Northwest Family Business SurveyOctober 2015

2470 Westlake Avenue n, Suite 100 | Seattle, wa 98109 | 206.466.6174 pacificfamilybusiness.com

October 2015

Dear Family Business Owner,

The Pacific Family Business Institute is pleased to present the results of the 2015

Northwest Family Business Survey. Our ongoing research offers valuable insights into the

challenges, issues, and opportunities facing family businesses in the Pacific Northwest.

As we have done every year since 2012, we spoke with regional family businesses,

asking them about business growth, succession planning, family business structure

and ownership, governance, and more. Our annual survey allows us to see how family

businesses and their operating environment are evolving over time.

This survey, conducted by Riley Research Associates, has been made possible through

the generous financial support of our sponsors, Cascadia Capital, Perkins Coie and

the Threshold Group. We are extremely grateful to the 200 family businesses that

participated in the 2015 Northwest Family Business Survey.

We use this information to continue supporting family businesses as they navigate the

challenges of balancing the needs of the business with those of the family. At the same

time, we hope our survey participants and other family businesses throughout the

Northwest can use the findings to help them continue to grow and develop.

We would love to know how you are using this report in your work. Please contact us

with any comments, questions, or suggestions for future surveys by sending a note to

info@pacificfamilybusiness.com. Together, we can continue to help regional family

businesses thrive.

Sincerely,

Richard Simmonds Mark T. Green, Ph.D. Ron Dohr, Ph.D.

Co-Director Co-Director Co-Director

Page 1 of 13 2015 Northwest Family Business Survey pacificfamilybusiness.com

Executive Summary

In mid-2015, the Pacific Family Business Institute (PFBI) surveyed

200 family businesses in Oregon and Washington to gain insights into

leadership and business characteristics, and compare the findings to

those of similar PFBI surveys conducted in 2012 and 2014. The annual

Northwest Family Business Survey is intended to serve as a barometer

of family business in the Pacific Northwest.

Key Survey FindingS

BusinessGrowthandOpportunities. Businesses are now more confident in their

ability to continue and/or expand. Businesses with 1150 employees had the highest

confidence rating (9.2 on a 10-point scale), while those with fewer employees had

the lowest (7.4). Businesses with more than 50 employees were more likely than

others to have experienced a growth in revenue, with businesses with fewer than

11 employees the least likely to have experienced a growth in revenue. And looking

to the future, businesses with annual revenue of more than $20 million were more

likely than others to expect a growth in revenue in the next three years, while that

expectation decreased along with current annual revenue.

SuccessionandLeadershipPlanning. Businesses with more than 50 employees are

more likely to have conducted succession planning exercises, but many businesses

still lack formal succession planning documents. Nevertheless, about one-third

of businesses anticipate a leadership change in the next five years. The majority

of those businesses have not yet identified the new leader (58%), but most (52%)

believe the next leader will be a family member.

Those who have not yet started on succession planning face many hurdles, namely

finding qualified and interested successors, and simply finding the time to get

started on the planning. When asked about the greatest hurdle to getting started

on family business succession planning, some respondents cited generational

differences, questioning whether the second generation wants to work as hard as

the first generation, and not knowing whether the next generation truly wants to

take over the business. Others stated that the greatest hurdle is simply finding the

time, while still others pointed to disagreements within the family.

FamilyBusinessStructure,Governance,andOwnership. Half of the businesses

are owned by first-generation family members, while nearly as many are owned

by second-generation and about two-fifths are owned by the third generation or

beyond. Most businesses have a CEO who is a family member (94%), generally

either first-generation (39%) or second-generation (35%), and who owns a

controlling interest (71%), and this is particularly true for newer businesses.

Page 2 of 13 2015 Northwest Family Business Survey pacificfamilybusiness.com

Survey Methodology The 2015 Northwest Family Business Survey is a regional survey designed

to help the Pacific Family Business Institute (PFBI) and regional partners

better understand family business dynamics, challenges, and track trends.

The survey comprised 200 telephone interviews with representatives

of family-owned businesses in Oregon and Washington. To qualify as a

family-owned business, respondents had to affirm that 1) family owners

own a majority share of the business, and 2) family members are involved

in running the business.

The survey administrator, Riley Research Associates, identified potential

respondents by using a list of previous PFBI survey respondents and a

purchased list of regional businesses. Of the 200 respondents, 35% had

participated in a previous PFBI survey, while 65% were new additions.

All participants were offered a copy of the findings for their participation.

The survey questions comprised benchmark questions from the 2012 and

2014 surveys, as well as new questions introduced to address emerging

issues. The survey focused on business growth and opportunities, succes-

sion planning, family business structure and ownership, governance and

board structure, and business characteristics.

A total of 200 telephone interviews were completed, which produces a

margin of error of +/-7% at a 95% level of confidence; the margin of error

is larger for smaller subsamples. Please note that answer choices do not

always add to 100% due to rounding and/or to allowing multiple responses.

BuSineSS CharaCteriStiCS The survey participants have an average of 46 years in business, with

47% based in Washington and 53% based in Oregon. They represent many

industries, and 44% are engaged in retail/sales/wholesalea significantly

larger percentage than in 2014 (12%). Sixty-seven percent report sales

exclusively in the United States, a slight increase over the figures reported

in 2014 (63%) and 2012 (58%).

Of the family businesses that responded to the survey, 22% have been

in business for more than 60 years, and 14% have been in business for

fewer than 20 years. Sixty-five percent of the businesses reported annual

revenue greater than $5 million, and five percent reported revenue of at

least $75 million.

The highest-ranking family member tends to be a president (52%), owner

(28%), or CEO (12%). The proportion of highest-ranking family members

that were president decreased since 2014, while the 2015 survey included

a higher proportion of owners.

Thirty-four percent of respondents have 2150 full-time equivalent

employees, and 38% have 50 or more.

Page 3 of 13 2015 Northwest Family Business Survey pacificfamilybusiness.com

Survey Findings

The 2015 Northwest Family Business Survey focused on five topics:

Business growth and opportunities

Succession planning

Family business structure and ownership

Governance and board structure

Business characteristics

BuSineSS groWth and opportunitieS Business confidence (defined as optimism in the state of the economy

as expressed through business investments and spending), while still

moderate, has grown since 2014, increasing from a mean rating of

6.4 to a rating of 7.1. Most industries expressed a growth in business

confidence, with the exception of distribution and agriculture. Wash-

ington businesses had much higher business confidence ratings than

Oregon businesses (7.5 vs. 6.8).

Businesses confidence in their ability to continue and/or expand

has also increased, from a mean rating of 7.8 to a mean of 8.5. Most

industries expressed an increased confidence in their business ability

to continue and/or expand, with the exception of agriculture and

professional services. Businesses with 1150 employees had the highest

confidence rating (9.2), while those with fewer employees had the

lowest (7.4).

7.8 7.4 7.2 7.0 7.0

6.6 6.5

5.6 5.9

6.6 6.5 6.0

5.3

6.8 6.4

6.8

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Construction Prof. services Retail/ sales Manu- facturing

Service Distribution Trans- portation

Agriculture

Business Confidence Ten-Point Scale Where '10' is 'Completely Confident'

2015

2014

Figure 1. Respondents indicated their business confidence (optimism on the state of the economy that business owners are expressing through their investment and spending activities) using a ten-point scale where 1 is not at all confident and 10 is com