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Why Northern California family businesses opt to grow via outside owners — or don’t

When La Tortilla Factory’s president and CEO Jeff Ahlers on Jan. 27 finalized the sale of a majority stake in Jose and Mary Tamayo’s Santa Rosa-based company to an out-of-state food business, it was a deal that had been well thought out.

Over nearly 45 years, the Tamayos had grown their food-manufacturing business from serving Northern California restaurants and grocery stores, to a national enterprise that had the potential to go bigger. But they didn’t have the means to make that happen. Ahlers, who sat on the company’s board of directors for a year before being named president and CEO in 2014, had the experience to lead them forward. The 30-year food industry veteran had been involved in business transactions at other family-owned companies, and also held leadership roles at larger operations, including Safeway and Save Mart Supermarkets’ Lucky Stores division.

If the Tamayo family had just wanted to sell out for the most they could get, it would not have been difficult, Ahlers said. But the goal was to continue to grow La Tortilla Factory, keep its employees and maintain its connection with the community.

The family ultimately sold the majority stake of La Tortilla Factory to Idaho-based Flagship Food Group. Financial terms of the deal were not disclosed, but they plan to retain minority ownership and seats on La Tortilla Factory’s board.

“The number one thing for them through this, and for myself, was that we need to find the right partner that we can live with ongoing,” he said, adding he would advise any family business wishing to keep a minority interest the same way. “For the Tamayos, my counsel was you’re only going to do this once, so make sure you're really, really clear about what's important to you.”

The Tamayos faced a dilemma many family businesses do: whether they can grow their company without selling to another business or an investor. The experiences vary, leaving some happy and others wishing they had never sold.

Taylor Maid

In July 2016, Chris and Terry Martin sold Taylor Maid Farms, a wholesale and retail coffee-roasting business that began in 1991 on a 100-acre organic farm along Taylor Lane in Occidental, in west Sonoma County. The buyer was InHouse Ventures, a Healdsburg-based investment fund, Chris Martin said.

At the time, selling the company made sense, Chris Martin said, because he was involved in several other business ventures, some continuing to this day. He owns Howard Station Cafe, a restaurant in Occidental, and is co-owner of Loring Smart Roast, a commercial coffee-roasting manufacturer in Santa Rosa.

“I was having a hard time running Taylor Maid and doing everything in Occidental on the farm. But I made board meetings, and I had a CEO (Rob Daly) running it,” Martin said. “We were looking at taking the next step, which would be cold brew, but to do all that was going to be pretty costly.”

Martin said he was lined up to get a loan, but ultimately decided to sell.

“I was overwhelmed with so many other projects that I was kind of kind of OK with it,” he said. “It was either (sell) or I was going to have to go back in and run more of the business myself.”

If he had it to do over, Martin said, he would have kept Taylor Maid Farms (since renamed Taylor Lane Farms) and sold Howard Station Cafe, which he noted wouldn’t sell for much anyway these days.

“The coffee business is fun,” Martin said. “Going to countries and picking up at the farms is a little bit more of a simpler process than all the food and vendors and people it takes to run a restaurant.”

Costeaux French Bakery

Will Seppi, president and CEO of Costeaux French Bakery, plans to hang on to the Healdsburg company his family acquired in 1981.

“In business, you've got to be focused and plenty committed to what you're doing, and that's where I'm at right now,” Seppi said. “Despite the challenges, and especially over this last year, I'm enjoying what I'm doing. So that's ultimately what has to happen first and foremost.”

In fact, over the past several years, Seppi has added to the business.

In July 2019, Seppi acquired the pie business of Forestville-based Kozlowski Farms. The Kozlowski family at the time was winding down the business that was started about 70 years ago by Carmen and Tony Kozlowski, which the Business Journal reported at the time.

In addition to the main bakery cafe in Healdsburg, Costeaux has shops inside Big John’s Market in Healdsburg, Costeaux On The Go store at the Charles M. Schulz-Sonoma County Airport terminal and Tia Maria bakery cafe in Santa Rosa’s Roseland neighborhood.

Costeaux, which distributes its breads, cookies and cakes throughout Sonoma County and the greater North Bay area, won’t be going national as La Tortilla Factory has done.

“It’s something that would be very challenging to do with the product mix that we make, and that we've been focused on, (which is a) fresh made high-quality product that has a limited shelf life,” Seppi said.

Seppi has been running the family business since 2004, and said he is proud that his parents had a succession plan in place.

“It’s something that some people don't get through,” he said. “So having made it through it and having the family all still talk and get around the table is a very positive thing.”

What about the timing?

Families thinking about selling their food business may wonder if it’s a wise decision during a pandemic.

The answer is simple, according to one expert.

“If you don't have a prospect list of potential buyers, it doesn't matter if there's COVID or not,” said Dr. Jonathan Pellegrin, an adviser with Cambridge Family Enterprise Group, a Massachusetts-headquartered global advisory and education organization. “If you have prospective buyers, maybe selling during this pandemic is a greater opportunity than not having the urgency to do something.”

In these times, however, a family that owns a food manufacturing or processing operation would be in a better position to lure a buyer than if they ran a restaurant, he noted.

“Nobody has to convince anybody else that it’s a scary time during the pandemic,” Pellegrin said. “But I think people have confidence in the fact that (we) will recover.”

Any family serious about selling their business must be prepared, no matter the current economy, said Pellegrin, who grew up in a family business he eventually sold and wrote a book, called “The Art of Selling the Family Business: Responsible Stewardship of Family Wealth.”

“One of the things that I learned early on is that I always need to be in a state of readiness to sell, because you’re never going to be able to know exactly when the best time is to sell,” Pellegrin said. “So if I'm always ready, I will be ready at the best time.”

Napa Nuts

Bonnie Miluso, who co-owns Napa Nuts with her brother, Schecky Miluso, said they have no plans to sell the second-generation business that’s been in the family since 1990. Her parents, Al and Maxine Miluso, had bought the company from the retiring George and Lottie Rosenberg.

“This is like our family's legacy, and part of that is carrying on those relationships that our parents built over 30 years,” Bonnie Miluso said, referring both to the staff and customers. “That's really important to us.

And there’s another reason she doesn’t want to entertain selling Napa Nuts.

“For us, losing any element of control means that we can't control protecting our staff. Even though they may have their jobs, that doesn't mean they're going to be getting the same benefits,” Miluso said. “And if the corporation who buys them decides to change their benefits, there’s nothing the owners can do about it. So relinquishing that control is something that we've never been comfortable doing.”

Think long and hard

Ahlers recalled a business owner who ended up regretting selling his company.

“He was still involved in the business, but he didn't have control of the key decisions that he thought he would have,” Ahlers said. “So he ended up very frustrated and very bitter, and ended up leaving the company altogether because he wasn't prepared to live in an environment where he didn't have that kind of control.

“Those are the kinds of things that have left a mark on me over the years. Remember, for a family business, it's not just a business transaction, it's a part of their life,” he said. “And as that goes forward and if you're going to continue to monitor it, then this is going to be one of the most important decisions you make in your life. So be clear about what's important and you're going to have fewer regrets.”

Cheryl Sarfaty covers tourism, hospitality, health care and education. She previously worked for a Gannett daily newspaper in New Jersey and NJBIZ, the state’s business journal. Cheryl has freelanced for business journals in Sacramento, Silicon Valley, San Francisco and Lehigh Valley, Pennsylvania. She has a bachelor’s degree in journalism from California State University, Northridge. Reach her at cheryl.sarfaty@busjrnl.com or 707-521-4259.

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