I have spent the entire week in Chicago, working out of my dad Dan’s former office. I met with businesspeople, politicians, journalists and philanthropists. My most interesting discussion was with the Chicagoland Chamber of Commerce, where I was interviewed about family business.
Most of the attention is focused either on the big multinationals or the small business start-ups, but it is clear that for Chicago and for the broader Midwest, the soul of the economy is the family-owned, middle-market company that ranges in size from $10 million to $1 billion in revenue. According to a study by Ohio State University, there are 200,000 businesses in that category, representing 3 percent of all of the companies in the U.S. There are 16,000 businesses with revenue between $100 million and $1 billion. This mid-market sector accounts for 33 percent of the private sector GNP, a similar percentage of private sector jobs (over 45 million) and will create 60 percent of all new jobs in 2017 in the U.S. (over 1 million new jobs).
Illinois has 5 percent of those mid-market companies, accounting for about 8 percent of jobs in the sector. The companies are in order of magnitude of sector: manufacturing, 21 percent; wholesale trade, 14 percent; retail trade, 12 percent; healthcare, 7 percent; finance, 6 percent; and professional services, 6 percent. Jim Head, partner at BDT, an investment firm that specializes in family business, said that this reflects the traditional manufacturing base of the U.S. that started in the late 1800s, the strong tradition of agriculture with family farms, and the central geographic position within the U.S. for logistics. “These are like-minded people,” he said, “who prefer to self-fund, in contrast to the West Coast companies who were financed by venture firms or the East Coast companies which over time sought institutional financing.”
The ownership profile of the middle-market firm in Chicago differs from the rest of the country, with more family business and fewer publicly held or owned by private equity. Among the brands that are family-owned are the Chicago Cubs, Radio Flyer, Zambelli Fireworks and Samuel Adams Beer. According to Rod Goldstein of Windhorse Capital, which provides “patient capital” for family enterprises, the Midwestern family business owner is more committed to continued family stewardship than taking money out of the company. “There is a certain provincial aspect to the Midwestern owner operator, which makes him or her a bit cautious and conservative, very self-reliant and determined to succeed,” he said.
My discussion at the Chicagoland Chamber with Ann Smart, who runs the Family Business Institute at Loyola University, was deeply illuminating. She wanted to know how I worked alongside my brother and sister. She inquired about my own succession planning with my two daughters who are already at Edelman and the youngest who is still in college. She asked about my dad and how we worked side by side for 35 years. She wondered why we had defied the industry consensus and remained independent.
I told her that I had a deep and enduring relationship with my father. I always informed him of what I was doing, with a daily call and frequent in-person meetings. I needed my own space, which is why it was better for me to live in New York while he remained in Chicago. I never disagreed with him in public, but was outspoken in private when we differed. I always gave him credit as the father of marketing PR and the keeper of the flame, which was our core values of creativity, entrepreneurship, community involvement and value for client. We periodically both needed my mother as intermediary and arbitrator.
As for my siblings, each of us had an opportunity early on to lead teams or offices. It has gradually evolved so that I run the firm, my brother oversees our sustainability effort and foundation, my sister is working in our technology practice. It has not always been perfect but we have each other’s backs.
As for my children, who are the only members of Generation Three, I told them that I want them to gain experience from hands-on work, not by being elevated too quickly into management. They will make their way by writing proposals, serving clients, finding new business leads and managing colleagues in a decent and human manner. They will be given broad experience in our different lines of business. I will offer my opinions about how and when they should move onto new assignments, but it is up to them on which they will accept. They know that they will be owners and have to succeed me as CEO one day, though that will not come for awhile, as I have made it clear that there is plenty of fuel in my tank, and I have no intention of changing my job for at least the next 15 to 20 years.
On the advantages of being a family business, I looked around the room and saw several long-standing employees, including Kevin Cook and Matt Vander Laan. Both of them had worked with my father and now with me. They smiled knowingly when I said that I had to take the financial statements up to my dad each month, even at the end when he was in the hospital. He was a relentless and determined man, intent on excellence and 100 percent effort. His famous Dan-o-grams are retained by all. We are a different breed, valuing relationships above all. Maybe that is why family businesses are trusted by 80 percent of the general population, compared to public companies, which are trusted by 50 percent of the general population. I did insist that family businesses need to speak out now about what they do every day to employ people to make outstanding products that delight customers in a manner that serves society with financial returns over the long run. If business is the last retaining wall in the current tsunami of distrust, then family business should be at the front of the wall because it has the best story of all.
Richard Edelman is president and CEO.