Scaling a Family Business While Maintaining Founding Values
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Here's a fun fact: 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 a business into the mix and things can get really complicated. Today on Cold Call, we welcome Professor Henry McGee and guest Jessica Johnson-Koch to discuss the case Johnson Security Bureau, building multi-generational 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 repeat customer here on Cold Call. Welcome back. Thank you. 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. Okay. 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's a CEO of Johnson Security Bureau,

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 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 Busking and Archie Jones, and we launched this course that was really focused on two things. One, it would both simultaneously study murder.

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 about

In the Wall Street Journal in September of 2022, she had been participating in the Goldman Sachs 10,000 Small Business Programs. And it 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. And 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

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, 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

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. I'll just jump in and say that, in fact, is the crux of much of the discussion in the classroom is should Jessica be

Really doubled them. 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 where cybersecurity has margins, which are four to five times that. But how do you get into that business and should you get into that business?

You mentioned earlier about the 10,000 Small Business Program. We actually did a podcast episode on that that we'll put a link in the transcript so our listeners can check that out. Can you describe that program a little bit and then talk somewhat about what some of the challenges are that minority business owners face? As it turns out, Jessica is the head of the Alumni Association for the 10,000. So we should probably let her answer that question. That's what I'm saying.

So the 10,000 Small Businesses Initiative is a program that was created by the Goldman Sachs Foundation coming out of the financial crisis of 2008. One of the advisory board members, Mr. Warren Buffett, with whom many of us are familiar, he encouraged the firm to look at how small businesses were going to help the nation move beyond the financial crisis. And so Goldman made a significant financial investment partnering with community colleges across the

country, providing executive-level business education with business advisory services and access to capital through CDFIs, community development financial institutions, to help high growth opportunity small businesses across the country to grow. Initially, the goal was to get to 10,000 small businesses. In 2009, when the program launched,

They thought it would be a 10-year initiative. Here we are past 10 years. We have in excess of 15,000 alumni across the country in all 50 states and the U.S. territories. And the latest iteration of 10,000 small businesses focuses on rural-based small businesses because they've often been overlooked. And so the most recent launch was in Minnesota a week or two ago.

So I'm proud to serve as the head of the 10,000 Small Businesses Voices advocacy platform, which helps to band together the small business alumni to identify what are the legislative priorities that we have? How can we have conversations with the elected officials in Washington, D.C., as well as in our state capitals to advance the issues that are important to us to help us not only to survive, but to thrive, particularly as we look at changing policies

economic factors, access to capital,

access to a well-trained workforce and the other things that we face just in business in general. Yeah, yeah. That's a fabulous program. And I can't, I'm just, when we did the show, it was probably five or six years ago. So they were coming up on their 10th anniversary at that time. So really glad to see that it's still thriving. But let's go back to the other part of the question, which is minority business owners face a whole set of challenges that other business owners don't face. Can you tell us about some of those? We can start, first of all, with access to capital. Yeah.

One of the most popular ways for white entrepreneurs to get into business is to leverage their home equity. But because of historic discrimination in that market for difficulty of black and brown consumers to get home loans, the home ownership rates are so much lower. And so that form of capital has been denied. Also, black-owned businesses and Latinx businesses tend to operate in certain communities which are

discriminated against in terms of the number of business loans that banks traditionally have made in that area. So access to financing is a huge, huge issue for minority entrepreneurs. Another big issue is access to markets and customers. And again, whether it's racial discrimination or the size of the businesses, it's been often a big, big challenge for

for minority-owned businesses to get the sort of customers they need in order to grow. Jessica, I want to go back to one of the things that you were looking at as you considered this sort of crossroads that you were at was expanding sort of further into New York City, broadening the scope of your business and your relationships. What are the kinds of decisions that you have to make about who you're going to partner with, and what do you look for in a partner when you're thinking about scaling your business? Well, smart partners can make all of the difference, and we've been very fortunate to be able to connect with several large organizations

corporations that are making investments in people, making investments in organizations, as well as making investments in communities. And they haven't given us handouts, but given us a seat at the table to have different levels of conversation that on our own we might not have been able to access. So having the appropriate corporate and legislative partners is one key part. And when we're looking at business,

potential business partners, we look at core values. Our core values were key to my grandparents when they started the business. And so as I carry on their legacy, if I'm not values and principle based, then I'm not living up to that legacy. And one of the things that many of the organizations with whom we do business say when they do business with Johnson Security is,

We love the story. Yeah. We love what your family stands for, what the business stands for. And so when we're looking for business partners, we need people who stand for something, who stand on a set of values that align with our core values as we communicate them and as we demonstrate them in the work we do, as well as the clients with whom we choose to do that work. Yeah.

I mean, this is a key theme that I think we see run through a lot of challenges that family-owned businesses in particular face, which is you have the originator of the business who's got a vision, who's got the core values, who's sort of setting the tone. But how do you hand that down to the next generation and ensure that it's going to survive or even the next generation after that? And that might be part of the reason why

I did. I did. So we had a kind of odd setup in terms of how we lived. My grandmother and my father lived in the same apartment building, and they lived directly across the street from where my brother and I grew up with my mom.

And so every day I was able to see my dad and my grandmother. We would have dinner together as a family. And at the dinner table, we would talk about business. We would talk about community. We would talk about interests that impacted the family. And so having those regular conversations, being able to sit at my grandmother's knee as she cooked,

And she would relay stories to me about growing up in North Carolina. She would relay stories to me about the business and how she exemplified excellence and how she led the business as a woman during the civil rights era. So I say any challenges I face now is nothing compared to what she had to deal with being a young widowed woman, raising children and running a business all at the same time in an environment that wasn't welcoming to her.

She was an educator by training. And so as she led the business, she put on her hat as a guidance counselor because that's what she did as work in New York City public schools before she went into business. And so she always wanted to make sure she connected with where someone was trying to go to help them get there and use the business as a tool to get there. And so watching her be a guidance counselor, being a principled woman, being a mother, a grandmother, a

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 was

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. I've heard of them. Yeah. 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.

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 the 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's going to take over the business, and of course there may be sibling rivalry 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. Still plugging, right? 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 in a business situation and having to be able to

to make decisions that you 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 can be really tough. Yes, exactly. And Brian, I'll add access to networks is important. My grandparents had a phenomenal network of other movers and shakers in Harlem and 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, 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 to joint venture with a business, it's important that she find a partner, a

or in a company 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. 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. I would say my employees would describe my leadership style as musical.

That at times it's very up-tempo and 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 it?

Jessica's leadership style? I think that they would describe her as a combination of being both inspirational but also forceful. There, 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 Mutch talk about founder mentality and

And that is a leadership style. And I would certainly place Jessica in that group of founders who are very much involved in the business, but also can pull back and talk about the strategic direction as well. I like that.

One of the strategic choices that you made in the case is to move into 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

Mm-hmm.

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, is

As Johnson Security Bureau is currently constituted, what are the challenges it's going to face in making this pivot? Now, the lease of 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

when to call on an advisor or a mentor to give you some, some counsel. Some of the days you just get decision fatigue and, 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 Rogers or Patrick Mahomes? Right. I want to go to Patrick Mahomes if I don't have decision fatigue, but I,

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. Yeah. So when ego starts to get really loud, those are the times where I have to get quiet.

And seek those trusted advisors to give me the right information. And sometimes they say what I was thinking and confirm. Oftentimes they tell me something different. And one of the tests of better leaders is knowing when to be quiet and take the advice of someone else first.

even if it's not what you think. Yeah. I mean, that's the basis of the case method, right? That's why we teach that way at Harvard Business School, because you've got to be willing to listen to an opposing point of view from time to time to help you shape your own point of view. And our politicians could take a couple of notes from that. Yes, they could.

Because, you know, we're still so much feeling the gyrations from COVID-19. I'm wondering how that impacted your business, because I think any small business that was able to weather that storm must have made some really hard decisions, you know, while it was happening. We were very fortunate. Security is considered a

essential service. So we didn't have to close our doors. Many of our clients needed the same level or additional coverage than they did before the pandemic. So our business almost doubled from March to April of 2020 as a result of having one client

contract with the hospital system and then having to work with the COVID team there and provide emergency services. That allowed us to keep people working, people who otherwise would not be able to go to work. And more so than any decision I can make, I appreciate my employees, our team members who kept showing up.

I appreciate that our clients continue to call on us because they trusted that their facilities and their people would be safe when they employed our services. And that's what helped us to get through 2020, 2021, even into 2022. The majority of our business was either in health care or in transportation, protecting critical systems around New York City.

While people were not able to work. Yeah. Henry, I'm wondering, you know, if we extrapolate this beyond Jessica's business, beyond that segment, what are some of the things that people listening might take to heart where it comes to creating that kind of resiliency and creating that ability to be able to see opportunities if you're in a small business and you want to find a way to scale and grow? Several things. First,

I think that understanding both your market and market trends are very, very important. If you're in a mature business, be aware of that and think about how you're going to compete in a mature business. In Jessica's case, for example, while she's...

The security business has been around for a long, long time. It is mature. There are also segments that are growing, such as cybersecurity. So her strategy is to move into cybersecurity. So one is understand where you are in the lifecycle of your business and what the market looks like. Mm-hmm.

The second thing is you've been a successful entrepreneur because you have been prepared to take risk. And I think as you think about changing, you're going to continue to have to take those risks. This is like no time to have a lack of courage. And so that as well, understand the market, be prepared to take risk.

And then the thing that Jessica has talked about is to have an understanding of, at the end of the day, what the purpose of the business is and why we're doing this at all. And I think those three things together can make a huge difference. Yeah, I've got one question left for each of you, so you can't get up just yet. But sort of building on what Henry was just saying, Jessica, my question for you would be, given the opportunities that are in front of you and given the challenges that are in front of you,

What do you see as the things that you're going to be focused on in the next five years or so? And what will success look like at the end of that period? I love that question. So in our team, we like to say there are riches and niches that we have to find a focus. We can't be everything to everyone. I anticipate with...

In addition to what's happening in the political forefront, the changes that we're seeing in the demographics across the country, there'll be lots of opportunities for physical security. And we want to be positioned to take advantage of construction opportunities because there will be building. We want to take advantage of transportation because people will need to get back and forward from wherever they're going. We want to make sure that we maintain strong strategic corporate relationships.

whether it's just for goodwill or just for understanding which organizations will be leading our nation forward through the next decade. And success looks like putting people to work while we're putting money in their pockets, giving them respectable jobs, just like my grandmother and my grandfather wanted people to be respected, showing that you can have values in business and still be successful.

And building the next generation of business leaders, whether they're entrepreneurs or whether they come through Johnson Security and go work for someone's corporation. I tell everybody that with Johnson Security, I'm the only person that has to die there.

But anybody that has the opportunity to touch our family's business, I want them to leave better than before they touched us. So whether that means they have additional skills, they have additional relationships, they have additional exposure, that they're better after an interaction with our firm than beforehand. And if we can do it en masse, then that would really be successful. Yeah.

I love that. And I think succession planning needs to be part of your next five years, too. You've got to think about the fourth generation. We think about that. I have a 13-year-old and a three-year-old niece. The three-year-old, she says that she's the mini boss. And when she goes to school, she knows she has to make good choices because that's what mini bosses do. Henry, over to you for the last word, since you are the professor on the campus.

On the case. If there's one thing you want people to remember about this case, about the Johnson Security Bureau, what would it be? To me, the big takeaway is a strong leader who has a purpose for the business and

that combines both a focus on profit, but also its responsibility to the community. Well, Jessica, Henry, thank you so much for joining me on Cold Call today. Thanks, Brian. If you enjoy Cold Call, you might like our other podcasts, After Hours, Climate Rising, Deep Purpose, IdeaCast, Managing the Future of Work, Skydeck, Think Big, Buy Small, and Women at Work. Find them on Apple, Spotify, or wherever you get your podcasts.

And if you could take a minute to rate and review us, we'd be grateful. If you have any suggestions or just want to say hello, email us at coldcall at hbs.edu. Thanks again for joining us. I'm your host, Brian Kenney, and you've been listening to Cold Call, an official podcast of Harvard Business School and part of the HBR Podcast Network.