How to Build a Family-Owned Agency That Will Last
Richard Edelman was headed for a job at Playtex as an assistant product manager when he received a life-changing call from his father, Daniel, who was then leading Edelman--not yet the world's largest independent PR agency. "Edelman was approached by DDB to be acquired," he recalls. "My father just called and said, 'I don't want to sell the agency; come here for a year.'"
That year turned into 36 for Mr. Edelman, now president-CEO of the agency, who is hoping his three daughters will carry on the family legacy at the PR titan. "Is it necessary that they all join Edelman? No," he said in an earlier interview. "Is it desirable? Of course. I want Edelman to remain a family business."
But that's often a tricky proposition for independents, particularly in an era when most shops are trying to stay up to speed in a media environment that looks nothing like it did even five years ago. Add family to the mix and grooming the next generation of talent gets more complex.
Studies have shown more than half of family businesses don't make it to the second generation, said Michael Preston, a professor of entrepreneurship and director of the family-business management program at Columbia Business School. Among the reasons are fears of perceptions of favoritism, reporting issues and generational compatibility. The most basic issue, of course, is whether family members are suited to the task.
Ken Makovsky, president of small PR firm Makovsky & Co., hadn't initially intended to build a family business, but he knew his son Matt would probably succeed him when Matt was only 10. "Sometimes I would introduce business problems to him, and I was intrigued by his comments," he said. "I would not ever want a blood relative running this agency who wasn't capable of doing it. If my son were not capable, which I would find hard to believe based on what I know today, he wouldn't stay in his position."
As with Edelman, Makovsky is looking to stay independent. For Mr. Makovsky, it's less about an aversion to holding-company bureaucracy and more about family. "I've had offers," said Mr. Makovsky. "The main reason I have not [sold] is because of my son."
But because of his son, it may not be the same business first opened in 1979. Thirty-year-old Matt Makovsky is taking the firm in a new direction, starting with a consumer-marketing subsidiary he launched called Skylabs.
"The real benefit in working with my father is seeing what it takes to build something as a solo entrepreneur. Not everyone has what it takes to do that," said Matt Makovsky, who served in a marketing role with the NFL before leaving to get his MBA at Columbia and joining his father's firm in 2011. "Skylabs is going after its own client base, but there are certainly collaborative efforts [with Makovsky]."
The fresh eye brought by the younger Mr. Makovsky is exactly the type of benefit Mr. Preston said can result from family succession. "In this time of rapid change, often it's the youngest generation bringing the new perspective."
That was the case with APCO founder and Executive Chairman Margery Kraus. When during the internet boom of the 1990s she sought an expert to guide her, Ms. Kraus turned to her tech-savvy brother. But it was really the next generation she wanted. Only the "cool uncle" could convince her son Evan, a Booz Allen consultant with an aerospace engineering degree -- a literal rocket scientist -- to leave San Diego to help out mom.
"We talked about how [Evan] would have to prove himself in an area nobody understood at the time," she said. "It was tough in the beginning." Before she knew it, he had a team of 50 working on "this [digital] stuff."
Ms. Kraus didn't start her D.C.-based shop 30 years ago with the intention of building a family business. In fact, the shop was part of a law firm and ad giant Grey before it bought back its independence in 2004. But her son stuck around for 18 years and the 68-year-old Ms. Kraus recently announced he would play a prominent role in the shop's next generation of leadership. She moved into an executive chairman role and promoted Mr. Kraus to president and managing director of operations. (His sister, Mara, also serves in a marketing role at APCO.)
But in a family operation, succession doesn't stop there. Richard Edelman is now prepping the third generation at his agency. His eldest child, Margot, has worked in Shanghai and Chicago offices and is getting her hands dirty in the research department in New York. Daughter Tory is on a rotation in the consumer group in New York, and his third child, Amanda, is at Stanford. "I want to give them exposure to as many parts of the business as possible," he said. That might mean "big client management, running office P&Ls and understanding specialties like digital and research."
When asked recently how he expects the family plan to play out, he said, "It'll be fine. It's a big business. I don't worry about it."
As for Ms. Kraus, "there were starting to be rumors in the marketplace about what happens after I go," she said. "It was important to send a signal for those people who are at the prime of their career—what does the future of the firm look like and what role do people play."