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© 2015 Baylor University

For Money or Love?

E T&P Financial and
Socioemotional
Considerations in
Family Firm Succession
Peter Jaskiewicz
Eva Lutz
Melissa Godwin

In mid-2012, Charles Gilman, the founder and sole owner of the custom fixture manufacturer/
installation company CustomFittings, was approached by a local competitor, Jack Miller,
with an offer to buy his company for $9.5 million. This tangible offer forced Charles to decide
what to do with CustomFittings, as he and his wife, Christine Gilman, were approaching
retirement age. Although their son, Bill Gilman, was keen on taking over the company,
Charles and Christine were depending on the firm to fund their retirement—but Bill did not
have enough capital to buy the firm and thus provide them with a suitable retirement sum.
While accepting the offer from Jack would put the couple in a comfortable position finan-
cially, the move might jeopardize their son’s career, their employees’ jobs, and the family’s
legacy and reputation.

I t was 7 a.m. on a bright July summer day in 2012. Charles Gilman had just arrived
at his office on the outskirts of Albany, New York. He was the founder, sole owner, and
CEO of CustomFittings, a business that manufactured and installed fixtures in retail stores
(e.g., storage shelving, display shelving, showcases, clothing racks, etc.). This was usually
his favorite time of day: There was no one in the office but him, which allowed him to look
through his business notes and think through important issues. On this particular morning,
he was facing the most difficult decision since founding the company almost 40 years
before. Charles had recently celebrated his 62nd birthday with family, friends, employees,
and business colleagues. However, he was not sure whether some of them had come to
celebrate with him or to find out about his retirement and succession plans. His son, Bill
Gilman, had made comments during the party about Charles being able to play golf all day
“soon enough,” and his accountant had said that it would soon be time for Charles to think
about a succession plan. A local competitor, Jack Miller, owner and CEO of JM Storage

Please send correspondence to: Peter Jaskiewicz, tel.: (+1) 514-848-2424 ext. 2775; e-mail: peter.jaskiewicz@
concordia.ca, to Eva Lutz at eva.lutz@hhu.de, and to Melissa Godwin at melissa.a.godwin@gmail.com.

February, 2015 1
DOI: 10.1111/etap.12149
Solutions, had told Charles that he was interested in acquiring CustomFittings. Charles
knew that time was ticking and that he would have to make a decision soon: “Should I sell
my ‘baby’ or pass it on to Bill?”
One option was to sell the firm to Jack, who historically had focused on storage
fixtures but had started to move into the related store fixtures segment. Charles knew they
had pitched for the same contract numerous times over the past 3 years, and he was aware
that CustomFittings could well be an attractive target for JM Storage Solutions. Charles
knew that selling to this suitor could potentially put him and his wife in a financially
comfortable situation for retirement. But there was a second option: succession to Bill, his
son. Bill had been involved in the family business for almost 14 years, starting on the shop
floor when he was a teenager and working his way up to the position of vice president.
However, the relationship between father and son was strained; they rarely talked to each
other.
Nonetheless, Charles felt that selling the business could threaten Bill’s future in it. He
also worried about the family’s reputation in the community because Jack wanted to cut
costs and would most likely fire CustomFittings’ employees when he took over. On the
other hand, Charles and his wife were depending on the firm to fund their retirement, but
Bill did not have the financial resources to buy it from them—nor, according to Charles,
the necessary leadership ability to run it properly—and Charles was not sure he should
risk his retirement years by leaving the company in Bill’s hands. Charles looked at his
notes again. For 38 years, CustomFittings had served a crucial purpose for his family,
providing them with entrepreneurial opportunities, financial security, and socioemotional
wealth.1 Should he let Bill continue on this path, or had the time come to end the journey?

Where Did CustomFittings Come From?

For Charles, his company was his life, his baby, everything. He founded
CustomFittings in 1974, right after being laid off from his first job. He had started his
career in the late 1960s, at the in-house fixture construction and installation department of
a retail giant. In 1973, the retailer decided to outsource this business line, which naturally
resulted in staff cuts. Charles, one of the youngest employees on the team, was among
those let go. “But a change can also be an opportunity,” he grinned. “My employer was not
the only department store to outsource this function in order to cut overhead costs. I
sensed there was an entrepreneurial opportunity arising from the increasing need for
external services, and I decided to start my own business.”
As the firm grew quickly in those early years, Charles had the support of his father,
Mike Gilman, who had long-term experience in the same industry and referred many of
his former clients to the young business. Charles’s mother, Jane Gilman, ran the office in
her son’s firm. CustomFittings started in the family garage, but operations soon outgrew
the space, and in 1977 Charles bought the firm’s first office building. “It was a bold move
and a large investment,” Charles said. “But we were selling our service to a number of
large retail store chains and making steady profits. We created a functional yet aesthetic
shopping experience for our clients’ customers—and still do.” With an increase in profits

1. The term “socioemotional wealth” summarizes the stock of affective, nonfinancial value that families
derive from control of a firm. To maintain affective value—such as status and reputation in the community,
influence, and pride—families are keen on ensuring their ongoing control of their firms (Gómez-Mejía, Cruz,
Berrone, & De Castro, 2011).

2 ENTREPRENEURSHIP THEORY and PRACTICE

came a steady increase in size. By the mid-1980s, the firm had grown to 20 employees. It
continued to expand over the next decade, branching out from the initial focus of retail
food stores to that of nonfood department stores. The company expanded geographically,
too, securing business in New York, Connecticut, and Massachusetts, followed by
Pennsylvania, New Jersey, New Hampshire, and Vermont. CustomFittings soon outgrew
its first office building, and in 1994 Charles moved the business into a new and
larger building in a part of Albany that offered more convenient travel links to neighboring
states.
Charles knew that CustomFittings had grown because of his vision and commitment.
He was the one who put in the long hours, week after week, year after year. He was
the one who sealed contracts with a handshake, the one who knew all the major clients, the
one who showed up to help get major jobs done, even on weekends and at night. “What
matters is that new stores can open their doors on time,” he always said to his team. He
was also the one who reinvested all profits in the firm, kept his own salary low, and
avoided dividend payouts. His philosophy was that the business had to be healthy to
weather the storms, so he was careful to take on as little debt as possible while growing
the company.
But with the firm’s growth came demands from family members who wanted
to become part of the success story. Moreover, with the growing number of major
retail chains that CustomFittings served, the company faced a steady increase in the
complexity of its operations. “That was when things started to become challenging,”
Charles sighed.

The Family: Was Money Thicker Than Blood?

Charles had to change the accounting system, from paper-based to computer-based.

His mother, who had been helping with the accounting, decided it was her time to leave.
After a brief, unsuccessful tryout in 1996 with his sister, Jessica Baker, Charles was
lucky that his wife, Christine, took over the firm’s accounting and helped him handle the
ever-changing and complex regulations, accounting standards, safety compliance rules,
and contracts. Christine upgraded her skills to meet these demands. “She has done a hell
of a job, which has allowed me to concentrate on the front-line work with clients,”
Charles said with a smile. “Christine is the one family member who has contributed a lot
to the firm. I love my family, but many other family members simply lack a good work
ethic. I have employed 14 relatives over the years; I have a responsibility to help them
and I wanted to stay on good terms. But in the end, did I have another option than to fire
most of them when they took advantage of me and underperformed?” Charles had hired
and fired his own brother, Jim Gilman, several times, firing him when he felt Jim was not
fulfilling his duties and then hiring him back when he could not find another job. (In
2012, Jim was once again working for the firm.) After Charles told Jessica that she
needed to improve her work performance, she quit and filed a lawsuit against him,
claiming he fostered a hostile work environment. Christine’s two brothers had also left
the company under murky circumstances. Charles’ father, who retired after selling his
share of the business to Charles in 1999, claimed that Charles had tricked him. He took
Charles to court and argued that he had been unfairly compensated because Charles had
known the company would turn record profits the following year. Of course, Charles
could not have foreseen this, and his father lost the case. But the stress that came from
employing relatives had led Charles to limit family involvement in the firm in recent
years: “My wife, son, and brother currently work at the firm, but I’m afraid that Bill, if

February, 2015 3
Table 1

Performance at CustomFittings (2007–2012e)

CustomFittings: Financials 2007 2008 2009 2010 2011 2012e CAGR 2007–2011

Revenue (in $ thousands) 16,403 25,208 19,853 17,636 19,079 18,145 3.9%
Year-on-year growth 53.7% −21.2% −11.2% 8.2% −4.9%
Net profit (in $ thousands) 199 2,957 1,425 440 720 1,014 37.9%
Year-on-year growth 1,385% −52% −69% 64% 41%
% of revenues 1.2% 11.7% 7.2% 2.5% 3.8% 5.6%
Assets (in $ thousands) 2,507 2,949 3,010 3,040 3,234 3,478 6.6%
Liabilities (in $ thousands) 517 470 466 461 452 443
Number of employees 33 35 34 34 32 31 −0.8%
Year-on-year growth 6.1% −2.9% 0.0% −5.9% −3.1%
Productivity (in $ thousands)
Revenue per employee 497 720 584 519 596 585 4.7%
Net profit per employee 6 84 42 13 23 33

Note: CAGR, compound annual growth rate, refers to the annual growth rate over a specified period.
Source: CustomFittings annual reports.

he takes over from me, might give in and hire other family members once again. He’s
emotionally attached to the family. However, I have learned my lesson: one has to be
careful with family.”
Considering these issues, the family succession option did not look that attractive
anymore. Charles opened his wallet and took out the business card that Jack had given him
at the birthday party. The week after the party, Charles had sent Jack the firm’s financial
figures, and the formal offer had arrived a few days ago. The accountant was still checking
the details, but Jack had offered $9.5 million for the company. The hard offer was forcing
Charles to decide the fate of his firm sooner rather than later.

The Firm: Status Quo

In 2012, CustomFittings’ major customers included national grocery chains and

various nonfood retailers. It employed 31 people, four of whom were family members,
and its operating revenue was relatively stable, at around $17 million to $19 million over
the last 6 years (see Table 1). The year 2008 had been an exceptional year, with record
revenues of over $25 million and net profits of almost $3 million. Charles had secured a
contract that year for the large-scale refurbishment of the food section of stores in a major
department store chain. CustomFittings had not been able to sustain that level of contracts,
however, and revenues for 2012 were expected to amount to $18 million, with net profits
of $1 million.
The majority of CustomFittings’ revenues came from store fixtures (70%), with the
remaining share from shelving. Net profits had been relatively volatile over the years, due
in part to Charles’ human resource strategy. A key priority for him was to offer employees
long-term positions in the firm. He had a profit-sharing program and kept employees on
the payroll year-round, even when there were fewer orders than usual. During these
slowdowns, he had the employees work on in-house projects, eschewing the practice in

4 ENTREPRENEURSHIP THEORY and PRACTICE

other fixture companies of “hiring and firing” according to the amount of work available.
Charles’ policy led to long-term employee retention, with the average employment period
at around 8 years. When there were enough orders on the books, Charles knew that his
team would deliver reliable quality products and services on time—something for which
his firm was known.
When CustomFittings secured a large contract with a major chain, the firm would do
well for 2 or 3 years. And despite its moderate size, it regularly managed to win such
contracts. Charles knew it was the reputation of the firm, and his name, that led to the
company’s success. When CustomFittings secured a job that was “too large,” Charles
counted on regional subcontractors and suppliers with whom he had worked for decades.
But his looming retirement was starting to become an issue for this business model. A
major client had recently told Charles that she was reluctant to hand out a multiyear
contract to a firm with an aging owner and no succession plan. “We did not get this
contract,” Charles sighed.

The Retail Store Fixtures Industry in 2012

In 2012, the U.S. retail store fixtures market represented $10.6 billion in revenues.
Between 2007 and 2011, the market size had decreased by an average annual rate of
10.8%. This was due to the recession in 2008 and 2009, which had put retail stores under
pressure. Stores were less likely to invest in expansion or renovate their fixtures. Many of
them were forced out of business altogether, which resulted in an influx of used fixtures
into the market. In 2011, the retail industry slowly began to recover as consumer demand
started to rise, leading industry experts to predict that the retail store fixtures market would
see marginal market growth in the coming years (see Table 2).
The industry offered fixtures to retailers in such areas as food, clothes, and elec-
tronics in four key product segments: fixtures, storage racks/accessories, shelving, and
other store fixtures. The fixtures segment included freestanding products such as show-
cases, clothing racks, tables, and stands. The primary customers for these types of
products had been retail stores with major square footage, such as Walmart and Target.
As these so-called big box retailers had suffered less than smaller ones during the
recession, their market share in the fixtures segment had increased, from 29% in 2007
to 33% in 2012. In contrast, the market shares for the shelving and the “other store
fixtures” segments decreased, from a combined 54% in 2007 to 49% in 2012. Products
in these segments included freestanding shelves (known as “gondolas”); shelves
attached to walls; displays made of wood, glass, or plastic; accessories; mannequins;
and sign holders. The decline of these two segments was due to a reduction in the
number of small specialty retailers during the recession. While there had been about
30,200 specialty retailers in the United States for women’s clothing in 2007, this
number had fallen to 28,900 by 2012. Finally, the storage racks/accessories segment in
the United States mostly supplied warehouse and stockrooms; this segment represented
a market share of 18%. A particular threat for this market segment lay in the increased
usage of inventory software that, by minimizing the need for retailers to stockpile inven-
tory, helped them reduce the storage space they required. Revenues in this segment
were, therefore, expected to decrease in the coming years.
In 2012, over 8,000 companies were active in the retail store fixtures market in the
United States, averaging eight employees and $1.3 million in annual revenues each. These
relatively small and mostly privately owned companies focused on their regional markets,
within which transportation costs and expenses for overnight accommodations were
manageable. They had long-standing relationships with both their customers and their

February, 2015 5
6
Table 2

Retail Store Fixtures Industry: Historical and Forecasted Performance (2007–2017f)

CAGR CAGR
Retail store fixtures industry 2007 2008 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f 2007–2011 2012–2017

Enterprises (in units) 8,946 8,690 8,255 8,031 8,220 8,323 8,226 8,464 8,425 8,581 8,594 −2.1% 0.6%
Year-on-year growth −2.9% −5.0% −2.7% 2.4% 1.3% −1.2% 2.9% −0.5% 1.9% 0.2%
Establishments (in units) 10,427 9,972 9,303 8,896 9,292 9,659 10,008 9,908 9,860 9,996 9,824 −2.8% 0.3%
Year-on-year growth −4.4% −6.7% −4.4% 4.5% 3.9% 3.6% −1.0% −0.5% 1.4% −1.7%
Employment (in # of employees) 73,486 69,416 65,093 64,846 65,600 66,399 68,342 68,651 69,259 69,512 68,302 −2.8% 0.6%
Year-on-year growth −5.5% −6.2% −0.4% 1.2% 1.2% 2.9% 0.5% 0.9% 0.4% −1.7%
Per enterprise 8.2 8.0 7.9 8.1 8.0 8.0 8.3 8.1 8.2 8.1 7.9
Revenue (in $ millions) 16,426 14,527 11,616 10,381 10,404 10,621 11,088 11,388 11,729 12,069 11,816 −10.8% 2.2%
Year-on-year growth −11.6% −20.0% −10.6% 0.2% 2.1% 4.4% 2.7% 3.0% 2.9% −2.1%
Per enterprise (in $ thousands) 1,836 1,672 1,407 1,293 1,266 1,276 1,348 1,345 1,392 1,407 1,375
Per employee (in $ thousands) 224 209 178 160 159 160 162 166 169 174 173
Industry value-added (in $ millions) 3,015 2,628 2,297 2,108 2,152 2,237 2,361 2,414 2,527 2,589 2,574 −8.1% 2.8%
Year-on-year growth −12.8% −12.6% −8.3% 2.1% 4.0% 5.6% 2.2% 4.7% 2.4% −0.6%
Demand from retail trade (in $ billions) 4,284 4,137 3,751 3,890 4,005 4,118 4,257 4,366 4,472 4,593 4,705 −1.7% 2.7%
Year-on-year growth −3.4% −9.3% 3.7% 3.0% 2.8% 3.4% 2.6% 2.4% 2.7% 2.4%

Note: CAGR, compound annual growth rate, refers to the annual growth rate over a specified period.
Source: IBISWorld (2012).

ENTREPRENEURSHIP THEORY and PRACTICE

Figure 1

U.S. Retail Store Fixtures Industry: Overview of Performance Drivers (2012)

US Retail Store Fixtures Industry

Key statistics:
Market segments (2012)
• Market volume in 2012: $10.6 billion (in revenue)
• Share of largest market player < 5% Electronics and appliance
• Combined share of top four market players < 7% retailers (11%)
• Historical market growth 2007 to 2012: -8.4%
• Expected market growth 2012 to 2017: +2.2% Food and beverage
retailers (14%)
Other (52%)
Industry structure: Clothing and
• Life-cycle stage: Maturity clothing accessories
• Low concentration level retailers (23%)
• High competition level
• Low barriers to entry Product/service segments (2012)
• Low technology change
• Medium revenue volatility Shelving (16%)
• Low capital intensity

Key external drivers: Storage racks and

• Demand from retail trade accessories (18%) Other (33%)
• Corporate client profit
• Per capita disposable income Fixtures (33%)
• Consumer sentiment index

Source: IBISWorld (2012).

suppliers. Given their heavy investment in fixtures, retail stores had to trust their suppliers
to deliver high-quality, durable goods. Their trust in the ability of fixture companies to
meet their needs was therefore key, and even small specialized players were able to build
up their own brands within a region. Not surprisingly, the majority of firms were family-
owned and family-managed.
Due to the prevalence of these many small local players, there was no dominant market
leader in the national retail store fixtures industry. The top four players accounted for less
than 7% of market revenues. Between 2007 and 2011, however, the number of enterprises
had fallen by 2.1% per year, mirroring the fierce competition during the recession. As
companies competed for the few jobs that were available, they bid low to try to win contracts
in neighboring regions. Consequently, profits in the industry were under pressure. On
average, companies were able to achieve profit margins of 2.4% in 2012. Fixture dealers that
acted as intermediaries between manufacturers and retail stores had significantly lower
profit margins on average than manufacturers that delivered directly to retail stores. But
even the performance of manufacturers that installed their products in their clients’ stores
varied largely, as competition and opportunities varied across regions. Only those with
favorable reputations could regularly secure the more lucrative jobs with major retail
chains. For such top clients, product quality and timing was essential, so they were willing
to pay a premium to get high-quality services delivered on time (see Figure 1).
In response to the decreasing market size, some companies increased their market
shares by acquiring competitors. As these companies were privately owned, they did not
have to disclose acquisition details, thereby limiting available data (see Table 3).
This was the marketplace context in which Charles had to decide the future of the firm
he had founded and had nurtured for almost four decades.

February, 2015 7
8
Table 3

Comparable M&A Transactions in the Retail Store Fixtures Industry in the United States

Enterprise Revenue Enterprise

value (in $ (in $ value/revenue
Target Industry Country Date Acquirer thousands) thousands) multiple Type of deal

Home-Style Industries Speciality furniture United States January 2011 Lippert Components 7,250 14,500 0.50 100% acquisition
manufacturer
Hickory Business Furniture Office furniture United States March 2008 HNI Corporation 75,000 55,000 1.36 100% acquisition from
manufacturer parent company
Rose Tarlow Furniture United States January 2008 Design Investors 24,940 85,999 0.29 100% acquisition from
manufacturer private owner
Knape & Vogt Office and shop United States July 2006 Wind Point Partners 106,000 157,365 0.67 100% going private
furniture buyout by private
manufacturer equity firm
Multiple mean 0.71
Multiple median 0.59
Multiple mean (without 1.36 multiple) 0.49

Source: Transaction profiles accessed via Zephyr.

ENTREPRENEURSHIP THEORY and PRACTICE

 Option 1: Sale

Charles remembered how surprised he had been when Jack walked over to him at his
birthday party, and after some small talk cut to the chase: “This might be an awkward
place to bring this up, but I would like to buy your firm.” Jack had started his business, JM
Storage Solutions, 20 years earlier to provide storage racks and appliances for large
warehouses and stockrooms. Business went well, and he reached the $20 million annual
revenue mark in 2007. Since then, however, his company’s revenue had stagnated at that
level. He told Charles that he feared that demand in the storage segment would continue
to decline. Spurred by this concern, he had decided 3 years earlier to expand into the retail
store fixtures segment. The pair had competed in a number of bids since then; Charles had
won them all. Now that Charles was close to retirement, Jack saw his long-awaited
opportunity to make progress.
Jack wanted CustomFittings in order to leverage Charles’s experience and contacts in
the retail store fixtures segment. He wanted to merge it with his own firm, reduce
overhead, and run the combined firm himself. Ultimately, he wanted to close down
CustomFittings’ headquarters and run the business from his current location. Charles was
disappointed by these plans. “Jack barely knows our headquarters and hasn’t even met
most of my employees,” he recalled thinking.
Charles told Jack that his son (Bill), wife, and brother worked in the firm and that it
was particularly important for Bill to maintain a position at the company. “I’ll make you
a good offer,” Jack responded. “The money will suffice for your whole family to live well
and retire.” Charles was not naive; it was obvious that his son’s future options would be
limited. Moreover, he was concerned about his family’s reputation. His family had lived
in the area for three generations; everybody knew them and knew the firm’s name. The
family’s values had infused the firm and fostered the company’s many long-term rela-
tionships with customers and employees that Charles was so proud of. He did not want
anybody to mess with the family’s legacy and reputation. He was attached to what he had
created.
Despite these concerns, Jack’s offer was good and Charles had to give it serious
consideration. “How much is my firm worth when compared to other deals in the
industry? What would be a reasonable and fair price?” Charles looked again at the
numbers that Graham Huberman, his advisor of almost 30 years, had prepared. He also
looked at the list of comparable transactions that Graham had compiled. “It’s practically
impossible to put a price tag on a life’s work, and you have to be careful not to get carried
away. I keep remembering our exceptional year in 2008 and then think, ‘For the whole
business, I should get only this much?’ ” But selling would give him an immediate lump
sum that could secure his and Christine’s retirement. The couple assumed they would need
a monthly income of at least $10,000 before taxes to be able to enjoy their retirement.
While the sale option seemed tempting, Charles still worried about what would
happen to Bill’s career, the future of the other employees, the Gilman family’s status in the
community, and the firm’s reputation if he took this route. He, therefore, also contem-
plated a second option for the firm’s future.

Option 2: Succession to the Son

Charles knew Bill wanted to take over the firm. Charles had always carried the firm’s
entrepreneurial risk and was more concerned with running the company than grooming
his son as a successor. When Bill was in school in the early 1990s, he spent his summers

February, 2015 9
working on the shop floor to earn extra money. After he graduated from high school in
1996, he took on a number of random jobs until Charles convinced him, with a good offer,
to permanently join the business, which he did in 1998. Charles ensured that Bill worked
in all areas of the business during those early years, from being on installation crews and
going to clients’ stores to working in the shop. “It’s good that I gave him such broad
experience back then,” Charles thought.
Bill’s job training worked out quite well, and starting in 2002 he was given the
responsibility of supervising crews and writing bid proposals. Charles had tried to ensure
Bill was not treated differently from any other employee, and Bill’s salary had fairly
represented the type of work he was doing. In 2005, Bill became vice president of
CustomFittings. Over the last 7 years, however, little had changed—except that Bill had
repeatedly and unsuccessfully attempted to obtain more responsibilities.
Shortly after the birthday party in 2012, Charles, Christine, and Bill decided to meet
to discuss the options in light of Jack’s offer. Christine was trying to persuade Charles to
reject Jack’s offer and let Bill take over the firm. But Charles knew his relationship with
Bill was poor. When Charles started the business, he worked late hours and experienced
tremendous amounts of stress. This compromised the amount of time he could spend with
his family, which Bill resented. As a result, Bill was defiant, tested the rules, and pushed
the boundaries to get his father’s attention. When Bill joined the firm, their strained
relationship quickly became a major source of friction.
Despite this, Bill did a good job. He worked hard and was popular with the firm’s
employees and clients, who constantly gave him favorable reviews. If Charles was to hand
CustomFittings over to Bill, clients could be assured that the Gilman family name would
continue to vouch for its work.
Regardless, Charles’s retirement was at stake and he did not know if Bill could carry
the burden of running the firm. Charles thought his son was too agreeable and tended to
avoid conflict, and would therefore be less able to make the tough decisions when
necessary. Charles had repeatedly found himself in the position of having to fire under-
performing family members; would Bill be able to do the same? Still, Charles recognized
it might be his own fault that Bill was not evolving in his leadership abilities. Christine’s
words still rang in his ears: “It’s your responsibility to prepare him to be a good leader—
get started! He doesn’t dare ask you for advice because you always react negatively. You
should have mentored him, not just criticized him.” Bill had recently made a similar
comment: “I’ve worked here for 14 years and I’ve done a good job. I would love to have
more responsibilities, but you don’t let me!”
Christine felt it was less risky to give the firm to Bill than to sell it to Jack, whom they
did not know well, and she was prepared to help Bill take his place at the helm. She valued
Bill’s strengths, such as the ability to pick up new trends more quickly than Charles. Bill
had gotten the company set up for online, real-time job bidding, which seemed to be the
future of how contracts were won in the industry.
However, Bill could not afford to buy the firm outright. Charles would have to keep
a significant stake in the company for many years to come; this would affect his and
Christine’s retirement income, but at least it would allow him to intervene in any major
decisions Bill made with which he did not agree. Charles was pleasantly surprised when
he heard that Bill had gone to the bank to take stock of his financial possibilities. With his
current salary of $110,000, Bill would be able to get a loan of $300,000. But even added
to his $50,000 in savings, this would give him only a small equity share in the firm. At the
same time, Charles and Christine needed money for retirement. They discussed a possible
arrangement: Bill would buy an initial share of equity using the funds from his personal
loan and savings, and Charles would give Bill an additional 10% of equity to get him

10 ENTREPRENEURSHIP THEORY and PRACTICE

started. In addition, they would freeze the value of the firm. If Bill then generated profits
with the firm, he would use his portion of these profits to buy additional shares in the firm
from Charles; this would continue until, eventually, he become the majority owner and
CEO of CustomFittings. Until then, Charles could ensure that Bill kept moving the firm
in the right strategic direction. Bill had made it clear that he had run the firm with the same
values as his father, striving to provide long-term opportunities to employees and high-
quality service to clients. Bill’s aim was, therefore, to uphold the organizational culture he
had come to enjoy. But how long would it take him to become the majority owner?
As for Charles and Christine’s retirement, the firm could take on additional debt and
invest it in a lifelong annuity for them. They would sign a contract such that the firm would
guarantee their retirement pension. Their advisor, Graham, said that if the firm took on $2
million in debt and invested it in an annuity at the current interest rate of 1.75%, Charles
and Christine would receive a healthy payout for the rest of their lives (assuming life
expectancies of another 20 years). Graham thought the firm could get this $2 million
annuity at about 7% interest per year. This seemed like a good option. They had already
discussed it with their long-time sales manager at the bank, who had confirmed that their
current leverage ratio of only about 14% would allow for additional debt without com-
promising financial stability. However, Bill was concerned: “If the firm takes on so much
additional debt, it will threaten profits and take even longer for me to buy my father’s
shares. I want to own the majority of the firm within the next 10 years,” Bill thought.
It still was not clear if the succession option could be made attractive to Charles,
Christine, and Bill. And how would the succession scenario fare financially, compared
with the option to sell? To answer this question, they needed to estimate the value of their
firm. Now it was time for Charles to crunch the data, evaluate his options, and decide how
to proceed.

What to Do?

Charles wrestled with the difficult decision that had to be made. “If only I could have
more confidence in my son,” he said. But he worried that if Jack took over CustomFittings,
it would threaten Bill’s career, and he worried that if Jack fired employees and cut overhead
costs the family’s long-standing reputation in the community would be damaged.
Charles got up from his desk and took a deep breath. After weighing both options
carefully, he was ready to make a decision about what he thought would be best for the
business and for his family.

REFERENCES

Gómez-Mejía, L.R., Cruz, C., Berrone, P., & De Castro, J. (2011). The bind that ties: Socioemotional wealth
preservation in family firms. Academy of Management Annals, 5, 653–707.

IBISWorld. (2012). Retail store fixture dealers in the US. Industry Report OD5532.

Peter Jaskiewicz is an associate professor, CIBC Distinguished Professor in Entrepreneurship and

Family Business, John Molson School of Business, Concordia University, 1450 Guy Street, Montreal, QC,
Canada.

February, 2015 11
Eva Lutz is a professor, Heinrich Heine University Düsseldorf, Riesner Endowed Professorship in
Entrepreneurship/Entrepreneurial Finance, Universitätsstr. 1, D-40225 Düsseldorf, Germany.

Melissa Godwin is an MBA alumnus, University of Alberta, School of Business, 3–23 Business Building,
Edmonton, Alberta, Canada T6G 2R6.

We would like to thank Stacey Berman, James Combs, Liz Crompton, Trish Reay, Lloyd Steier, and Rahul
Thomas for their helpful comments on earlier versions of this case study. In addition, we are grateful to the
editor and three anonymous reviewers for their valuable suggestions.

12 ENTREPRENEURSHIP THEORY and PRACTICE