Her Action Saved Family Firm

A family business. An unexpected death. No succession plan.

It’s a patented script among family-owned firms and one that Margo Groger was living after the short illness and death of her husband, Julian, in 1985.

The junior high school counselor knew virtually nothing about the spa fittings operation her husband had founded about a decade earlier. Sale or liquidation of the business was an obvious next step.

Instead, the longtime educator embarked on the steepest learning curve of her life as the new chief executive of G-G Industries. Today the Valencia-based company has sales in excess of $10 million a year. What was once a small-time assembly operation has become a manufacturer with 85 employees and an international client base. And Groger has gone to the head of the class as the Small Business Administration’s 1999 Entrepreneur of the Year in Los Angeles.

Such success in the face of adversity is laudable. It’s also highly unusual, according to family business experts, who say many enterprises die along with their founders in the wake of sudden tragedy. In Groger’s case, sound advisors, loyal employees, good listening skills and a keen eye for spotting market trends helped her overcome a lack of business experience and the initial shock of inheriting a company she never planned to run.

“Ironically, the best way to plan for success is to plan for failure,” says Quentin Fleming, a consultant with Ernst & Young and author of an upcoming book on family business. “Unfortunately, most family businesses don’t plan at all.”

Such was the case with G-G Industries, a small firm with about $2 million in sales and 10 employees at the time of Julian Groger’s death.

He started the business in his garage back in 1972 with a single product: an air blower for hot tubs and spas, which were rapidly gaining popularity back in the swinging ‘70s. For more than 10 years the couple lived on Margo’s teaching salary, plowing profit from the business back into the operation.

There was never any talk of succession or contingencies. The couple weren’t anywhere near retirement, so there didn’t seem to be any need. Besides, they weren’t alone. Studies show that even among large, established family businesses, fewer than half have any type of formal succession plan.

“We just never discussed it,” said Groger, now 56. “Right or wrong, that’s the way it played out.”

The experts have tidy, clinical names like “emergency succession” for what happened next.

Glendale family business consultant Lee Hausner tries to spur her clients to plan for the worst-case scenario by spelling it out in human terms.

“I talk to every one of my clients about developing a ‘Ron Brown’ plan,” said Hausner, referring to the 1996 plane crash that killed the Commerce secretary and a delegation of U.S. business executives. “It’s like back in school when you did a fire drill. Only now your business and the well-being of your family are on the line.”

Having endured the experience, Groger now has provided for such contingencies. But at the time of her husband’s death, her only plan was to keep his legacy alive. Knowing little about the spa industry, her own products or business basics like cash flow, she set to work doing what she did best as a school counselor: She listened.

She boxed parts in the warehouse alongside employees to get a feel for the business from the ground up. She listened as customers talked fervently about “suction elbows” and “directional eyeballs,” making mental notes of the lingo while she reassured them about continuity under her leadership. She joined a network of local business executives, pumping them for insights into management and strategy.

“It was like starting all over again,” says Groger. “But I wasn’t afraid to ask for help.”

She also squeezed information out of her accountants, quickly learning where to hold the line on costs and when to loosen the purse strings. Julian Groger had never been much on insurance, but his widow was much more cautious. The business interruption policy she purchased shortly after taking over G-G Industries proved critical when the assembly plant burned to the ground less than a year later.

“I don’t know how she would have come through without it,” says Leo Howard, the elder partner in Howard & Howard, an Encino father-and-son accounting team that has been with Groger since the beginning. “I have advised people to get insurance and they’ve ignored it. She made the decision and it saved her business.”

Groger also learned when to tune out the bean counters. Until the early ‘90s, she continued to run G-G Industries as an assembly operation. The company owned the molds for its spa and whirlpool parts but would contract out the manufacturing. An admitted perfectionist, she got so fed up with persistent defects that she decided G-G Industries would make its own parts. It was a big move for a small company when Groger snapped up the operations of a troubled plastics manufacturer and brought them in-house.

Overhead ballooned. The accountants fretted. A slumping housing market and deepening recession weighed heavily on the spa and bath industry. But with a tight grip on costs and quality, Groger gradually added a second shift, then a third. Today, G-G Industries’ machines operate 24 hours a day, seven days a week, cranking out molded parts for its own products and a growing base of outside clients. It’s enough to make even the accountants smile.

“Initially, I was extremely concerned because the overhead was going to increase dramatically,” said Scott Howard, the younger partner in Howard & Howard. “But it turned out to be an excellent decision.”

Ditto for the company’s aggressive shift from producing parts mainly for outdoor spas into fittings for in-home whirlpool baths. At trade shows Groger noticed the little nozzles and jets on bathtub units had lousy fit and finish. The colors didn’t match. They looked cheap and clunky.

“I thought to myself: ‘I wouldn’t want that in my bathroom,’ ” Groger said. “I figured we could do it better.”

Her aesthetic instincts jibed with consumer demographics as stressed-out baby boomers leave their hot tub party days behind for solitary soaks in their own bathrooms. Whirlpool bathtub fittings now account for 75% of the company’s sales.

Groger also has steered G-G Industries into foreign markets, to cushion the inevitable cooling of the hot U.S. housing market. Nearly 20% of company revenue now comes from exports to Europe, the Middle East, Asia and Latin America.

Although she’s receiving the local SBA’s highest award, Groger says she doesn’t really consider herself an entrepreneur. At least not the type who spends nights tinkering at the drawing board coming up with the next big thing in spa fittings.

Her approach, she says, has been to focus on building relationships. With employees. With customers. With bankers. With advisors. Turns out the spa business wasn’t so different from counseling after all.

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* YOUNG ENTREPRENEUR: USC student has made a going concern out of class project. C6