From the Inside Out:  Growing and Selling a Family-Owned Business

Excerpts from an interview with Jeffrey Ross, Managing Partner, RossFialkow Capital Partners, former owner of Thayer Pharmacies, former CEO of Pet Supply Depot

Q:  So where did your business career begin?           

I started out my career in a family business; my dad started a chain of drugstores in 1938 in Braintree, MA.  I went to pharmacy school and graduated in 1968, and he dropped dead in 1975, and left me there with a little company that needed a lot of help.  But I didn’t know it until after he died.  So there I was, with a grieving mother and a family who didn’t know what was going on, and neither did I.  So I just got in there to fight the good fight. 

Q: That’s interesting.  So you didn’t have an MBA or anything like that at that point, just the pharmacy degree.

JR: No, I took a nine-week course at Harvard Business School, which at the time was called “Small Company Management Program,” now called the Program for Management Development.  It’s for smaller entrepreneurial businesses and home businesses.  It’s a wonderful program!  I graduated from there in 1981; the program started in 1978, so it’s been going on for 26 years now.  It’s been a very successful program and I highly recommend it to anybody who has not had a formal business education and is running a business.

Q: It must have taught you some amazing things, since you were able to do some amazing things with this drugstore.

JR: Yes, I built it into the second largest privately-held drug chain in New England.  And timing being everything in life, I sold it in 1992.  The world of business was changing very, very rapidly, and it was time to go.

Q: Well, it is interesting because you sold to one of the big chains, CVS, which is everywhere.  But I have some background information here.  You started at about $7 million when you took over the company, and it was over $60 million by the time it was sold to CVS.  Pretty impressive growth!  Nice job!

JR: Thank you.

Q: In retail, certainly location is everything, so that is an excellent strategy.  What are some other considerations in selling a family business?

JR: If you are thinking of starting and building a business in order to sell it, you’ve got to look around, identify your competitors.  What I did in the drugstore business was, I identified my competitors, and at the time, Walgreen’s was not in this area, so it was CVS and Brooks.  Rite-Aid ultimately pulled out of Massachusetts in 1989.  But I always thought CVS was best in class in retail drug in our area.  They had a success formula – they knew what it was, they knew their mission, they knew their goals, and they implemented this plan very well.

So I looked at them, and I tried to emulate them without copying them.  After I finished up with my Harvard program, we did strategic planning and we did the whole “what we are – what we want to be.”  We did one year, three year, and five year plans.  And we became somewhat more professional in our management.  What we did was communicate with all our employees.  What I learned once in an Outward Bound several years ago - we played those team games, and we were blindfolded and we had to communicate with each other to reach our goals – was that Communication + Cooperation = Teamwork.  And that’s what I preach in my consulting role.

Every employee in our company, from myself down through the district managers, store managers, clerks, part-timers… all knew what we wanted to be, and we wanted to be best in class, so that when the time came to go, we were in great shape.  We did everything we could to look good.  We were run professionally, we were highly computerized, we had excellent cash controls, and we had excellent inventory controls.  We were just in very good shape.  As the world changed, we recognized it and got out.

Q: How do you take the lessons learned from all this entrepreneurial experience, and bring it forward for your clients?

JR: What we try to do is make people understand the real world from the emotional world, the emotional attachment that entrepreneurs have with their businesses.  I never thought I could sell our business.  I was second generation; when I started I was ten years old, worked in the drugstore all through high school, every weekend and holiday when I was in college.  It was my father’s business, and it was the only time I got to spend with my father.  So I understand the emotional ties.  It took my mother a long time to get over the fact that I sold the business.  But you have to tell people when it’s time to go, and then it’s time to go.  And don’t let the emotions get in your way, because it will cost you a lot of money.

Q: I think the saying is “Don’t love something that can’t love you back.”

JR:  That’s very true.  That’s excellent.  But there are a million different reasons to sell a business.  For me, with the drugstores, it was time to go. 

Q: So tell us what the steps are for working with a new client?

JR: We go in, we talk to the people, learn about the business and learn the dynamics of the business.  Many times it’s a family business and you’ve got two generations, and then it becomes more difficult because the reasons for selling could be very different for each one.  One may want to sell; the other may not want to sell.  We try to deal with that situation, to help one partner buy out the other partner.  It’s fraught with all kinds of danger unless they are clearheaded and try to remove the emotion from the transaction.

Many people ask the question, “How do I know when the business is ready to be sold?”  Well one answer is, when I don’t look forward to getting out of bed in the morning, when I don’t jump out of bed in the morning, can’t wait to get to work.  Maybe then it's time to start leaving the business because you lost your passion.  You’ve lost your enthusiasm for it.

Another time is when the founder doesn’t have a younger generation who’s interested in the business, and never built up a management team or a succession plan.  He should really give consideration to selling and cashing out and realizing the fruits of his or her labor.  It’s a shame when you see founders who have run a successful business for many years; they’re in their sixties, seventies, eighties.  They don’t want to look reality in the face.  And you just know what’s going to happen – they’re going to die or get sick, and no one will be there to run the company, and it will end up being sold for assets.  It’s a shame.

Q: How do you put a value on one of those companies?  Are you working with major accounting firms?

JR: Well you can do that, but at the end of the day, as I found out in my own personal experience, that the value of a company is what a willing buyer is willing to pay.  There are people who do valuations of companies and they do comp sales and so on, but at the end of the day, the value of a company is what somebody is willing to pay for it.

Q: How do you go about finding that willing buyer?

JR: In our case, we identify the industry, the major players in the industry.  We then prepare a one-page generic description of a company defined, and mail it to everybody we think will be interested.  Pretty difficult to identify the company.  The people who are interested will reply to our one-page description, and we qualify them, have them sign a confidentiality agreement, non-disclosure agreement, and we’ll go from there.

Q: Not all businesses can be sold, can they?

JR: That’s an interesting question.  I’d guess you’d want to ask the question a little bit differently: Are there some businesses that are unsalable?  And the answer is yes.

I was recently on the phone with a person who has a family saw mill in the southern part of the country.  They want to sell it, but they have a terrible environmental problem there that they’ve been trying to clean up for many years.  That can be very ugly.  I told him I didn’t think there was any way he’d be able to sell it, until that thing is cleaned up and signed off by the Environmental Protection Agency.

Q: The bottom line is, if you don’t have an attractive business to begin with, differentiation, unique customer base, things like this, you’re going to have trouble selling this anyway.  So isn’t it an interesting problem if I have an attractive business to begin with, maybe I don’t want to sell.

JR: Well that could be.  You have to assess your competitive market.  Who are your competitors?  Are they going to find you to be a little gnat that they will lose patience with and just crush, because they’re a billion or two billion dollar company, as CVS was at the time?  Occasionally, you’ll find the minnow that swallows the whale.  But under normal circumstances, you can’t fight those guys because they’re going to wear you out.  Better than thinking, “What can I do? What can I do?” you might as well cash out.  That’s what the business is for – to provide a lifestyle.

Q: How does the whole deal compare when you are doing the merger and acquisition stuff for a client, versus when you were in the middle of it yourself?

JR: Actually, I hired an M&A guy to do it, because I didn’t want my heart to get in the way of my head.  So I put a buffer in there, to make sure there was very clear thinking, so I didn’t let my emotions carry me away and kill the deal.

Q: You bring up something rather important there, about bringing in another set of eyes, another set of emotions involved in those sales, and why it might be difficult for somebody who has been involved with the company to actually go out and sell it.

JR: First of all, one of the reasons why we started this business was because of my experiences in selling my own businesses.  We can be very helpful in walking people through the process.  And when things do get emotional, we can hold their hands and try to clear their heads so that they are thinking clearly.

Q: What do you think are the most important aspects that owners need to focus on when getting into the mindset to sell their business?

JR: The first thing is, is it the right time to sell?  Are you selling too early, where you may not maximize the value of your asset that you have?  Are you selling because you are frustrated because you can’t find good salespeople?  Or some may have to sell because the issue is divorce, and it’s part of the distribution of assets.  Are you selling because you can’t stand your partner or your sibling?  There are a million different reasons for selling, but the best reason for selling is you think you can get the highest value for this asset.  And that’s where timing comes in.

Q: And now is a good time to be in the market.

JR: Now is a good time.  There is plenty of money out there.  Banks are loosening up on their credit, the venture capital firms are just gushing with money.  And people are looking for good businesses to buy, and they will pay.  They will pay for the right business, especially a niche business.

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