Scaling a Business Beyond the Family Playbook

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Did you know that with 2.1 million employees, Walmart employs more people than the Chinese Liberation Army, which makes it hard to believe that in July of 1962, when Sam and Helen Walton opened their very first store, it was just another mom and pop operation. The vast majority of family owned businesses never reach the incredible heights of Walmart or Ford or Mars. But together, these 5.5 million companies represent 64% of the U.S. GDP and provide 62% of the nation's jobs. And what's even more remarkable is that only about 30% of these companies transition to the second generation and a mere 3% to the third generation. Managing family dynamics can be challenging all on its own. Throw in a business into the mix and things can get really complicated. Today on Cold Call, we welcome Professor Henry McGee and guest Jessica Johnson-Cope to discuss the case, Johnson Security Bureau, Building Multigenerational Success. I'm your host, Brian Kenney, and you're listening to Cold Call on the HBR Podcast Network. Henry McGee studies the governance of nonprofit organizations, especially those in the arts. He is the former CEO of HBO Home Entertainment, and he is a third time a repeat customer here on Cold Call. Welcome back. Thank you. Great to be back. Actually, this is your fourth. I went back and looked at the episodes. This is your fourth. We're kind of like Saturday Night Live. When you get to the fifth, you get a special jacket. I'm looking forward to that. And Jessica Johnson-Cope is the president and CEO of Johnson Security Bureau, one of the rare family owned businesses that has passed through three generations. She is the protagonist in our case. Welcome, Jessica. Thank you, Brian. So happy to be here today. We'll talk a little bit today about some of the insights that the students get out of the case, but I think people are going to be interested from a couple of perspectives. I mean, I do mention that it's really rare for a family owned business to survive as long as this has and not only survive, but thrive. So I think people will be interested in hearing what your strategy has been and how you've been able to make that a reality. So great to have you both here in the studio and let's get started. Henry, I'm going to ask you to start by telling us what the central issue is in the case and what's your cold call is when you start the discussion. Great. Well, let me give you a little bit of background, Brian, before we do that. The case is taught in the course Scaling Minority Businesses. During COVID, surveys showed that minority owned businesses were failing at a much faster rate than white owned businesses. And then, of course, in the spring of 2020, we had the murder of George Floyd. So I got together with a couple of my faculty colleagues, Jeff Busgang and Archie Jones, and we launched this course that was really focused on two things. One, it would both simultaneously study the special challenges faced by minority entrepreneurs and would also give the students an opportunity for hands on learning with working with these businesses as they tackled either a strategic challenge or an operational issue they were trying to solve. So we've been doing the course since the fall of 2020. And so I came across Jessica's business, really, in an article in The Wall Street Journal in September of 2022. She had been participating in the Goldman Sachs 10,000 Small Business Programs and had been very successful for her as the program provides mentorship and contacts for small businesses. And she agreed to first participate as a business that the students worked with. It was such a great experience that we decided to write a case study on her. And so she's here on campus today to talk with this year's students about that. We pose a question to the students, and that is, as a small business, she's got three issues she's got to think about in terms of scaling, three opportunities. One is, should she double down and continue to focus on the New York market? Should she think about geographic expansion or should she think about entering a new area, which is the field of cybersecurity? And the students will debate those three options. Yeah, that's a good way to start. Jessica, let me turn to you for a minute. It would be great if you just tell us a little bit about Johnson Security Bureau. How would you describe it in your own words? And I know that your journey began after your father passed away. That's when you stepped in to take over the business as the case describes it. Can you tell us more about what it was like for you to sort of step into those shoes? It's got to be a really difficult thing to be able to do. It's a challenge, but it's a welcome challenge. I was fortunate to be able to grow up watching my grandmother and my father run the business together for several decades. My grandmother and my grandfather had migrated to New York from the deep South during segregation, looking for opportunity. And they saw entrepreneurship starting their own business as a way to create opportunity, not just for their children, but for the children who lived on their block, for the people who went to church with them, for the people that served in the unions with them. And so to be able to step into the business, even in spite of the situation that put me into the business and losing my dad, I consider it the opportunity to carry the mantle that my grandparents set, the foundation that they set, to be the embodiment of my elders' greatest dreams. And so every day I'm fortunate to be able to just be a living witness of what happens when families stick together, see opportunity, put in the work and are able to bring other folks together into the fold to carry on a business legacy. That's great. So tell us what the business is. Johnson Security is a 62-year-old business, third generation, based in the South Bronx, New York, that provides physical security services. Our guards serve in capacities of facilities that include banks, hospitals and outpatient health clinics, transportation facilities and government facilities. And we've been doing that since 1962, now 62 years, mostly in New York City. We've added armored car services under my leadership. More recently, we started working with the federal government to provide security screening in airports. And there's just a breadth of different opportunity in the security space that we're excited about. Yeah. And you're in a huge market, obviously, New York, a huge market for security services. But the case starts off at a point where you're sort of at a crossroads as you're stepping in here. And there are some decisions that you've got to make. What are the kinds of decisions that were on the table? Well, the decision is, do we stay small, play small ball, or do we really think about how to grow and scale the business? And one of the challenges, particularly in the neighborhood where we're based, is that it's a low income community. And I've always understood that part of the responsibility of being a business owner is to create opportunities for others. And so if I wanted to see change in terms of the economy, where we lived and where we conducted business, that change would have to start with me. So when thinking about the business and how we grow and scale, what kind of job opportunities are we going to create? Because no one else is coming to save us. Additionally, who do we want to partner with to create those opportunities? What type of corporations? What type of government entities? What type of strategic partners do we want to have? And then where do we want to do that? Do we want to stay in the corner where we've been doing business in the South Bronx? Do we want to expand throughout New York City, New York state, the East Coast, potentially across the nation or across the world? With technology and with the type of partners we have, being able to scale geographically is more of a reality now than it was when my grandparents started the business. So those were some of the key considerations, job creation, geographic expansion. How do we incorporate technology and how do we do it at a consistent level, demonstrating excellence so that people want to do business with us, not for the sake of us being a minority or woman-owned firm, but because we're just a great business with whom people want to work. Yeah, huge decisions. And the challenge of scaling is always one of the biggest challenges that entrepreneurs face. Henry, I want to come back to you. Oh, I would just jump in and say that, in fact, is the crux of much of the discussion in the classroom, is should Jessica really double down? New York is the largest metropolitan area in the United States. Should she focus on that and explore growth there? Should she think about geographic expansion, but if so, with whom and how those should be structured? Should they be joint ventures? Should they be joint bids? And then the larger question is the physical guard business has margins in the single digits, whereas cybersecurity has margins which are four to five times that Someone was trying to go to help them get there and use the business as a tool to get there. And so watching her being a guidance counselor, being a principled woman, being a mother, a grandmother, a cook, a business leader, and being tied to the community through the church and the union, that demonstrated to me what servant leadership looked like in business. And having been able to watch her, because she worked in our business up until almost 2003 when she passed away, watching her as a child and then watching her as an adult, and then having been able to go outside of the house and work for somebody else and then come back, seeing the difference between how some people in corporate environments ran their business, that taught me a lot about being a leader and how I wanted to take the business into the future. So I could borrow many things from her and then make adjustments. My first job out of college was with IBM selling technology. And so understanding what role innovation plays in longevity and remaining relevant in a marketplace. And then my dad, having watched him work, he was a trained attorney. He worked in the Bronx district attorney's office. He also served in state government before he came back into the business. So understanding that advocacy and legislative piece as it applies to impacting the community and as it applies to running a business. I think they equipped me with skills that I didn't even know that I needed but helped me to carry on the business into the next generation and to be efficient and effective in the role that I play. Legal teams are under more pressure than ever. More data, more complexity, more scrutiny. They need AI built for the realities of legal work. For more than a decade, Relativity has invested in AI built specifically for legal teams, designed to meet legal standards and support defensible decisions. The result is explainable AI that handles tedious tasks so judgment and critical decisions stay where they belong with you. Learn more at relativity.com slash HBR. Running a small business means every hire matters. A bad hire can cost you time, money and momentum. A good hire, they can help grow your business. That's why LinkedIn built Hiring Pro, your new hiring partner that screens candidates for you. So instead of sorting through applications, you spend your time talking to candidates who are actually a good fit. Join the 2.7 million small businesses using LinkedIn to hire. Get started by posting your job for free at LinkedIn.com onleadership. Terms and conditions apply. Henry, not everybody has the fortunate circumstance that Jessica had to be able to be at the knee of her mentors as she was growing up and learned the business. What are some strategies that people listening can think about as they try to hand down that same value to the next generation? I think they should think very consciously about it. It's not going to happen without some intention. So the first thing would be to have a plan. I do think it's very important that whoever is going to take over the business, and of course there may be sibling rivalries or other rivalries. We see that being played out right now with the Murdoch family and others. HBO has an entire successful series on just this issue. Still plugging HBO. I had to. I had to. But I would think one is identifying a clear set of successor or successors, bringing them in as Jessica's family did with her early on in the business. But I do think the key to success is managing all the family dynamics. Yeah. In a business situation and having to be prepared to make decisions that... You've somehow got to figure out how to divorce the emotion from the decisions that you're making, and that can be very, very tough. Anybody who's planned a wedding can tell you that. Yes, exactly. Exactly. And Brian, I'll add access to networks is important. My grandparents had a phenomenal network of other movers and shakers in Harlem in the New York City area. So like Dave Dinkins and Basil Patterson and Percy Sutton. Right. So leaders in the community as well as leaders in business. So for anyone looking to take their business to the next generation, you don't have to have all of the answers, but if you have a strong support network of other business-minded people who have access, who are plugged in, that can advise your children, your grandchildren. That helps to create those conversations when it gets difficult. Yeah. Brian, if we could go back and talk a bit about Jessica's success, which is so much based on the values that were handed down to her by her family. I think that is an issue that she's wrestling with right now in terms of how to scale the business. Because should she decide to either acquire another business or do joint venture with a business, it's important that she find a partner or in a company that acquires that shares the same values. Because it would be a disaster for her if she finds out that she's bought a company that isn't run the way that she wants it to run or she's got a partner that doesn't share her values. And so those are real challenges that she has to overcome as she thinks about scaling her business. Mm-hmm. One of the things that gave me a real glimpse into your leadership style in the case was it talks about one of your largest clients called you up and said, we want you to do all our security, like everywhere. And you didn't just jump at that chance. That was a moment for you to step back and say, wait a second, are we ready to do this? Are we ready to do it in a way that's consistent with our values as a business? I'm wondering how your employees would describe your leadership style. It's a hard question, I know, but... I would say my employees would describe my leadership style as musical. That at times it's very up-tempo, at sometimes it's very low-key, that it can make you dance. At the same time, it can make you cry. But it has a certain level of energy and a beat to it that gets people's attention and makes them want to follow just like music does. That's the best answer to that question I've ever had. Henry, how do you think people would describe Jessica's leadership style? I think that they would describe her as a combination of being both inspirational but also forceful. There are, as you know, many theories about the value of leadership. She's very, very much in the leading by example. There is right now, as you know, Brian, much talk about founder mentality and that as a leadership style. And I would certainly place Jessica in that group of founders and who are very much involved in the business but also can pull back and talk about the strategic direction as well. I like that. Well, one of the strategic choices that you made in the case is to move into the cybersecurity space. We all hear every day about all of the dangers that are out there with cybersecurity. So there's no shortage of need there. How did you think about making that move? What were some of the things that led to your decision to do it? And how's it going? So one of the things I say to my team all the time is what's the point of having trusted advisors if you don't trust their advice? There's a gentleman named Bob Perry who for the last 16 or so years has released a white paper on the state of the contract security market in North America. He focuses on transactions, mergers, acquisitions, sales of other contract security guard companies. And I had a conversation with Bob just last month about what's coming up. And he said any small company in the security market that's not taking advantage of technology will get left behind. Now, I have a background as an engineer. Maybe not the best engineer, but still nonetheless an engineering background. And I understand that I want to take my business into the future and that the physical guard services are not going to get us there. That we have to figure out some way to supplement what we're doing with the guard work with technology. And cybersecurity just seemed logical with the number of increasing threats. Some of my advisors on the corporate side always talk about the next big security emergency is not going to be a physical one. It's going to be a cyber one. And so wanting to position the company for success, wanting to be able to provide my customers with the services that they need and to support the longevity of their security programs. Those were some of the key factors in us considering cybersecurity as an extension of the business. So this is a big decision, Henry, for her to make. It does. And so one of the questions we ask the students is, as Johnson Security Bureau is currently constituted, what are the challenges it's going to face in making this pivot? Now, at least right now, it's a very labor intensive business. There are recruiting issues that she faces in terms of staff turnover, staff training, and so on. Once you go into cybersecurity, it's a different workforce. Also, you're then competing against other firms who are already established in the cybersecurity field. And so how does she make that leap from physical security to cybersecurity, which she's so rightly identified is something she has to do, but the question is, how does she do it? Yeah, it must feel kind of lonely sometimes, Jessica, when you're the one that's got to make the call. You know, how do you know when to call on an advisor or a mentor to give you some counsel? Some days you just get decision fatigue and, you know, you don't have the strength to see things clearly. So you call in the reinforcements. Who's on the bench? Is it Aaron Rodgers or is it Patrick Mahomes, right? I want to go to Patrick Mahomes if I have decision fatigue. But I understand what I know and what I don't know. And what I see, especially in this internet age where people are seeing being a CEO and a business leader glorified, is that ego gets in the way of making good business decisions. So when ego starts to get really loud, those are the times Both a focus on profit, but also its responsibility to the community. HBR on Leadership will be back next Wednesday with another handpicked conversation from Harvard Business Review. This episode was produced by Mary Do. On Leadership's team includes Maureen Hoke, Rob Eckhart, Erica Trexler, and Ian Fox. If this episode helped you, please share it with your friends and colleagues and follow the show on Apple Podcasts, Spotify, or wherever you listen. While you're there, consider leaving us a review. When you're ready for more podcasts, articles, case studies, books, and videos with the world's top business and management experts, find it all at hbr.org. Running a small business means every hire matters. A bad hire can cost you time, money, and momentum. A good hire, they can help grow your business. That's why LinkedIn built Hiring Pro, your new hiring partner that screens candidates for you. So instead of sorting through applications, you spend your time talking to candidates who are actually a good fit. Join the 2.7 million small businesses using LinkedIn to hire. Get started by posting your job for free at linkedin.com slash on leadership. Terms and conditions apply.