Selling the Family Business

On September 30, my family and I closed a very important chapter in our lives.  We sold Quality Fire Protection, the business that my Dad started with his ex-partner in 1995.

After fifteen successful years, my family sold Quality Fire Protection in September 2010.

For the first 8 years of its life, Quality Fire Protection had grown reliably thanks to the marketing efforts of my Dad.  Its backend, however, was a mess.  The ex-partner, responsible for the administrative side of the business, had allowed the weeds to grow over his duties:  taxes were unfiled, accounting numbers were difficult to track down and any kind of real time reporting was dubious at best.

In 2002, my mom joined the business full time.  In short order, my parents bought out their partner and my mom started the hard work of cleaning up the business’ books and processes.

I re-joined the company in 2004.  I had previously worked for my Dad in a sales/ service capacity for the two years following my college graduation.  I left convinced that I would not return.  I had no real affinity for the business of fire protection and knew that my future lay in communication, sales and management. I wanted to build my career in an industry that was more in line with my passions.

But after ten years working in television, public corporate communication and sales management, I found myself looking to bring my talents home.  Simultaneously my dad felt he had taken the business to a point where he needed a dedicated sales person to increase revenues.  I accepted the position of sales manager and set about creating a marketing and sales strategy.

After breaking down the opportunities and strategically pursuing them for 18 months, I realized that we were spinning our wheels.  We were very good at telling our story and persuading our target market, the multi-family business community, to use our service but we weren’t structured to accommodate the growth that my shiny new marketing strategy was bringing to the table.  My parents had cleaned up the mess of our former partner and had reformed many of our administrative processes but no one had adjusted our operational platform to accommodate a new influx of customers.  As a result, our attrition rate grew almost in direct proportion to our new sales.  Our then service manager expressed it like this:  “we sell one in the front door and another leaves out the back door.”

While he was good at summarizing the problem, our service manager had no real interest in reforming the business.  As we began to make changes to address the underlying roots of our customer retention issue, he left the business, leaving us to address the overall concern of how to manage the operational side of our business.

Because my mom had a firm understanding of the administrative business and my dad’s real strength is in sales and marketing, I agreed to take on the operations role.  While it was my first foray into operations management, I approached the restructuring of the company with a firm understanding of the strategic priorities at hand:  maximize revenue, allow for scalability and never lose a customer.

Over the next four years, I overhauled the business, deconstructing every process and rebuilding it.  We changed the compensation for service employees, modernized and integrated both the operational and administrative processes through the implementation of a new ASP software platform, invested more thoroughly in technical and customer service training, relocated to a bigger, friendlier facility, created two dedicated customer service positions inside the office and generally turned everything upside down to see how it worked before rebuilding it.  This was my MBA.  Without this process and Quality Fire Protection, I would not be the well-rounded entrepreneur that I am today.

And it paid off.  Revenue in 2009 approached $2.6 million, a 100% increase from when I joined the company.  We enjoyed our most successful year ever as the rest of our industry plunged into the depths of recession.

Our success, however, shielded us from the changing climate surrounding our business.  While we were busy courting and servicing our growing customer base, our competitors were being backed into a corner by the economy and, faced with imminent destruction, took drastic measures to stay alive.  They cut their prices massively and aggressively began to pursue new business.  The threats to our business changed rapidly and we were too busy making money to notice until the effects of our competitors’ hunger became apparent in our bottom line.

By the second quarter of 2010, the forecast for the business had deteriorated.  Customers who had been with us for years were defecting to competitors who, in some cases, were cutting our prices in half.  We benefitted from many loyal customers who agreed to stick with us, but only if we would match the new aggressive pricing.  Margins plummeted and top line revenue dropped 30% off of 2009 levels.

In addition, the regulatory climate surrounding our industry became increasingly restrictive.  Working in life safety, we benefitted from offering a service that was mandated by law.  In return, however, we agreed to abide by the various licensing authorities that allowed us to offer our services to the business community.  In Colorado, that meant working with over 20 separate licensing jurisdictions to ensure that our technicians and our work product were up to code.

Each of these jurisdictions maintained separate requirements for the performance of work within their county, city or fire district.  With increased access to information, thanks to the growing proliferation of information technology, these jurisdictions were becoming increasingly demanding in their requirements for conducting business under their authority.  In addition, their bureaucratic nature did not lend itself to collaboration either between jurisdictions or with the business community.  Their requirements were firm and increasingly expensive.  As our revenues plummeted, our costs continued to rise.

The stress of the increasingly difficult business climate took its toll on our familial relationships.  Daily arguments between my mom, my dad and I became commonplace.  While we had always strived to keep business discussions to a minimum at family dinners and celebrations, we found it increasingly difficult to distance ourselves from the gut wrenching problems that awaited us at the office.  I wished that I could have a relationship with my parents that had nothing to do with the performance of the company.

In March, we received a phone call from the Colorado General Manager of a nationwide, publicly traded competitor.  We’d established a relationship with him two years prior when my dad approached him to become more active in our local trade association.  The public company has long employed a growth through acquisition strategy.  After a year of being out of the acquisition business, they were going to buy another Colorado company this year.  We were their first choice.

We decided to see what their offer would be.  We filled out a questionnaire that was exhausting in its comprehensiveness and left us feeling over exposed.  In fifty pages we gave one of our most aggressive competitors all the information that they would need to drive us out of business.  More than once, we wondered if this was a good idea.

After sending over this excessively large compilation of financials, customer lists, employee lists, flow charts and operational processes, we waited.  And waited.  And waited.  After hustling to compile this information in a timely fashion, we were rewarded with 60 days of silence.  We put our heads down and ran our business, uncertain why we had gone through the effort until their business development team contacted us in June.

Preliminary negotiations lasted 45 days and resulted in an offer that was…fair.  We had held out hope that the offer would be enough for my parents to retire.  The final number was well short of that.  We wondered if it was worth it to sell a business that had provided a strong living to us for a period of years if my mom and dad, approaching their sixties, would still need to find a way to make money before they could permanently leave the work force.

Meanwhile, the company limped along.  Our team put their best efforts in, fighting for sales, bending over backward to keep our customers satisfied, finding ways to reduce costs, but each month, we found ourselves facing grim results.  The overall climate was stacked against us and growing more difficult.

We met multiple times over a course of weeks to mull the offer over.  Ultimately, it became a decision based on the desire for a closer family.  We grew tired of fighting with each other.  It also became a matter of taking what you could get and hedging against the worst-case scenario.  We believed that if the economy improved and we continued focusing on the core of our business, that we might be able to weather the current storm and return to the profitable levels of 2010 sometime.  We knew that we could cash out now and buy ourselves time to find something that might be in a less precarious condition.  The offer wasn’t a golden parachute but it was a parachute.  We took it.

In addition, I decided long ago that my vocation and my avocation needed to coincide.  I came to this epiphany after a long, successful three years at a manufactured goods company where I learned a lot about corporate communication, advanced my career, developed a host of skills and hated every second of it.  I left to pursue a career in the wine industry, which I adored but abandoned after a hard stretch to return to Quality Fire Protection.  While Quality Fire Protection had likewise provided me with an immense opportunity to learn in the unparalleled arena of complete independence, I longed to do something that woke me every morning with the compelling argument of passion.  I needed to care so much about what I did that the long hours required for success were footnotes to the task itself.

Shortly after rejoining Quality Fire Protection, I took this photo in a hotel in Italy, hopeful I could reconcile my love of travel, European culture and wine with my new career selling fire protection services in Denver.

When we began to contemplate selling the family business, I put feelers out among my friends still in the wine business, expecting a job search to take months.  Within three weeks, I was talking to my new boss, learning about his plans to develop a national distribution network for his growing portfolio of wines.  By the time we sold Quality Fire Protection, I had already started working my new job on a part time basis, balancing my new post with the hard work required to sell a business.  Mentally, I had moved on.

Emotionally, both my parents and I were riding the roller coaster.  Selling a business belongs with moving, divorce and death as one of the most stressful experiences a person can undertake.  Uncertainty lay beneath every decision and remains even after the close of the sale.  Did we do the right thing?  We don’t know.  We may never know.  We removed ourselves from a difficult situation and gave ourselves time to contemplate our next move.  We divested a depreciating asset while there was still value in it.  But we also walked away from a business that, while floundering, was still profitable and had provided a very healthy living.  We did so in the middle of the worst economy in my lifetime.  Only time will tell, maybe, if that was the best decision.

 

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About Nate Klatt

I'm a writer, thinker, entrepeneur, music lover and father.
This entry was posted in Business, Family and tagged , , , . Bookmark the permalink.

One Response to Selling the Family Business

  1. I heard about this journey and it saddened me to hear, but I think ultimately it came down to that decision. With no hopes of several months of it improving, it could have been a matter of time before the total cost exceeded the profits and then you could have been way in deep in struggling waters. Maybe the new job will provide some opportunity and with some hope, things will all work out. Miss you and love you,
    Jennessa

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