Minnesota’s family-owned businesses are thriving
In a 2003 study published in Family Business magazine, authors Joseph H. Astrachan and Melissa Carey Shanker found that family businesses accounted for up to 64% of U.S. GDP and 62% of U.S. employment. Fast forward 15 years and a more recent report by Kennesaw State University, Astrachan’s employer, confirmed the initial findings, confidently proclaiming “family business [is the] world economy’s secret driver of success.”
Hyperbole aside, what we do know is this: Family business is a crucial engine for Minnesota — a sturdy, and often low-key, foundation that supports our resilient economy.
To get a better sense of what it’s like to run a family business in our state, we spoke with leadership from three Minnesota-based firms. Here’s what we learned.
Five generations of passion
We all carry indelible childhood memories. Susan Bachman West’s sound pretty idyllic.
Bachman West remembers exploring the greenhouses at Lyndale, the flagship retail location and corporate headquarters of Minneapolis-based Bachman’s, Inc. She spent days there alongside her father and grandfather, wondering at the morning light filtering through the humid haze, inhaling the earthy scent of soil and greenery, and gratefully accepting pennies from her ageless great-grandfather to exchange for gumballs at the vintage gumball machine that still sits near the retail store’s front entrance.
“We’d always put the gumballs in our palms and show great-grandpa which colors we got before we ate them,” she recalls.
Those carefree days ended, of course, and Susan went out into the world. But even as she worked her way through undergrad and grad school, Bachman’s never really left her.
“I found myself wanting nothing more than to come back and work every summer,” she says.
Like all family members at the company, Bachman West started at the bottom and worked her way up. She pulled cashier duty at 16, as soon as she could legally work the till. As an adult, she worked as a buyer, led store openings, and then — just last year — took over for Paul Bachman as company president.
The local difference
A fifth-generation descendant of company founder Henry Bachman, Bachman West is the first woman president in the company’s 133-year history. She manages a sprawling operation: six retail garden centers and 26 Flowers by Bachman’s locations in the Twin Cities and parts of Greater Minnesota. Add to that thriving delivery and professional services businesses (including landscape, hardscape and garden services, interior landscaping, weddings and events, and wholesale) and Cedar Acres, a 670-acre farm/growing range and retail center in the south metro.
Most of Bachman’s blooming, green and annual plants are in greenhouses. Trees, shrubs and some perennials are grown outside.
“We take tremendous pride in sourcing so much of our stock locally,” says Karen Bachman Thull, fellow fifth-generation member and the company’s director of marketing and corporate communications.
That local pedigree is what sets Bachman’s apart from big-box competitors — the Menards, Home Depots, and Lowe’s of the world. While many a frustrated gardener knows there’s nothing certain about horticulture, growing local does improve overall product quality, according to Adam Bachman, another fifth-generation member and department manager in charge of annuals and perennials at Lyndale.
So does a new product flow system implemented by Bachman West and executed by Adam Bachman and others. It’s designed to accelerate turnover times so that plants don’t age past their prime before they reach customers. The results have been impressive: greener, healthier plants that take better to the garden plot or windowsill.
“You can really tell the difference,” says Bachman. “The rest of the team notices it too.”
“We’re always innovating and trying out new ways to help our customers find success,” adds Bachman West. That’s a longstanding Bachman’s tradition, she notes, dating back to Henry Bachman’s day — when the intrepid immigrant entrepreneur built his greenhouses on a south slope so that steam would be forced to rise uphill, allowing the pull of gravity to return the water.
It’s the little things
As a smaller company that grows locally and invests heavily in quality control, Bachman’s can’t always compete on price with national garden centers. So it focuses on little things that add value — and delight — to the customer experience.
One favorite is the Potting Bench, a seasonal inspiration station where customers can be inspired with ideas for their outdoor containers, request help in product selections or have the designers at Bachman’s create a container for them.
“People look at what’s on the bench and say, ‘I want this in my garden,’” says Bachman Thull.
Then there are Bachman’s beloved and much-imitated Watch ‘em Grow gardens, or WEGs as they’re known. These winter bulb gardens start as little more than bowls of dirt with tiny green shoots just barely visible above the soil. Over the course of several weeks, they come alive with flowers, such as tulips, daffodils and hyacinths.
“Kids especially love seeing WEGs come up,” says Bachman West. “That little bit of color is a hopeful sign in the dead of winter.”
And then there’s the Ideas House, a historic single-family home at the Lyndale flagship store. It’s completely redecorated and repainted three times each year to support Bachman’s home goods operation: for autumn and Thanksgiving in early September, the winter holidays in early November, and spring in early March. Some 21,000 people pay $5 apiece to cycle through, with $1 from each ticket going to charity. Visitors get a brochure listing each season’s inventory — down to single-source vintage pieces, like the antique bar and chairs in last year’s holiday display.
“Everything in here is for sale,” says Bachman Thull.
It’s little things like these that keep Bachman’s going strong five generations after its founding — and keep at bay bigger competitors for whom the bottom-line is more important than deep, abiding customer relationships.
“We feel very honored to be part of so many monumental moments in peoples’ lives,” says Bachman West. “Our passion shows every day.”
Own the means of production
While Bachman’s is more than a century old, Celarity is a younger family-owned company. And its co-founder, president and CEO, Marlene Phipps, is still very much in charge of her 25-year-old creative staffing agency.
For the foreseeable future, at least: Phipps’ sons, Robert and John Arnold, recently bought out Doug Phipps, Marlene’s husband and the Bloomington company’s co-founder. Together, Robert and John Arnold own 49% of the company; Marlene Phipps is still the controlling shareholder.
Celarity started out as a small creative shop that handled “overload design” work for large corporate marketing departments, such as General Mills and 3M. When clients had more work than they could handle internally, they’d call Celarity. Larger projects called for outside help from trusted freelancers that the Phippses would add and shed as business demanded.
“We quickly got used to expanding and contracting,” says Marlene Phipps.
By 1993, clients were asking for freelancers with specific skill sets: copywriters and graphic designers for seasonal catalogs, for example. Celarity began billing for hours worked, not on a project basis. From there, it wasn’t much of a leap to move into recruiting and placing creatives, something no local staffing agency did well at the time.
“[Staffing] began as an experiment,” says Phipps. “I told Doug, ‘Give me a year to try this out.’ Within 10 months, it was obvious that we were onto something.”
An accidental business model
So the Phippses wound down Celarity’s creative side, handing off prime corporate accounts to talented, reliable freelancers.
The following two decades weren’t challenge-free — the early 2000s, in particular, were lean due to an economic recession that hit the tech and creative industries particularly hard — but Celarity never lost its niche. Today, business is booming. The digital marketing landscape is in constant flux, with entire roles created, revamped and discarded before the business cycle turns.
“Most of the job titles or core responsibilities of digital marketing positions that we recruit for today did not exist a decade ago, and they continue to get increasingly hyper-focused and specialized as technology grows. Marketing is evolving from a wait-and-see approach to almost an exact science where campaign ROI can be tracked in real time, and almost every aspect of a digital campaign can be customized based on the target audience, analyzed and adjusted,” says Robert Arnold, director of recruiting services.
Celarity’s small size and closely held ownership are crucial advantages in this environment.
“We can adjust quickly in response to client demands because we don’t have lots of layers of approval,” says John Arnold, director of client services and operations.
The Arnolds’ early-career experiences help too. John and Robert both worked for subsidiaries of Allegis Group, a massive staffing conglomerate based in Maryland. John also worked with CotterWeb Enterprises, a Mendota Heights–based internet marketing company.
“The training and process-related insights [from Allegis] were phenomenal,” says Robert. “We tried to bring the best of what we learned there back to Celarity.”
Back in the family fold, John and Robert spent seven and 10 years, respectively, working their way up the chain.
“Between us, we’ve held just about every role in the company,” says Robert Arnold.
John and Robert are ready to make their mark. They see the challenges posed by turnkey, artificial intelligence–driven recruiting platforms, such as Google Hire. Longer-term, they foresee a shift back to project-based work — Celarity’s genesis — and a move into executive search, which is more hands-on.
Then again, technology makes it easier than ever to work with employees not based in the Twin Cities. They’re placing people as far away as New York City and helping professionals relocating from California and elsewhere.
“Where technology makes it easier to work with clients and strengthens those relationships, we want to use it,” says John Arnold.
Making room for the next generation
Last year, the family officially executed the ownership transfer. So culminated “five or six years of conversations,” says John Arnold, that involved consultants from Wells Fargo Private Banking, an outside CPA firm, a law firm and Robert’s wife, Ingrid.
The process forced the family to answer emotional questions about “our vision for how we wanted the company to look over the long term,” says John, and drier ones like whether it made sense financially to gift Doug Phipps’ shares over a 10- to 15-year period. (It didn’t — not on such an extended timeframe.)
Phipps encourages fellow family business owners plotting generational successions to consult with peers. The Family Business Center at the University of St. Thomas is a good place to start, she says. She credits its Family Business Breakfast Series with setting her expectations and building a knowledge base to take into the planning process.
If nothing else, she says, families just need to start. “It’s never too early to begin succession planning,” says Phipps.
When different works
Like Celarity, Hopkins-based EDCO Products, which manufactures a full line of metal-based exterior building materials such as siding and roofing for residential and commercial structures, has three controlling owners. They’re all from the same family: two daughters and one grandson of co-founder Arthur (Art) Edwards, Jr.
That’s where the similarities end. The owners don’t have day-to-day roles with the company; they don’t even have seats on the board. Executive responsibility falls to president and CEO Eric Lindquist, an unabashed outsider brought onboard in June 2015.
A history of innovation
Though not a blood relative to the owners, Lindquist’s predecessor, Joe Connaker, was an insider. He’d been with EDCO for 45 years, more than half the company’s existence. Connaker worked closely with Edwards, Jr., who remained active in management until his death in 2012, at age 92.
“Art was a true visionary,” says Lindquist, of the co-founder.
Edwards, Jr., invested in vertical integration before the competition. That gave him, Connaker, and now Lindquist confidence in EDCO’s competitive position in an industry dominated by giants “20 to 40 times our size,” says Lindquist. At one point, some competitors had no choice but to purchase coated coils finished at EDCO’s South Bend, Indiana, plant.
“Eventually they decided it probably wasn’t a good idea to send checks to the competition,” laughs Lindquist.
But verticality continues to pay dividends, he adds: “We can jump on an opportunity quicker than anyone else in the industry.”
Lindquist might walk the road paved by Edwards, Jr., and Connaker, but he’s not exactly following in their footsteps. His style departs markedly from his predecessors; his professional background is in consumer products, serving in leadership roles at Polaris, Nike and Wilson Sporting Goods.
“The family and board had enough institutional knowledge to recognize the need for outside expertise,” he says. His expertise lies in strengthening companies whose biggest problem is, as he puts it: “‘We have a strong foundation or platform, but we can’t find a way to grow. How do we get there?’”
When he arrived at EDCO, Lindquist implemented the first formal five-year plan in the firm’s 70-year history. One of the company’s initiatives included a focus on employee training and development with mandatory training hours established for each defined role and additional training for high-potential employees, along with marketing, brand, product and operational development. The company’s innovation agenda includes advancement in manufacturing robotics/automation, enhanced customer connectivity and coating application development.
The first acknowledges manufacturing’s unavoidable realities: tight labor markets and game-changing automation. The second is a blessing afforded by the vast building products industry and a favorable macro environment that Lindquist believes will persist for a long time to come. Homeowners are spending more per square foot on improvements, he notes, and prizing the sorts of durable, energy-efficient exterior materials in which EDCO has long specialized.
“There are $5 billion to $10 billion market segments we’re not even in right now,” he says. Though EDCO’s resources aren’t as vast as its oversized competitors, the potential payoff makes targeted R&D investments worthwhile.
Easy does it
Another EDCO differentiator is all but invisible — at least, to the buying public.
EDCO follows an owner-board-management (OBM) organizational model: an independent board with no shareholder or management presence. It is a pretty rare approach, even for family businesses. According to Lindquist, it’s a recipe for smooth sailing.
“I know executives who spend as much time managing the family as the business itself,” says Lindquist. “That’s not my experience.”
An OBM board’s goal is to ensure that management effectively executes ownership’s long-term vision, and to maintain alignment between ownership and management more generally. Though it can’t entirely eliminate power struggles or mixing of the business and the personal, the OBM model fosters comity and consensus, not discord and division.
The company provides the owners and board monthly financial and strategic initiative updates.
Most importantly, says Lindquist, they can do all this while acknowledging the shared humanity of the owners’ extended “family” – EDCO’s 220-or-so employees. Lindquist cites EDCO’s average 16-year worker tenure — “unheard of in our industry” as proof that this isn’t just lip service.
Working at EDCO, he adds, is very different than working for organizations controlled by private equity firms, “where the bottom-line often comes first.”