I’ve often wondered how some family businesses, such as Cargill, grow to be such large enterprises but remain family businesses. The curtain was pulled back a bit by John Tracy, executive chairman of Dot Foods and this year’s chairman of the National Association of Wholesaler-Distributors. He spoke at the trade group’s annual Executive Summit in Washington.
The company founded in 1960 by his parents, and was named after his mother Dorothy. Initially it was a wholesaler of ingredients to the dairy industry. It grew to $20 million sales by 1960.
Tracy was one of 13 children. Ten of the 46 members of the second generation are involved in the business, he said. But importantly, every member has been involved at one time or another, and every member today is a shareholder.
The every-member-a-shareholder philosophy extended to the three generation. Many of them are actively involved in Dot Foods, and all are shareholders.
“We’re not an M&A firm,” he told us. It’s growth – today Dot serves 4300 distributors with the products of 835 manufacturers – has been largely bootstrapped. It’s only made a couple of acquisitions, both for less than $1 million, in the last 58 years. Sales today total $7 million. The company has 11 locations, including Toronto, Canada, and is involved in a Mexican joint venture.
“We did this without the family splitting up,” Tracy said. The children got the business from the parents in 1980. “We had to learn how to share governance and power because we are all minority shareholders,” he said.
It took about two years to agree on some key principles about the business. First, it was to sustain the family, and not break up the family. Second, it was to be a sustainable family business. The idea was that it should not go public, and that it should continue generation after generation.
Consultants delivered some standard family business advice: It has an outside board (which doesn’t include either the family’s or the businesses lawyer or accountant) as well as a board of advisers.
It has a family council which meets periodically so every member of the family understands how the business is doing. Every member has developed an estate plan but the business also has an ownership plan which provides for both dividends and a fair liquidity option, Tracy said. There’s an annual family meeting as well as two shareholder meetings a year.
Recently, the family organized Dot Family Holdings, whose principal asset is Dot Food. But the holding company has also been making investments in other distributors, including Grabber Construction Products, one of the largest fastener distributors in North America. Other investments include Reliable Parts, Triad Technologies and MTS Insurance. All were acquired with the intention of being long-term investments. “We’re not into buy and sell,” Tracy said.
In developing Dot Family Holdings also created Dot Capital Management LLC, which is intended to function as a family office, and a family foundation.
Looking to the future, Tracy argued that distribution’s biggest competitors are not just Amazon, but technology companies in general, including Apple, Google, Facebook and Alibaba.
He also noted that while distributors know a great deal about their physical assets, they aren’t as knowledgeable about their greatest asset, their employees. He suggested that key information – including background, skills, ambitions, location flexibility, strengths and capabilities – need to be as easy to retrieve as information about a distributor’s trucks.
He turned to corporate culture, which obviously has been very important at Dot, and suggested wholesalers should carefully consider several key questions:
- Objectively, what is your corporate culture?
- What do you want it to be?
- How do you measure it?
- What is it?
- What do your customers thing about it?
- What do you want it to be?
- What do your suppliers think about it?
- What’s unique about your culture?
- And how do you hire for culture fit?
While wholesalers are obviously accountable to their shareholders and suppliers, Tracy suggested a broader range of accountabilities, including employees, customers and communities.
Looking toward business planning Tracy noted that formal planning is really hard work. But it’s crucial to moving your company forward. Key issues to consider:
- Where are you vulnerable?
- Where can technology disrupt you?
- What’s unique about your value proposition?
- Where can I win against bigger or more technology-friendly companies?
- What’s your plan, and
- Does it add up financially?
Turning to government relations, Tracy noted that when President Obama was in power, unions “did really well.” But that wasn’t an accident: They invested a lot of money to elect Obama and Democrats, they made in-kind service donations, and they turned out union members to knock on doors. That gave unions clout in Washington during Obama’s presidency.
But it’s not just unions that buy clout. Tracy noted that Amazon spends $50 million to $100 million in Washington, and, “I guarantee you their voice is heard in this town.”