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Built to Last

Written by David Whitford and published in Fortune Small Business June 3, 2002.

During its 102-year history, Boyd Coffee Co. of Portland, Ore., has survived two World Wars, the Great Depression, and even the onslaught of Starbucks. But back in 1997, David and Dick Boyd, the brothers who own and manage the family business, were just a screaming match away from trashing the company. For 15 years David had the top job at Boyd Coffee all to himself. Then, in 1991, Dick replaced him in a messy family coup orchestrated by their parents. The brothers stopped speaking to each other, shutting the doors at either end of the back corridor that connects their offices. Employees grouped into competing factions. Management by consensus deteriorated into management by edict. And as Dick struggled to keep Boyd Coffee on course, David, in Dick's words, became a "butt-head, contrarian, and saboteur." Finally David delivered this ultimatum: "Either we're going to learn how to get along and operate this thing together, or we're going to have to dissolve the company."

It was a pivotal moment for the Boyd brothers and the company that their grandfather had started. "That scared me when you said that," Dick recently confessed to his older brother. "That was a threat. It wasn't a threat just to me but it was a threat to every employee in Boyd Coffee Co. I didn't want to see that happen." Desperate to save what three generations of Boyds had built, Dick called in consultants and an organizational therapist for help. One and a half years and several hundred thousand dollars later -- not to mention countless painful confrontations -- their prescription is working.

These days the brothers run their family's 450-person company side by side in a 300,000-square-foot plant and office building on the eastern edge of Portland (with stunning views of snowcapped Mount Hood). Their relationship is solidly fraternal, not fractious, and their business is humming along, supplying coffee, tea, and brewing equipment to hotels, restaurants, and convenience stores all over the Pacific Northwest (and as far east as Chicago). The annual sales figure is a family secret, but reliable estimates put it just north of $100 million.

As sad as the demise of Boyd Coffee would have been, it would not have been surprising. Family businesses that stay in the family are the exception. There are approximately 18 million family businesses in the U.S. Most are neophytes compared with Boyd Coffee -- new ventures still managed by founders who dream of extending family control to their children and beyond. Such dreamers should know that their odds, in a word, stink. "There's a major drop-off between the first and second generations and another, smaller drop-off between the second and third," says Ernesto Poza of the Partnership With Family Business at Case Western Reserve University in Cleveland. According to Poza, less than one-third of family businesses survive into the second generation, and only about 12% make it to the third. After that, the odds improve. "The ones that make it past the third generation seem to be able to hold on," says Poza.

That's because companies that survive the first couple of transitions have generally made it that far precisely because they already have the tools to beat the odds. Among the attributes of surviving companies, according to Tom Hubler, a family- business expert based in Minneapolis, are (1) a board with outside advisors, so decisions don't become personal; (2) regular family meetings to manage the boundaries between the business and family relationships; (3) ample opportunities for career development; and (4) a family united by common values and a common vision.

None of those attributes described Boyd Coffee in the days when Dick and David were at loggerheads. But they were lucky in one respect. Both were keen on keeping Boyd Coffee in the family, and because Dick, David, and their 91-year-old father, Rudy, are the only shareholders (there are two Boyd sisters, but they cashed out years ago), there was no boisterous sell-faction lobbying to take the money and run. But according to Roy Williams, the Stockton, Calif., consultant who led the intense 18-month team effort to save Boyd Coffee, the key agents of destruction for nearly all family businesses are lack of communication, lack of trust, and lack of confidence. Those are the issues that nearly brought Boyd Coffee down.

James McManis, the organizational therapist brought in by Roy Williams to help Dick and David work through those issues, has seen so much pain and heartache surrounding family businesses during his 30 years in practice that he wonders if most are even worth preserving. McManis admires the Boyd brothers for ending their feud and saving their business, but still cringes at the cost. "They have paid so much," he says. "I wouldn't want it. I would not trade places."

David and Dick Boyd are the only sons of Rutherford Percival Boyd (known as Rudy), who was the only son of Percival Dewey Boyd (known as P.D.), who founded Boyd Importing Tea Co. in 1900 (the company didn't switch its name until 1946). P.D. was the son of a Presbyterian missionary from Scotland by way of New Zealand. He started out, the story goes, delivering tea and coffee door-to-door in a red wagon pulled by an old brewer's horse that ambled along at a "keg pace" and stopped at every tavern. "For many years," says David, "we'd meet old people who would say, 'Oh, I remember your grandfather doing that!' "

P.D. and his wife had one surviving child, Rudy. One day during his sophomore year in high school, Rudy stormed out of the building after an argument with his Spanish teacher and never went back. He succeeded his father shortly after World War II and managed the business for 30 years. In 1952 a frost in the Brazilian coffee fields nearly cost Rudy the company, not to mention his house, but he was later able to restore Boyd Coffee to consistent profitability, which it has enjoyed ever since. Rudy has had numerous offers over the years from various suitors but has always refused. "If it wasn't for you kids coming up," he used to say to his sons, "I'd probably sell."

Like their father, David and Dick grew up in the business, playing on sacks of coffee beans in the warehouse on Saturday mornings when they were kids, working weekends and summer vacations once they turned 16. David's first real job, for $1 an hour, was packing cloth filters and restaurant guest checks. He spent one memorable summer in the basement of the old downtown headquarters grinding cocoa powder, staining his white T-shirts brown, coming home for dinner smelling like a candy bar. Dick's first job was counting coffee lids. During college (both were star swimmers at the University of Oregon; Dick was a three-time All American) the brothers spent their summers on the road filling in for vacationing route salesmen, calling on Boyd's far-flung accounts. Neither recalls ever giving much thought to what he might want to do for a living. They were Boyds, after all. Day one on the full-time payroll for pension accounting purposes was the day they graduated from college.

For the next decade or so the boys were tutored not by their father but by Veda Younger, a widow hired as a secretary many years before who had since risen to secretary-treasurer, chief coffee buyer, and Rudy Boyd's right-hand woman. Younger was to Rudy Boyd what Ed Perry, a generation before, had been to P.D. Boyd -- a non-family member, second in command, who it turns out really ran things. "Rudy Boyd did not know anything about administration," says Younger. "He didn't understand the financial part, how it works, and he was a little reluctant to let me know that he didn't know." So it was Younger, not Rudy, who prepared the next generation of Boyds for leadership roles in the company.

Not that Rudy was invisible. As a boss as well as a father, he had an uncanny ability, in David's words, to "find the exception." If a piece of trash wound up on the plant floor, Rudy saw it. If a salesman fell behind on his quota, Rudy knew about it right away. Once, shortly after David had become marketing director, he designed a new brochure and ordered 400,000 pieces. They were stacked on pallets in the warehouse. Rudy walked up to the pallets, reached inside one of the boxes, and pulled out a single brochure. "It was supposed to be printed on both sides," says David. "He opens it up. It's blank on the inside. He says, 'Are they all like this?'" Well, they weren't. David knows because he checked. But what was worse, the boys had always suspected that no fault, however small, could be hidden from their father; now they had proof.

Ironically, though both Dick and David had more education than Rudy did, plus a more thorough grounding in the business (thanks to Younger), they lacked faith in themselves and their abilities. It's a common affliction in family businesses, especially among managers who must report to their larger-than-life parents. Younger recalls a rare occasion when David opposed his father. "He was so angry at something his dad had done or said," says Younger. "And he told me all about it. I said it doesn't do any good to tell me -- go tell your Dad. He turned white! But he went in, trembling and shaking. And he told him. After he left, Dad came in to see me. 'Well, my boy sure gave me a dressing down!' He was proud." If so, Rudy kept his true feelings well hidden from his sons. Fearing his disapproval, they chose avoidance over confrontation whenever they could.

Rudy Boyd officially retired in 1975, soon after he turned 65, and David took his place. Dick accepted that. David was the older brother, and he'd had a two-year head start. David found out about his new assignment not from his father -- who immediately left on a two-week vacation to Europe -- but from Younger, who showed him the minutes of the board meeting at which the decision had been made. Years later, David can recall no feeling of pleasure or accomplishment at achieving this milestone in his career, only fear. "Working in the company all your life -- and never getting a job on your own -- has a lot to do with your self-esteem," he says. "You're never quite sure, 'Did I get this job because I earned it and I can do it? Or because my name is Boyd and I'm the older brother?'"

In reality, not too much had changed. Rudy was still chairman. He kept his corner office. He still parked his white Ford Fairlane in the best spot, closest to the door. And most mornings he was already at his desk, drinking his morning coffee, when David and Dick arrived. ("Especially if it snowed," says David.) Now that David was CEO, he chaired the management team meeting every Monday morning and sat at the head of the table. But for years afterward, Rudy attended that meeting too. "He would sit at the far corner of the table and not say anything," David recalls. "Rather intimidating. So although I was president, I never felt for sure I was." Though Rudy rarely spoke, he had ways of making his feelings known. When David, bowing to reality, reversed a long-standing company policy banning facial hair, Rudy appeared at the next meeting with a felt mustache taped to his lip. David got the message. "Okay," he said to himself. "We'll wait."

Really what David was waiting for, all through his 40s and into his 50s, was the opportunity to emerge from his father's shadow. "I think Dad liked that," says David, meaning how insecure he always felt. "Any time I got self-confident, he would make sure I wasn't too self-confident. That's why I was terrified taking over that job."

Then, just as he was finally settling in, another setback.

"What's it all about?" David asked his brother when he first heard about the special board meeting at their parents' house.

"You'll see," said Dick. He had been "forewarned," he says now. "There were numerous discussions. I was called to their home and quizzed about certain things, and I informed them, and I defended a lot of the things that were going on." To no avail, apparently.

In November 1991, the board of Boyd Coffee -- consisting of Rudy; his wife, Ellen; David; and Dick -- removed David as president and CEO and replaced him with Dick. The vote was three to nothing, with David abstaining. David's pay stayed the same (the brothers had always made equal amounts anyway), and he didn't have to give up his office. But after 15 years in charge, David was reporting to Dick now. In what capacity was not yet clear. "I'm sure you'll find something you like," his father told him.

A decade later, precisely why the change was made remains a mystery. By all accounts, sales were rising, the company was profitable, and there was no clear justification on business grounds for replacing the CEO. Those who made the decision are no longer able to tell: Ellen, whose influence was large, died in 1997; Rudy is living in a nursing home and doesn't always recognize his own sons. Apparently, though, there was parental dissatisfaction with David's personal life. The week he was ousted as CEO was the same week he split with his wife and moved out of the house. ("The intention would have been maybe to spank David and pat Dick on the cheek," says Younger.) A sense of fraternal fairness may also have entered into it -- that it was time for Dick to have a turn at running the company. Finally, Younger believes that Ellen, who was very protective of the family fortune, may have "lost confidence in the boys and was eager to hang on to control. She would have had a harder time controlling David. She might have felt more comfortable with Dick."

Neither parent, Dick and David agree now, gave much thought to how all this might affect their relationship as brothers. "It may be harsh to say, but I don't think they cared," says Dick.

Maybe if they had known what damage they were doing to the company, they would have acted differently. Dick's tenure as president of Boyd Coffee began awkwardly and ended in gridlock. "People in the company were wondering, 'Who am I working for?' and 'How do I not get in the middle of this?'" says David.

Indeed, how does a company operate under such circumstances? "Very tentatively," says Dick. "A lot of times David's practice had been to develop consensus as best as possible. But there was a time when consensus just wasn't going to happen." When Dick pulled the plug on one of David's pet projects -- new products for a new market, the fancy foods and gifts industry -- David fumed. He thought of quitting, briefly, and even considered an offer to become president of another coffee company back East. But the job didn't pay as well, and David, who was now writing alimony checks, needed the money. Besides, how could he think about working anywhere else? He was a Boyd, after all.

Their mother's death was a nudge toward reconciliation. ("We saw Mom go to the grave without her and her sister resolving an issue," says Dick. "Her sister wouldn't even stand up next to the casket at her gravesite.") So was David's ultimatum. Dick could hardly ignore the threat. At that point, each brother owned 25% of the company. Rudy still held the other half. When he died, David and Dick would each become 50% owners. At which point, under Oregon law, David could dissolve the company and Dick would be powerless to stop him.

That's when Roy Williams got involved. The Boyds had earlier talked to "a couple of shrinks," says Dick. "All they talked about was, 'How do you feel about this, how do you feel about that?' Williams was able to convince us that he had something to offer and would bring other resources with him."

The resulting engagement required a small army of consultants, including specialists in succession planning, communication, and what was the most difficult issue for the Boyds, restoring family trust. That was the piece handled by James McManis, whom Dick refers to, reverently, as a "spiritual healer." McManis drove down from Seattle every week for a two-hour therapy session with the Boyds, usually at the plant. (He talked to Younger, 88, on the golf course.) Some sessions were one-on-one; others involved whole roomfuls of family members. For Dick and David, it was always difficult. "Our family had a tendency sometimes when issues came up [to say], 'Well, they'll go away,' " says Dick, "rather than confronting them head on."

In their own sessions with McManis, the Boyd brothers focused on mending their personal relationship. They learned how to talk to each other without getting angry, to express their feelings ("When something hurts," says David, "you say ouch"), and finally to trust each other again. The breakthrough came when each agreed to make a specific, significant concession to the other. David's was so personal that neither he nor Dick is willing to talk about it, even now. But Dick's concession is out there for all to see. "What I had to give was the title, the responsibility," he says. "Did I want to share this responsibility or did I want it all for myself? I decided to share."

So now they're both president and CEO. David, who is naturally more outgoing, oversees sales and marketing for Boyd's ever-expanding product line. (When P.D. Boyd died in 1962, Boyd sold a medallion blend, a gourmet blend, a chef's blend, and a custom blend, in either one-pound or half-pound bags. Today it has 480 SKUs in coffee alone.) Dick is in charge of human resources, finance, and operations. This spring he'll complete an executive program in family-business management at Harvard Business School. The brothers take turns chairing the weekly management team meeting. When disagreements arise, says Dick, "we give it time. Talk about it. If we can't agree, it doesn't happen." The corridor between their offices is no longer closed.

Now that David is 60 and Dick is 58, managing a smooth transition to the next generation is their top priority. Acting on Williams' advice, they established a family charitable foundation, for its own sake but also as a vehicle for helping the next generation of Boyds -- who are the foundation's officers and board members -- gain organizational experience and learn how to work together. Williams was also the inspiration behind a new policy at Boyd Coffee strongly encouraging the members of the fourth generation of Boyds (there are 15, including nieces and nephews) to get some work experience elsewhere before coming home to the family business. Thus, Dick's youngest son, Matthew, 24, is currently at Mentor Graphics in Wilsonville, Ore., and David's youngest son, Michael, is at Marsh & McLennan in San Francisco. Both are candidates for leadership positions at Boyd Coffee somewhere down the road.

As is Katy Boyd Dutt, David's 30-year-old daughter, who came in before the new policy took effect and has worked at Boyd Coffee for nine years, lately in marketing (she's also in charge of Boyd's Website). She's currently carrying the youngest member of the fifth generation, due in June. She'll take her three months off when the baby comes, but then she's coming back to work; she's already made up her mind about that. Does she ever think about one day running the company? "Sometimes," she admits, smiling broadly. Her father and uncle are smiling too.

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