding bought out Beck's interest in Garden-Ville and changed the name to New Earth Soils & Compost.
"Malcolm Beck was ahead of his time in understanding the value of composting," says Neal, "but he was more of a scientist than a businessman. The company never made money, and we had to foreclose on him."
From struggling business to industry leader
In 2000 Ken recruited his younger son, Clayton, then 25, to run New Earth. Clayton had a degree in animal science from Texas A&M University and had some experience in home gardening, but he had to scramble to learn how to run a composting business.
"My dad told me to figure it out," says Clayton, "so I did a lot of reading, took courses and asked a lot of questions of the former manager who had stayed on. And, like a lot of young, inexperienced managers, I screwed up plenty in the beginning."
Clayton turned out to be a quick study. Under his leadership as president, New Earth has grown by an average of nearly 30% annually over the past decade. Today it has 1,000 customers—landscape contractors, wholesalers and retailers who sell New Earth's packaged products—and employs 60 workers in high season.
In 2011, New Earth ran a pilot program for the city of San Antonio to recycle food waste, boxes, grass and leaves. New Earth showed that it could save the city $250,000 a year and repurpose 70,000 tons of organic matter into new soil. New Earth's three composting sites in San Antonio and Houston recycled 700 million pounds of waste last year. With a new facility up and running this year, it expects that number to rise to 1 billion pounds of waste a year that will not end up in landfill.
John Kalmbach, 33, a cousin by marriage, is vice president of New Earth. He sees tremendous growth potential for the company in Texas, which has lagged behind the East and West Coasts in compositing organic waste. "San Antonio is on the forefront of the green revolution, and New Earth played a big role in getting it there," Kalmbach says. "Few Texas cities are doing what San Antonio is. Now we're developing a model to sell to other municipalities."
Russell Faldik has been the CFO of Leonard Holding since 2007. An old friend of the family, he went to high school and college with Neal. He says that Ken's picking Clayton to turn a struggling business into an industry leader was a good bet. "Clayton is an entrepreneurial spirit and "what-if thinker,' " Faldik observes. "He has a hamster wheel in his head that never stops spinning." Last year the San Antonio Business Journal named Clayton, then 39, one of the winners of its "40 Under 40" Rising Stars award.
Adaptation brings success
Neal and Clayton's cousin Daryl Scott has been president of Surlean Foods since 2007. Daryl is the son of Terry Leonard Scott and David Scott. At 44, Daryl is the oldest executive in Leonard Holding and the oldest member of the third generation. Daryl's father, who had been in charge of meat procurement, retired early for medical reasons. "There was no design for me to succeed him," says Daryl. "It just worked out that way."
Under Daryl's leadership, Surlean Foods transitioned from a secondary beef-grinding business in Leonard Holding to a stand-alone custom food manufacturer. Departing from its original reliance on beef products, it now produces mainly non-beef foods such as custom-shredded meats, soups, cheese sauces, dips and salsas. Two years ago, Surlean decided to stop selling its products to retail customers like Walmart and concentrate on creating customized products for quick-service restaurants. Among its biggest customers are Taco Bell, Whataburger and Wendy's.
Like New Earth, Surlean has been investing heavily in expanding its facilities. In the past few years, it enlarged its San Antonio headquarters to include a culinary center for product research and development and built a second production facility in Dallas. Surlean now makes up about 70% of Leonard Holding's business. "It's hard to talk about our growth in revenue dollars," says Daryl, "because we're commodity-based. We've seen about 50-60% growth in commodities we've used over the past six years."
Daryl attributes Surlean's success to the company's more targeted strategic planning, nimbleness in adapting to changing markets and superior customer service. "We talk about feeding people as family," he says. "We treat our customers in a family way, speaking to their hearts. But if we hadn't kept reinventing ourselves, we'd be out of business."
Agonizing decision
Neal remembers the day he became a full-time employee of Leonard Holding. His father called him into his office and pushed a Wall Street Journal across his desk. It was opened to an article about how many family businesses are destroyed by the third generation. "My dad said, 'Don't ruin this opportunity. People are watching you, so take pride in your work,' " Neal recalls. He followed his father's advice. In 2004, at age 31, Neal was named president of Leonard Holding.
Neal recalled his father's words in 2014 when he made the agonizing decision to close L&H Packing. There had been plenty of warning signs that the meat industry was contracting. "My father kept a list of slaughterhouses in Texas, and each year it got shorter," Neal says. "Our choices were to sell to someone bigger, become a consolidator ourselves or close the business. After long discussions with my board, we decided to close it."
Justin Still, 42, the husband of Daryl's sister Kara, was president of L&H Packing. He had the unhappy task of informing the company's 350 employees that they were losing their jobs. "It was the hardest day of my professional life," he says. "Telling them that the decision had already been made was tough, really tough."
Al and Ken passed on to the third generation the family's ethos of looking out for their employees. Clayton remembers working alongside the L&H Packing employees when he was a student. "I felt proud when they would tell me that my father and grandfather were men of their word, men of integrity. Those were the values we were raised with at home, and they were reflected in the business."
Immediately after closing L&H Packing, Leonard Holding placed 110 workers in Surlean Foods and New Earth. Next, it organized a job fair for local and state employers ready to hire; 50 more workers found jobs. The company gave severance packages to the laid-off workers. According to the company, within a year all 350 workers were employed.
Russell Faldik credits the Leonard Holding leadership and the human resources department for the smooth transition in placing the L&H Packing workers. "Once we made the decision to close L&H Packing, it was actually liberating," he says. "We were able to pivot, redirect our energy and start steaming down the track with our other businesses. Now we focus on the positive stuff, and it's a whole lot of fun."
Young leadership team
The second generation retired in 2007. Over the preceding decade, it had guided the third generation in preparation for its succession. Although the third generation was still young—between 33 and 44—the older generation felt confident that they were ready to lead. Ken, though only in his 60s, vacated his CEO seat for Neal.
Leonard Holding had established its first board of directors of three family members and three independent directors in 2007. The eight members of the third generation are all shareholders in Leonard Holding. Only Neal, Clayton and Daryl work in the business.
The 17 members of the fourth generation range in age from 20 to 4. For the past several years, the family council has organized a family retreat for the third and fourth generations on the Texas Gulf Coast. The retreats are strictly for fun and relaxation, but the council is in the process of designing an internship program to give the oldest of the fourth generation a taste of the business. A family business consultant helped them form the board and family council. A search firm was engaged to find board directors.
Neal feels proud of how the businesses are growing and what the family has accomplished. "Running our family business is such a joy," he says. "My biggest satisfaction is knowing that the family believes in me and trusts my judgment. I've heard lots of horror stories about shareholders causing problems in family businesses. Our shareholders are just the opposite. They have confidence in our business plans and have supported us through the big decisions of shutting down L&H and making big investments in Surlean and New Earth. They're great partners."
Deanne Stone is a business writer based in Berkeley, Calif.
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