Sterling Ball held a StingRay bass aloft on the stage set up inside Ernie Ball’s spacious stand at the Winter NAMM Show.
He recalled how the guitar came to be, the result of collaboration between Leo Fender and Tom Walker and himself, who took it out on the road and put it through its paces before its release in 1976. At the same show, Ball, the CEO of string and instrument maker Ernie Ball, announced that his son, Brian, would become president of the company, founded by his father, the eponymous Ernie, in 1962.
The event was a reminder, along with the invocation of the Fender legacy, of how much of the MI business is based on family. Certainly, brands like Peavey, Zildjian, and dozens of other familiar monikers reflect the sense of pride and dedication that’s necessary when you put your name on your work. And the vast majority of MI retail establishments are family propositions, such as Chuck Levin’s Washington Music Center, where three generations have run the business since 1958.
But there are fewer of them then there has been, a trend that’s become clear in the larger business landscape. According to data from the Census Bureau, entrepreneurship in the U.S. is on the decline, with Americans starting over 27 percent fewer businesses in the last five years than the previous half-decade. Sure, Silicon Valley looks like a veritable amusement park of start-ups, but it’s a cluster in a bigger picture that’s instead seeing fewer and larger entities as a result of ongoing consolidation and conglomeration. The recession didn’t help, and neither does a denser regulatory and tax environment as state and local governments look to small business to generate revenues lost to the recession, globalization and other macro economics. But the trend predates that: according to a New York Times analysis, “Businesses with one to 19 employees, nearly all of them family run, lost 757,000 jobs from the second quarter of 2007 through the third quarter of 2008, according to figures from the Bureau of Labor Statistics… That amounts to 53 percent of all private-sector losses for a group of companies with about 20 percent of all employees.” (Italics are mine.)
Family-run businesses have some historical headwinds to combat, as well. According to the Family Business Institute, an American consultancy, only 30 percent of family businesses survive into the second generation and 12 percent into the third. Barely three percent make it into the fourth and beyond. In fact, Asian cultures seem to have codified this tendency: the Japanese say “the third generation ruins the house” while the Chinese phrase it barely differently when they say “wealth does not survive three generations.” Family businesses portrayed in popular media can seem downright pathological, from television’s “Empire” crew to “The Sopranos,” and not every generation manages to inherit either the genes or the inclinations, even though they may get the legacy.
Music: Special Glue?
But music businesses bring a different dimension to the equation. They are a melding of art and commerce. Most MI retailers are musicians themselves, as are at least the founding generations of even the largest MI manufacturers. This creates a special kind of glue, one we see at work today in the many family-based boutique companies building amps and stomp boxes, and that’s worth fostering going forward.
The Conway Center for Family Business has identified several challenges ahead. By 2017, it estimates that about 40 percent of family-business owners expect to retire, creating a significant transition of ownership in the U.S., while less than half of those expecting to retire in five years have selected a successor. Nearly a third of family business owners have no estate plan beyond a will, and barely half of these owners reported having a “good understanding” of estate taxes that could be due. Finally, even though nearly 70 percent of family businesses would like to pass their business on to the next generation, only 30 percent will actually be successful at transitioning to the next generation.
Not every family is cut out for a dynasty, but at Summer NAMM, the “mom and pop” edition of the trade show, take a look at how many families make this expo their own particular pilgrimage. There are far more station wagons and SUVs with out-of-state plates than there are local rental cars in the parking of the Music City Convention Center. It’s where you see what the bedrock of the industry is composed of. Paying attention to family might be one of the best long-term strategies there are for the health of this volatile business.
