In 1988, Stroh’s Beer was one of America’s most impressive family fortunes, estimated by Forbes to be worth $9 billion in today’s dollars. Just two decades later, however, the massive beer empire, along with all of the family’s wealth, would disappear.
On the surface, it seemed that bad investments and poor business decisions caused the company’s downfall. But if you look underneath the surface just a bit, it becomes clear that the family business failed because it was not properly structured to pass from generation to generation over a 150-year period.
Whether you want your family business to last 15 years or 150, to ensure your loved ones get the most benefit from the blood, sweat, and tears you’ve invested in it, the development of a solid business succession plan is essential to any asset protection and estate plan where tangible and intellectual business assets are at issue. Even if you’re not yet rolling in the cheddah like the Stroh family once was, for you and your family to make and keep as much moolah as possible, it’s imperative that you to heed the lessons to be learned from the downfall of this once-mighty American brewery.
Bernhard Stroh immigrated from Germany to Detroit in 1849. He arrived with $150 and a secret family beer recipe. One year later, he began selling lager door-to-door from a wheelbarrow. (Go ahead and picture that!)
In 1890, Bernie passed the beer business to his sons, Bernhard Jr. and Julius. The boys catapulted their father’s brew to fame as a regional favorite among working-class Midwesterners. And when Prohibition outlawed the Stroh’s brew, the boys kept the company afloat by pivoting: they made and sold ice cream instead!
When the country finally rejected Prohibition, the Stroh family was back in the brew business. Julius’s son, Gari, took control in 1939, and he was succeeded by his brother, John, in 1950. In the 1950’s and 1960’s, John achieved a fantastic reputation for treating Stroh’s employees like family. Under his watch, Stroh’s beer sales grew from 500,000 barrels in 1950 to 2.7 million barrels in 1956. That’s a lot of barrels of beer on the wall!
In 1968, Gari’s son, Peter, became president, and in 1980, he became CEO. During Peter’s tenure, the privately owned Stroh’s became America’s third-largest brewing company, behind two publicly traded corporations, Anheuser-Busch and Miller.
The good times did not last forever, however. Following a series of poorly planned acquisitions and business deals, in 1999, Peter was forced to sell off the family beer business in parts to Miller and Pabst for a total of just $350 million. Most of this money went toward paying off business debts, and the remainder was placed in a fund for the surviving family members. But by 2008, the family fund was completely tapped out (pun intended).
Although it took almost a century to build a family business of Stroh’s magnitude, it took only a decade or so for a single successor to wipe out 100 years of hard work and dedication. The hardest part of this story to swallow is that many of Stroh’s business mistakes could have been prevented, or at least mitigated, with a proper business succession plan and legal guidance.
The most devastating events to befall Stroh’s occurred while Peter was at the helm. Unlike his forefathers, who grew the business slowly, Peter sought extreme rapid expansion through acquisitions of competitor companies like Schaefer, Schlitz, and Old Milwaukee, to name a few.
The problem? Peter bought out his rivals even when the company couldn’t afford to do so. For example, Peter’s acquisition of competitor brand Schlitz n 1982 with $500 million in borrowed funds was particularly devastating because Stroh’s itself was only worth about $100 million at the time.
Saddled with massive debt, Stroh’s was unable to keep up with its big-name competitors and even missed the light beer trend of the 1980s. From there, Peter made a series of additional mistakes related to packaging, marketing, and pricing that hastened the company’s collapse.
In hindsight, it’s obvious Peter wasn’t the best choice to run the family business, so what could have prevented him from taking the helm? If the Stroh family had developed a comprehensive business succession plan that included strict requirements for choosing a successor CEO, rather than simply passing control of the company through patriarchal bloodlines, the Stroh’s empire might still be flourishing today.
A well-drafted succession plan can stipulate that the successor must demonstrate a specific level of education and business competence before taking the helm of the family business. Plus, the plan can also require the succession take place in a phased transition, so the new boss has time to learn the ropes before being handed the keys to the kingdom.
Finally, if slow growth had been a recipe for the Stroh’s success in the past, the succession plan could have included terms to prevent foolhardy acquisitions, such as those Peter made. Indeed, the plan can obligate new leadership to honor the family legacy by requiring him or her to strictly follow the time-proven business strategies that led to the company’s initial success.
You don’t need a multi-million-dollar family empire to benefit from a business succession plan. Thrive LawTM can help you avoid making mistakes similar to those made by the Strohs by protecting your family business with solid estate planning, the foundation of which is a comprehensive business succession plan. This plan will help ensure the business assets and wealth you have worked so hard to build will survive—and thrive—for generations to come.
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