Marching to the same drum
Jay Jones
Noble & Cooley Co.
Granville, Mass.
President Jay Jones says he’s never considered selling the drum manufacturing company founded in 1854 by his great-great-great-grandfather James P. Cooley. Noble & Cooley produced marching snares for the Union Army during the Civil War and an eight-foot-diameter bass drum for Ulysses S. Grant’s first presidential campaign. But Jones’s reasons are more practical than sentimental: He’s never had a serious offer from a buyer. There simply isn’t much of a demand for makers of toy drums (about two-thirds of Noble & Cooley’s business today). And the universe of customers willing to pay $3,700 to $6,000 for the firm’s handmade drum sets is limited to working professionals.
The only conglomeration in his industry, Jones says, is taking place among retailers, not manufacturers.
At 47, Jones isn’t eager to cash in his chips. His wife, Carol, 49, is secretary/treasurer. Jones’s mom, Joyce, 71, still works in the plant. And his dad, John, 73, officially retired this year but is still a consultant who comes in daily to read the Wall Street Journal and bounce ideas around with his son. But Jones’s two sons, Jonathan, 19, and Nicholas, 17, are “not in the least interested in eventually joining the business,” says their dad, even though they sometimes work summers at the company’s Granville, Mass., plant. Nicholas, unsure what he wants to do, plans to study liberal arts in college next year. Jonathan, a high school junior, seems headed for the computer graphic art and design field.
To be sure, Jones himself didn’t initially consider joining the business, either. He was entering his second year in college in 1972 when a marketing or management position opened up during Noble & Cooley’s busy season. What convinced him to join? “My father used to tell me this company has been through the Civil War, two world wars and the Depression,” says Jones. “It must have something going for it.” But the real attraction to Jones was money. “To a broke student, working full-time had its appeal.” He never went back to college, although he’s taken continuing education marketing and management courses.
What if a potential acquirer did come calling? “I’m sure everyone has his price,” Jones answers. “If I was approached with a serious price, I’d discuss it with my family. But am I looking to sell? No. Do I have marginal interest in selling? No.”
What will happen when Jones retires? “We have plenty of time to approach it when we get there,” he says. “I never want to put a burden on the next generation. If they decide to join, that’s fantastic. If not, that’s OK, too.”
Tabling his decision
Jerome Navarra
Jerome’s Furniture
San Diego
At age 53, Jerome Navarra’s decision about whether to keep or sell his furniture retail and distribution business hinges on his three children, ages 20 to 26. The two older kids have graduated from college and are “doing their own thing,” Navarra says. The third still has a few years of college to go.
“Each is capable of getting into the family business. I’d like to maintain the opportunity until they’ve really decided whether it’s yes or no. None are gung-ho from the onset, and I’m not sure I expect them to be,” he says with a heavy sigh. He figures that within three to five years they will have had enough life experience and maturity to know whether the business is right for them.
The business—five San Diego stores and a nearby distribution center—generates about $87 million in sales and employs some 500 people. Navarra sees three obstacles to selling. First, he says it’s not really easy to find a buyer with the necessary smarts and deep pockets. “Normally you wouldn’t care about that if you cashed out,” he acknowledges. But the family owns all the real estate on which the stores are located—about 30 acres that would be tough to sell as a package with the company. “So there’d be a lingering attachment,” Navarra says.
The third obstacle is that most purchasers would want Navarra to stay on to manage the business. “If I’m going to sell out,” Navarra says, “I want to get out.”
So what’s the solution? “Whether I pass the company on to the next generation or whether I sell, the answer is to have a really good management team,” Navarra says. So that’s where he’s focusing his energies.
Steering the family elsewhere
Mike Ban
Paladin Companies Inc.
Chicago
Even before they launched their temporary advertising/marketing staffing firm in 1990, Mike and Jean Ban knew they’d have to sell a portion of their company. Like many dot-com company founders, the husband-and-wife team wrote their business plan with an exit plan in mind. The plan called for the company to expand from its initial greater-Chicago service area to other locations within a few years and to explore an initial public offering within seven to nine years.
“We always assumed we’d become a national company because we thought we had a good enough idea,” says Mike Ban, a former venture capital executive and sales director for the Weather Channel. “We knew there was an ongoing need for a large group of free-lancers, marketing consultants and art directors.”
Within two years, the Bans proved their concept. “The company was generating volume from a variety of different clients in Chicago, so we decided it was time to roll this out into other markets,” Ban says. But they lacked the capital to expand by themselves. Through their venture capital connections, the Bans found investors to open their first out-of-Chicago office in New York. Over time and through several rounds of investments, they gave up more than 75% of the shares.
So it’s probably a good thing the Bans don’t view Paladin Companies as a family business. They agreed with their three children—a daughter in high school, another daughter studying environmental policy, and a son, who is a marketing executive for a major insurance company—that Paladin isn’t for them.
“My son probably would be better off going his own way,” explains Ban. “We felt there were better opportunities for him elsewhere. As a start-up company, we certainly could not afford to pay what he could get in the open market.”
Ban also worried that if he brought in family, he might have trouble attracting outside professional managers. “They might say, ‘Well, the kid’s in the business, what chance do I have to get ahead?’ I don’t know the answer to that.”
Would he consider selling his minority stake? “If the price is right, everyone has to look at offers,” says Ban. Has he received any? “I haven’t had any I want to talk about. Obviously, we’re still here.”
Tested by hard times
Robert Ortega
Ortega’s Weaving Shop
Chimayo, N.M.
Sales have slid in the last few years at Robert Ortega’s weaving shop, which has produced jewel-colored blankets, rugs, coats and wall hangings for three generations. But Ortega, an eighth-generation weaver himself, says he can’t conceive of selling.
“Nothing would make me sell, unless it were to someone within the family,” he says. “We’d be selling tradition, and I don’t think you can do that”
Family tradition has taught him to save for a rainy day, says Ortega, who is 47. Instead of selling or taking on debt, he’s running the business more conservatively. For instance, he’s not replacing weavers and employees after they leave. At its peak, Ortega’s Weaving Shop employed 15 and had 45 contract weavers; today Ortega has ten employees and 35 weavers. And instead of transforming a few buildings on his property for storage or more production, he’s renting those buildings for residential use.
Ortega, who learned to weave before he was ten, has no wife or children. But he has seven nephews, two of whom are business majors in college. “One has given every indication he wants to work here,” says Ortega, who co-owns the production shop and The Galleria, a retail store next door, with his brother Andrew. If Ortega’s nephew were to change his mind, several other cousins and brothers might step in. If needed, “one brother says he would come in some capacity.”
One of Ortega’s 35 independent weavers is his father, David, who officially retired and sold his interest to two of his sons 12 years ago. But Dad still comes in about five hours a day, mostly to weave—and to offer his advice. “That’s how family businesses are,” says Ortega.
Besides, he notes, the recent revenue squeeze has its bright side: The slump has put his business in a lower tax bracket.
Starting all over again
Peter Dawley
Westminster Cracker Company
Rutland, Vt.
By the time Peter Dawley’s family sold Dawley & Shepard Inc., its $3 million company, to Pillsbury in 1982, the cracker firm purchased by Dawley’s great-great-grandfather in 1891 had evolved into making cracker meal and bread crumb coatings for fish sticks and chicken. So Dawley saw the sale as one more natural evolutionary step.
“It was the right thing to do,” says Dawley, now 62. “At that point in time, the industry was competitive. We had to decide whether to make a large capital investment and all the stuff that went with it, such as commitments to resources and personnel.”
Dawley commuted back and forth from Westminster, Mass., to Minneapolis while he worked for Pillsbury for a year and a half. After an expensive divorce, he moved to Vermont and tried to make a go in the textile business. Success did not materialize. He was trying to figure out what to do next when “the seed of resuscitating the original family business germinated in my head. I thought, maybe that’s my karma, after all. I had all the qualifications. I’d worked in that bakery, and I knew all the jobs.”
So in 1988 Dawley dusted off his ancestor’s old cracker recipe and resurrected the original company. (He got proper written releases from Pillsbury before he re-launched the cracker business.) He replaced only two ingredients: lard (with vegetable oil) and family owners (with outside investors). “I love the challenge and satisfaction of starting something from scratch,” he says.
Although he couldn’t find the original production equipment from his family’s former company, he did find a replica of a cracker-cutting machine from Hawaii. “We had it shipped in pieces, put it together and made it work,” he says. “That was the start of our actual production. We persevered; we got lucky.” It took two years to sell his first cracker, eight years to turn a profit. Since then, the company has quadrupled in sales (Dawley won’t disclose dollar figures) and employs about 38 people.
Dawley says he won’t let his two sons, ages 25 and 38, join his venture. “It’s investor-owned. And probably at some point we’ll grow enough to sell it.” He says he’s had some nibbles from Nabisco and Keebler. But with a new partner on board, “neither of us desires to sell it tomorrow, because it’s still fun; it’s still a challenge.” Then again, he admits, “If you came up with a blank check and said, ‘Fill it in,’ I might change my mind.”
No business like show business
Vincenzo Guzzo
Guzzo Cinemas, Terrebonne, Quebec
“There’s no reason for me to sell, as long as my theaters are making money,” says Vincenzo Guzzo, the 32-year-old executive vice president of Guzzo Cinemas in Terrebonne, Quebec, which his immigrant father, Angelo, started in 1974.
A former college economics major, Guzzo explains that the laws of supply and demand in his industry don’t quite work they way they’re described in textbooks. “It’s true that if you’re very small, you have no clput with studios from which you rent movies,” he notes. But if you’re a big chain like Guzzo Cinemas—with 108 screens in ten locations—he contends, it’s worse: “The more you earn, the bigger the share of your revenue the studios and distributors want.”
Another economic oddity: “Multiples are low in the movie business—about five times cash flow. If the business makes $10 million cash flow, a buyer would pay $50 million. After five years, if I keep the business, I would have that $50 million and still have the business. Why would I want to sell?”
Despite his cash flow and hefty margins, Guzzo doubts that anyone would want to buy a company like his. “Why would they want to buy us when they can build a ten- or 15-plex and blow us out of the water? You don’t buy your competition, you kill them.”
Jayne A. Pearl, based in Amherst, Mass., is a regular contributor to Family Business. She is the author of Kids and Money: Giving Them the Savvy to Succeed Financially (www.kidsandmoney.com) and co-author with Mike Cohn of Keep or Sell Your Business: How to Make the Decision Every Private Company Faces.