Reinventing Your Family Business

Only 30% of family businesses make it to the second generation and a paltry 10-15% survive into the third. Why? Because, like sharks and relationships, a business needs to keep moving forward or it dies, and it's often tough to keep a business moving forward when family baggage and vast differences in generational perspectives come into play. For me, family business success stories are exciting precisely because they're so rare and they often hinge on innovative thinking.
Take, for example, Burns & McBride Home Comfort, a heating oil company in Wilmington, DE that was founded in 1949 and passed on to brothers Terry, Jim, in the mid-80s. Since then, the company has grown from $2.5 million to $25 million, despite being in a mature and rather mundane industry. "There's no new oil heat being installed in the greater Philadelphia area," says CEO Terry McBride. "The middle to upper end of the housing market goes for natural gas and the lower end goes for electric. So you're looking for a bigger piece of a shrinking pie." And Burns & McBride got exactly that, by finding an innovative way to distinguish themselves in an increasingly commoditized market.

"We make about 50,000 deliveries to refill tanks in a typical year," says McBride, "and we usually have about 250 run out of oil because we guess wrong about consumption." When that happens, there's a 90% chance that Burns and McBride will lose the customer. McBride's search for a better forecasting system led him to Marquette University's engineering department, where he funded two PhD students who built a mathematical model to track consumer consumption. For a year, McBride sent data on consumer usage to the students, who analyzed it along with data from five local weather stations in the Wilmington area. The final result: a software system that allows the company to forecast customer oil usage far more accurately

Three years after the new system was put in place, McBride says only ten or so customers run out of oil every year. And because the company can more accurately predict when customers will need oil, it was able to reduce its fleet costs by 20%. Most importantly, Burns & McBride now offers customers a guarantee called "Simply Complete," which promises that if they do ever run out of oil, the get a full tank for free - a $700 to $800 value. "In the grand scheme of things, it gives us a marketing edge," says McBride. The guarantee helps attract new customers and retain existing ones. He estimates the system cost approximately $40,000 to build, plus $20,000 in annual licensing fees. "But it's worth about $250,000 a year in operating efficiency," says McBride. He may even work with Marquette to market the system to other heating oil and propane distributors, effectively adding an SAS revenue stream to the company his father started 61 year ago.

I love that McBride looked outside standard industry practices to better serve his customers, that he partnered with a university to create something unique and game-changing, and that the reinvention of his own business may have far-reaching ramifications for others in his industry.

Are you a second or third generation family business owner? Have you found it necessary to reinvent your company? Tell us how.

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Image courtesy of Flick user opensourceway, CC 2.0