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Wednesday, Feb 21, 2024

All in the Family

Labor shortages, inflation, succession among key issues for family businesses.

Local family-owned companies are tackling logistics pressures, inflation, labor shortages and other critical issues by relying on quality relationships with their employees and the ability to react quickly to market conditions. 

Just don’t ask them about who will take over the reins when the founder’s ready to retire.

About two-thirds of companies responding to PricewaterhouseCoopers 10th Family Business Survey for North America said they don’t have documented and communicated succession plans in place. 

“It doesn’t surprise me,” said Chris Angelo, president and chief executive of Stay Green Inc. “Family businesses are extremely complex … and oftentimes the emotional family dynamics get in the way of good solid business planning.”

Angelo’s been running the commercial landscape company since 2012, alongside his father, Richard Angelo, until he retired in 2019 — more than 50 years after he founded the Santa Clarita-based company with his wife, Charlene Angelo. 

“I had always perceived myself to be working in professional services outside of our family business,” said Chris Angelo. “It wasn’t until after graduating college and working outside of the family business when (I realized) that my family had really created something significant that was making an impact in our community, and I wanted to be a part of it.” 

These days Stay Green generates about $40 million in annual revenue and employs more than 500 workers, who are dispatched daily from the company’s 13 yards in Southern California. Since running the firm on his own, Angelo said he had to contend with labor shortages, partially exacerbated by pandemic-related government stimulus monies. With extra government assistance gone, the availability of labor has improved, but wages, material and fuel costs have since gone up. 

“I feel as we get to (the) fourth quarter of 2022, when I reflect back on 2021 and 2022, we’re in a much better spot than we were, but in no way is the business environment as healthy as pre-pandemic,” he said.

When asked about his eventual successor, Angelo was equally ambivalent. 

“There is a third generation in college currently and so we have yet to see if there’s going to be a significant interest in continuing with our legacy,” Angelo said. 

Multiple owners

Jay Catlin, chief executive of AMS Fulfillment Inc., is also unsure if the younger family members will be part of the Valencia-based company’s leadership team. 

“Kids can go in their own direction and choose their own path and not everybody’s going to follow in their parents’ footsteps,” Catlin said. “And then the other thing is, you want to do what’s right for the business, and you’re not going to put your kid in charge of the business if your kid isn’t ready, or well suited for that type of leadership role.”

Catlin’s company is a byproduct of his decision to join his father David Catlin’s DVD and CD distribution business — BCI Eclipse — in 2002, and help out with operations.

“My father wasn’t a fulfillment guy, but I had been in fulfillment for 10 years,” the younger Catlin said, adding that they formed AMS to assemble product and displays, warehouse and manage finished goods inventory, fulfill retail orders, and process returns. Shortly after that, his father sold BCI Eclipse and invested in AMS, which started providing fulfillment services to other companies. 

“We’ve been at this for 20 years and we’ve grown up so much over that time — now we’re in a million square feet,” he said, referring to the company’s nine facilities that employ some 630 workers and generate $140 million in annual revenue. 

Catlin and his father took on Ken Wiseman as an equity partner early on, who “brought in some leadership skills and people to help staff the business.”

They sold a majority share of the company in 2019 to Boston-based Fort Point Capital. The decision to sell was a difficult one to make.

“Ken was looking to retire after all of those years in the business, so that was a little bit of a driving force for us and we chose Fort Point Capital because we were the most confident that we would be able to retain our culture and our way of doing business,” Catlin said, adding that the private equity firm helped the management team invest in automation, acquire Echo Data Services Inc. in Coatesville, Pennsylvania in 2020, and is supportive of AMS’ B Corp. status. 

The certification, which commits companies to verified performance, accountability, and transparency around employee benefits, supply chain practices and sourcing of materials, has helped the fulfilment company, which services beauty and apparel brands, retain workers in a tough job market.

“Our people like having more of a reason to come to work than just a paycheck,” Catlin said. “But we’ve also responded to the inflationary pressure by giving wage increases across the board — significant ones — and it’s really because our employees need it.”

The investment in automation has also helped AMS to remain competitive.

“Labor is the majority part of your cost of goods, and so the typical thing that you do is just go and raise rates across the board with your clients to try to account for the rising cost,” he said. “But our clients (also) felt all sorts of pressures on their side from inflation. The overall supply chain cost, delivery costs, shipping costs, all these costs on their side have gone up. 

“We focused on getting better at what we’re doing out on the floor with automation, so we’re able to get more orders out the door with less labor. Our headcount has grown because the company is still growing, but we’re more efficient in what we’re doing,” he added.

The acquisition of Echo Data, which was once AMS’ “friendly competitor,” added fresh blood to the successor pool. 

“On the East Coast, there’s generations coming into play,” Catlin said. “Like my father, Steve Roberts was the founder of Echo Data and his kids are in the business —Dave Roberts and John Roberts. And Ken Wiseman’s kids are in the business, too, Justin Wiseman and Eric Wiseman. So we do have generations that are still very involved.”

While a share of AMS got picked up by a private equity firm, another local company became part of a trust after a 56-year run under the founders’ ownership. 

Last December, Sara Miller McCune signed over her voting shares and control of Thousand Oaks-based SAGE Publishing to the independent SAGE-SMM Trust. 

“My late husband George and I determined early on that we would never let SAGE be sold,”  Miller McCune said in a statement. “We saw too many companies lose their goals, values, and missions in mergers. By transferring control of SAGE to the SAGE-SMM Trust now, I am making sure that SAGE can remain independent and true to the purpose for which we established it.”

Barriers to transition

Succession plans are “an important piece for the overall continuity of the business, and it is definitely a risk for family businesses to not have a well-documented communicated policy in place to transition their business,” said Jonathan Flack, PwC’s head of U.S. Family Enterprises division.

He cited three main barriers for families completing these plans, with the first one centering on the company’s current leadership’s inability to let go of the reins.

“When having to address their succession, it implies to them that they are leaving, and someone else’s coming in and oftentimes that leader has been very significant in building the business to where it is today,” Flack said. “Their name is on the wall of the company, and on the products and services, and so their identity is heavily wrapped in the success of the business …  and the thought of that individual relinquishing that role and transitioning that role to someone else is very personal. It is something they’re not comfortable with, and they believe that they might be losing their identity.”

The second barrier can be the lack of competency of a potential successor, he said. “Family businesses oftentimes may not have someone that is ready, willing and able (to take over), and so the transition becomes almost in a stationary point, where they don’t have that identified person ready to go.”

He added that family businesses also aren’t any good at transferring power, as they simply don’t do it very often. 

“A lot of family leaders that have founded their business, they might be in the leadership role for 20, 30, 40 years of leading developing and growing the business,” Flack said. “And when it comes time to come up with a plan to transition that leadership to the next generation, (it’s) something that they resist simply because they don’t have the experience of working through stuff.” 

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