Kellogg World








Rooted in generational knowledge, access to capital and no shareholders to impress, many family businesses waited out the recent economic downturn. Now, they’re poised for
real growth

When times are tough, it’s hard to resist a quick fix. For public companies, that can mean layoffs, leadership shakeups or a sale. But for private family businesses — where employees and managers are relatives and selling out gambles with shared wealth — it’s not that simple. Many privately held family businesses take the longer view, and as these businesses emerge from the recent recession, they’re finding that it’s paying off.

Private North American businesses controlled by ultra-high net worth families — those with more than $30 million in investable assets — represent $860 billion of the $3 trillion controlled by similar businesses worldwide, according to the Singapore-based research firm Wealth-X. And the value of those family businesses increased 5.5 percent from 2011 to 2012 — growth that outpaced global GDP by more than 3 percentage points.

“Our experience with family businesses has confirmed that in down times, family businesses will take advantage of the negative economic conditions to make some seemingly unconventional and courageous decisions,” says John L. Ward, co-director of Kellogg’s Center for Family Enterprises.

Because family businesses of all sizes tend to plan for the long term, they often have more ready access to capital, Ward says. They may be more likely to make acquisitions, add capacity or invest when their competitors are constrained by economic circumstances. They’re also more likely to avoid layoffs. And when the economy improves, these businesses often benefit as a result.


Investment over dividends

Diana Nelson ’89 says the recent recession was “a tough one” for Carlson, her family’s $36 billion hospitality and travel company headquartered in Minnesota. Though the privately held company operates nearly 1,300 hotels and 920 restaurants — including such brands as Radisson and TGI Fridays — Carlson suffered losses between 2008 and 2009 as businesses stopped traveling and frequenting Carlson locations.

Still, the company was able to continue investing in projects while it recovered, launching Radisson Blu, an upscale spinoff of the Radisson brand. Carlson also opened hotels in Chicago in 2011 and near Minneapolis earlier this year. “We are long-term investors in our business and plan for the long-term horizon,” says Nelson, who chairs the company’s board of directors, on which her mother, sister and five other family members also have seats.

Dustin Marshall ’07, CEO of Hazel’s Hot Shot, one of Texas’ largest courier, delivery and long-haul trucking firms, oversaw his company’s purchase of a Houston-based trucking company last year. Marshall’s grandmother founded Hazel’s Hot Shot in 1977, and the 2012 acquisition was largely made with family assets.

“One of the biggest struggles that businesses of our size have had after the downturn is lack of access to capital,” says Marshall, who worked as a consultant for Bain & Co. before returning to the fold. “We’re less impacted by the willingness of banks to lend because we can give personal loans to the company whenever it needs it,” Marshall says, adding that avoiding hurdles with the bank or outside investors also has saved his managers time.

Families can wait out economic downturn

According to a report from The Conference Board, a New Yorkbased not-for-profit that researches businesses and the economy, the average tenure of a CEO at a publicly held Fortune 500 company has been around eight years since 2010. What that has led to, says Lloyd Shefsky, co-director of Kellogg’s Center for Family Enterprises, is a focus on the shortest term possible.

“If you went to the CEO of a nonfamily business and said to him or her, ‘I’ve got this great idea. It’s going to cost you $500 million now, but you’ll make $2 billion or $3 billion a year for the next 20 years’ — even if that CEO were convinced you’re right, the odds are that he or she wouldn’t do it,” says Shefsky. “The benefits would come a few years down the road, when that person won’t be there. But in a family business, the CEO would go with the idea, knowing the benefits would likely accrue to their descendants.”

CEOs like Avi Steinlauf ’98, whose father turned an automotive pricing guide into the first online car shopping resource,, did stick around. In the decade prior to the downturn, the site experienced exponential growth as the automotive industry boasted 16 million new car sales a year. That number dropped to 10.4 million between 2007 and 2009, when the site employed 400 people. Even then, the company avoided any layoffs. “We just sweated it out,” says Steinlauf.

To offset costs, bonuses were suspended, select benefits were temporarily rolled back, and executives took salary cuts, which were repaid when sales started to climb again. Now, as car sales return to pre-2007 levels,’s workforce has grown to more than 500. “If we had downsized from a people perspective, it would have taken us that much longer and have been that much more costly to hire people back or hire new people,” says Steinlauf. “We were able to make a decision to keep people, and it paid off.”

For Meek’s Lumber and Hardware, a building supply company based in California, the wait was much more painful. When new construction — particularly in California and Nevada — came to a near-halt in 2006, and sales plummeted by 70 percent in the years following, the company was forced to close three of its lumber yards and lay off two-thirds of the 900 employees in its Western division (Meek’s also operates stores in the Midwest).

“I’m not sure there was an industry hit harder in this downturn than the building industry,” says Carrie Meek ’04. “We were absolutely decimated.”

Meek, a fourth-generation member of the family’s 94-year-old business, became manager of its Western division in 2006, right as the hard times started to hit. Fortunately, she says, the company took planning and risk management “very seriously” and, with the cash on hand, has stayed in business while competitors have shuttered. Meek also financed a reinvention.

Rather than continuing to view general contractors as its primary customer, the company now aggressively caters to remodelers, tradesmen and repairmen through an incentive program that has grown by 30 percent each year since 2010, says Meek.

Despite an exhaustive restructuring process, Meek had little doubt about the company’s survival. After all, she is part of a family business that survived the Great Depression.

“There’s no way we’re going down with the ship,” she says. “That sense of legacy and the desire to be successful and carry on the tradition only made us more passionate about making it.”