Entrepreneurial Small Business 2nd Edition by Jerome Katz , Richard Green

Exercise 21

BROTHERS GOING SEPARATE WAYS OR NOT
Derrick and Kevin Petersen, twin brothers from a small town outside of Chicago, will soon graduate from a local business school. The boys have remained inseparable throughout their lives, including sports, hobbies, friends, and work. Decision time is now facing the young men in terms of career choices and tracks. While the brothers have always shared an interest in becoming business owners, their individual goals and newly acquired management training and vision may very well have them going separate ways after all these years.
The Petersen family owns and operates a very successful auto repair and towing business. Each of the five children in the family has worked for their parents throughout high school and during summers throughout college. The boys' parents took over the one-man business nearly 30 years ago. Since that time, they have purchased and now maintain a fleet of seven tow trucks and have expanded the garage to include four bays that provide a wide range of auto and truck repair services. The business generates about $4,000,000 in sales, a higher than industry average profit margin, and has provided the once poor family with a very good life.
The elder Petersens are approaching retirement and would love to see one of their kids continue the tradition. Kevin and his three other siblings have come and gone and made it very clear that they want no part of the business. Derrick remains as the lone ranger and is seriously considering the opportunity.
The elder Petersens are well known and respected for their quality work and service and for their active role in the community. They are set in their ways and have a hard time dealing with new ideas and with letting go. Derrick has many new ideas as to how he would grow the next generation of the business.
There is unused space above the garage that Derrick has talked about turning into a custom auto parts showroom. There is unused space on the property that Derrick would like to convert into self-service gas pumps and an automated car wash. Derrick has also commented on the great success that area competitors enjoy through the addition of a convenience store.
This has all resulted in a family-business conflict of sorts, as the parents want to work something out and get out, but continue to resist the changes that Derrick has offered. Derrick appreciates the knowledge, experience, and success that his parents have, but wants to be his own man and build his own empire if he is to stay on and make this his career. Derrick wants to take on his own new challenges and achieve his own personal rewards. A close friend of the family has recommended bringing in an objective outside consultant and attorney to work up a formal contract that everyone can live with.
Derrick's parents want the business to provide them with retirement income and would like the option of staying on as seasonal employees, as they plan to winter in the south and come home for the summer.
Derrick has many questions that need answering. He is unsure about the best legal form for the business to have. He is not sure how to best deal with his parents. He is not sure about the particulars for the best financial package, one that will reward his parents accordingly, and at the same time provide him with the best opportunity for continued success.
Brother Kevin has a very different mindset. He wants to start up and own several businesses, but he does not want to be tied down or committed to any single one. He has $200,000 of seed money available to him through the family. He has taken the time to build a relationship with three of the bankers that the family has worked with for many years. He participated in an internship through the SBA while in school in order to familiarize himself with the programs and opportunities that that organization has to offer. He also spent a semester in London in order to learn more about the way business is conducted in Europe.
Kevin is interested in franchising. He envisions himself starting and perfecting a number of service businesses that he can eventually take national and international. He is interested in going public in order to raise large sums of capital and to expedite his expansion plans. Kevin is interested in e-commerce. He views that industry as being in the early growth stages of the product life cycle and feels that the time is right to enter that industry. There appears to be many opportunities to buy low and sell high to worldwide markets. Kevin is interested in real estate development. The family lives in the urban/suburban area of Chicago, which is the site of very active construction of new homes, condo units, and commercial developments. Kevin knows that there are many other such venues around the country and world with plenty of room for new developers.
Kevin is also interested in other parts of the world. He wants to live and work in China and South America and possibly eastern Europe. While he greatly enjoyed the people, activities, and surroundings of his childhood, he really does not want to go home. At the same time, graduation is just three months away, and Kevin does not have a job.
Derrick is encouraging Kevin to come home for a year and help him take over and grow the family business. Derrick feels that this will be an exciting and fun challenge and that it will give his brother time to put together a more specific plan for his own endeavors. That choice also comes with an immediate source of income and a free place to live.
How would each brother make a contribution to the family, community, and economy if their efforts were successful