Helping to ensure the transfer of entrepreneurial spirit across the generations
by Will Lindner
The Zildjian Cymbal Co. of Norwood, Mass., is 388 years old.
How can that be? The company was founded in 1623, pretty much at the same time the Pilgrims were sailing to the New World (1620), inventing Thanksgiving (1621), and chartering the Massachusetts Bay Colony (1629).
Then, and for centuries thereafter, the Zildjian Cymbal Company was operating out of Constantinople, working through successive generations of the founding family, until 1929, when the proprietors moved the company to the United States.
They survived the Depression and kept passing the business to new heirs to this day, when it is in the hands of the 15th generation of the founding family.
Think they know a thing or two about sustainability?
Dann Van Der Vliet thinks so. But aside from Zildjian’s astounding longevity, Van Der Vliet, director of the Vermont Family Business Initiative (VFBI) at the University of Vermont School of Business Administration, does not think the company is unique.
He sees the qualities and characteristics that have kept Zildjian afloat mirrored in scores of Vermont family-owned businesses, and literally millions of them nationwide.
According to the VFBI, family-owned businesses contribute 57 percent of the U.S. gross domestic product ($8.3 trillion), employ 63 percent of the U.S. workforce, and are responsible for 78 percent of all job creation. About 40 percent of U.S. family-owned businesses continue into a second generation, 13 percent are passed to a third generation, and 3 percent go to a fourth generation or beyond.
Obviously, there’s something about the model that works. Yet it comes at a price.
More than 30 percent of family-business owners (median age 51) have no plans to retire, essentially figuring to die with their boots on, and when family-owned businesses collapse, nearly half the time, the collapse follows the owner’s death.
So while the FOB (family-owned business) model works — “Family enterprises are the predominant form of global economy,” says Pramodita Sharma, a professor at UVM’s School of Business Administration and an internationally acclaimed expert on entrepreneurialism and family enterprise — it is not without its challenges.
That’s what makes the work of the Vermont program so important: These businesses are, arguably, the backbone of the state’s and nation’s economy — the greatest engine of employment — so it’s critical to identify what makes them work, and help these owners surmount the obstacles that could extinguish them.
Van Der Vliet makes this essential point: “Family businesses have values that we’re starting to realize are important. Some have made it through five or six recessions in Vermont and have lasted for a hundred years. Think what we can learn from them!”
The VFBI had its start in 1998, when Greg Borgea, an executive at Gallagher Flynn in Burlington, approached the university to discuss a public-private partnership model.
The accounting firm would bring family-owned businesses together, to help and learn from each other regarding decisions of succession and a range of other issues that FOBs have in common. The university would provide an educational component, tapping into academic resources in business research, long-term planning, and more.
The idea wasn’t unique; Van Der Vliet says there were about 50 such organizations around the country.
Initially, the VFBI established regional centers, providing outreach to local businesses. Van Der Vliet, a New Jersey native, had earned a bachelor’s degree at UVM in recreation management and returned for a self-designed master’s degree that combined business, public administration, and education. He was hired by the university to work in the regional center in 2000 as a program developer.
He met, listened to, learned from, and assisted companies in central Vermont. In 2003 the university closed the regional centers and brought Van Der Vliet to the Burlington campus. He, his wife, Susan, and their children, Kate, 12, and Rob, 7, live in Huntington.
Once in Burlington, Van Der Vliet teamed with then-director Michele Ferrullo Asch. “It was a sweet spot for me,” he says. “I had program experience and business contacts. I had cultivated an ability to sit down and listen to the owners and hear what’s important to them and what they’d like to accomplish. Family businesses dominate the economy, numbers-wise, but it was a relatively new and emerging area for study.”
Van Der Vliet succeeded Asch as director, and developed the program. Succession is, obviously, a pivotal issue for FOBs: Which child of the owner is best suited to take over? Which child wants to, and are these the same person? Is the weight of history — a century-old, multi-generational business — on the heir’s shoulders, or “just” the enterprise of the parent? How is the transaction structured?
Then there are the FOBs that extend beyond the nuclear family (uncles, cousins), and any number of complications, such as part-owners with no management role, and hands-on managers who aren’t family members
Succession may be a focal point, but VFBI’s business members come to realize that it’s part and parcel of the kind of long-term planning they should be doing anyway. The imperative of sorting out succession can lead to a strategic re-imagining.
“There’s a big difference between running a business and owning a business,” Van Der Vliet explains.
“Running a business implies you’re working there day to day. But the higher calling of ownership is to, hopefully, get to the point where the business can run without you; so instead of being a day-to-day thinker you become a year-to-year thinker, or a generations thinker. You become more strategic than operational.”
To engage in the full sweep of these challenges, the VFBI offers two group structures: the CEO group and the next-generation group. Right now there are three CEO groups and two at the next-generation level.
“We keep the groups small, typically only six to eight in a group,” says Van Der Vliet. “It helps foster discussion and keeps confidentiality and accountability high.”
The next-generation groups study and prepare for the complications of succession. CEO groups can go where the faint of heart would hardly dream.
Norman Akley and Lauren LaMorte are the married co-owners of Trow & Holden, a Barre manufacturer of hand tools for the stone-working trade employing 15 people. Akley succeeded his father, Gordon, in a line of relatives dating back more than a century.
LaMorte and Akley have availed themselves of the Family Business Initiative for 10 years or more, but about two years ago joined one of the CEO groups. For Akley, it was a bit of a shock.
There are about six companies in the group, and they take turns hosting monthly meetings. “When we had our first meeting, all our books were open,” says Akley. “I’ve never done that with anybody. The exposure was pretty stressful for me.”
“It was voluntary,” LaMorte interjects. “You reveal what you want to.”
Other owners had done the same, says Akley, and he felt they should follow suit. Now they look forward to the meetings.
“For us, it’s like having an advisory board,” says LaMorte. “We have a very high-level CPA facilitating and a bunch of smart people in the group, and we have things to learn from them.”
LaMorte notes consistent characteristics. “Family businesses tend to be very self-reliant; they’re pretty private and they’re very busy; people wear a lot of hats. When we go to seminars of the VFBI, and also in the CEO group, it gives us an opportunity to step back from our daily tasks and think longer-term, and clarify our thoughts in specific areas.”
“We’ve heard amazing stuff about the way things get done, or don’t get done,” adds Akley. “We’ve learned things from companies about how they solve problems. Dann is really good at what he does. He keeps us apprised of seminars and programs that are germane.
“Those that aren’t taking advantage of this resource are selling themselves short. You’ve got to put every tool in your toolbox that you can these days. You need all the resources.”
Van Der Vliet, 43, knows the feeling. He is a bit of an entrepreneur himself. The VFBI gets no state or university funding, so Van Der Vliet must craft a stimulating curriculum and program that attracts paying members.
Current enrollment stands at about 32 companies, but others participate in some activities and membership is dynamic. Four contributing partners — Gallaher Flynn, KeyBank, hmc2, and the Coaching Center of Vermont — help supplement dues and registration fees for non members attending forums.
Although the VFBI is 13 years old and highly regarded, Van Der Vliet believes it is poised to take flight anew. This has much to do with Sharma’s recent arrival, buttressing an academic staff that includes Professor Rocki-Lee DeWitt, senior lecturer Amy Tomas, and lecturer Bret Golann.
Sharma has an extensive research and publication history (she is co-author of a book titled Entrepreneurial Family Firms, which is used in academic courses around the world). In her view, studies of the family business model, and supportive interaction with working businesses, couldn’t be more timely.
“As the population is getting older and a large majority of founders are getting closer to retirement,” she says, “two related challenges are faced by family enterprises: the transferring of ownership to next generations, and transferring the entrepreneurial spirit across generations of leadership.”
Van Der Vliet is encouraged, however, by the tenacity, imagination, and resourcefulness of the businesses he works with. It follows a rich history of Vermont entrepreneurship (which he defines as “coming up with an idea, and taking the risk of executing it”).
“We have a very creative state,” he asserts. •