Generational growth at Great Clips

Several years ago, Great Clips franchisee Pat Stevens had a problem. A manager he had brought in with the intention of someday taking over his franchise business hadn't worked out.

Fortunately, a solution was under his own roof. He approached his sons, Dan and Brian, and told them that if they had an interest in joining the business, now was the time for them to say so.

"I was just trying to solve a real practical problem," said Pat, 65, who is one of the original franchisees in Great Clips, the hair care salon business based in Edina that started 30 years ago. He now owns 13 salons.

Brian, now 32, expressed an interest and during the summer of 2004 he launched into what was basically an internship.

Great Clips CEO Rhoda Olson points to Brian and Pat Stevens as good role models for other families who want to transfer their businesses. In June 2010 Great Clips started its Gen 1/Gen 2 program. Now, each June, Great Clips holds a family business seminar, which is recommended for family members who are involved in the Great Clips business or are transitioning the business to other family members. The sessions are geared for each generational group. Topics include family dynamics, development, estate and exit planning.

"We can't guarantee we will transfer to a family member," said Olson. "But we will waive the transfer fee if it involves a family member. We believe if people have a business they plan to hand down, they have a different focus, and we believe that is a better situation."

Father and son reached an understanding that Brian would delve deep into the business and -- after four months -- either side was free to walk away. Brian, 24 at the time, already had some retail experience working for Best Buy and as an assistant director at Walker West, a St. Paul music academy. He spent six days a week in the salons, often working 12-hour days, serving as a receptionist, sweeping hair and other duties.

Brian spent the next 18 months or so studying all aspects of the business and focused on earning the trust and respect of the various salon managers. Then the Stevenses hired accountants and lawyers to establish an independent valuation of the business and the best way to create a new ownership structure. Said father Pat: "While we were going through this, I would talk to the folks at Great Clips. As much as they were helping, they were watching."

On Jan. 1, 2009, Brian became a 50 percent partner in the business. (At about the same time, Brian's brother Dan took up his dad's offer to help get into a different franchise operation, buying into a Jimmy John's franchise in Montana.)

After he became a partner, Brian's real work began -- paying off his partnership interest. Brian set out to grow the business through acquisition. "Acquiring salons from other franchise owners was not something we had experience with before these acquisitions," said Brian. They acquired two salons in June 2010 and another this May. "We are extremely happy with the contributions those salons have made."

The Stevenses are in the forefront of a generational change at Great Clips. Over the last four years, Great Clips has had an average of 101 salons per year involved in a transfer to new owners, including some to family members.

According to Brian Stevens there are 134 Great Clips salons in the Twin Cities area and 68 of those are in Gen 1/Gen 2 situations, where the salons are in different stages of transition to new family owners.

Olson said the company has had 32 straight quarters of same-salon sales growth and is on track to exceed $1 billion in annual system-wide revenue in 2013. Tom Hubler, a family business consultant who has spoken at Great Clips seminars, says franchise operations have historically not given a lot of consideration to how to help families transfer their businesses.

"They are finally waking up to the fact that it is in their best interest to do that," Hubler said.

Ritch Sorenson, a professor of entrepreneurship at the University of St. Thomas, heads the school's Family Business Center. He said most family businesses don't think about succession. Sorenson, who also has spoken at Great Clips seminars, said the company's program gets owners thinking about transition.

"The whole system is designed to help, develop support and make family business successful," Sorenson said. "I think it is a good strategic decision on the part of Great Clips."