SYOSSET, N.Y. ( TheStreet) -- Everyone says the key ingredient to an entrepreneur's success is the passion that person has for their business. For a business that started on a leap of faith, nowhere is that more evident than at Paul Effman Music Service. Thirty years ago, Paul Effman decided to take a chance based on his love for teaching music. As the head of the music department at a Long Island public high school, he noticed a void in music education in his surrounding area, particularly in private Catholic high schools. He decided to take a leave of absence to see if those schools would be open to music lessons for students through a financially self-sufficient program run by an independent company. He gave himself one year to try out the idea. In his first year of business, about 10 schools agreed to Effman's program. Somehow he found the time to teach at every one of those schools while handling the bookkeeping and instrument purchasing and servicing for the students who rented them, among other things. For a business that was fueled by one man's passion, today, the company serves 450 private schools with 15,000 students in nine states, primarily on the East Coast, but also California. It has 103 contract employees between teachers and administrative staff, two-thirds of which are full-time employees. The company declined to share its annual revenue and profit numbers. There is another vital piece to its success -- Paul's three children and wife Kathe are all heavily involved. "He borrowed money from his mother. She never expected to see it back. He paid it back within two months. He never went back to teaching full time and then proceeded to start growing the business," according to Hutch Effman, 35, the eldest of Paul and Kathe's three children and the company's CEO. The company does not work with public schools since they typically already have music programs in place and paid for within the school budget. Instead, it markets the program to tuition-based schools. The schools "really don't have an official fund to pay for the service for the students. It's easier for the schools to have us come in. Schools love the fact that there is no additional responsibility on them to handle the finances and collect money. Because the parents are paying tuition to the schools, they expect to pay for the band as well," Hutch says.
Students pay the fees in eight monthly installments. This year students will pay a total of $424, plus the cost to rent an instrument (if they don't own one) which ranges from $109-$160 for the school year. "Music is not to be considered a secondary class or an optional class. Music should be part of every curriculum since through playing or just experiencing it has great benefits to children . Studies show it improves SAT scores and helps with reading. The importance of music shouldn't be understated," Hutch says. All in the family Paul, 65, never assumed that all three of his children would one day be working in the company. While Hutch knew early on that he was interested in working with his father, he says his sister, Lucy, 33, and brother, Jesse, 31, did not. All three siblings held various corporate jobs before coming back home. "We all have a vested interest in not only making the business run successfully, but making sure we are all happy," Hutch says. "Naturally, little things can be brought into the office -- someone is having a bad day, you know about it -- but generally there really aren't any cons" to working with family. Hutch also gives credit to Lou Varuzzo, the company's director of education and CFO, and one of his father's longest-tenured employees. Varuzzo started working for Paul more than 20 years ago as a teacher and has played a major part in helping expand the music services. The Effmans consider Varuzzo and the family members he brought in to the business as essentially another arm of their clan. (Varuzzo's younger brother Justin runs Hyson Music, the online retail store, with Jesse Effman.) A Juilliard trained musician, Lou is "one of the rare people who worked for my dad as if he had a stake in the business," Hutch says. "You don't find many people who live and breathe it like he does. His passion for the educational service and for helping it grow ... has made him the most essential person to work with." Spreading out As successful as the company is, the recession struck a sour note, but the challenge also presented an opportunity, Hutch says. As a result, Paul Effman Music Service has expanded into several different revenue lines, all of which are thriving. "We couldn't be a sitting duck with what was going on with the economy. Since we deal mostly with private schools, we saw in many different areas a decline in student enrollment because fewer families were sending them to tuition-based schools," Hutch acknowledges. Seeing the opportunity in the digital world, Paul Effman Music Service got to work on creating the online retail distributor of instruments under the brand, Hyson Music. It is a full dealership of all major instrument brands, including Yamaha and Casio, as well as LJHutchen, the company's proprietary line.
Paul Effman Music Service also established its first bricks-and-mortar instrument store in LaGrangeville, NY, through a partnership with a local piano studio. More importantly, the company offers private lessons through the store, a revenue stream it wants to expand, especially where parents are willing to pay, like affluent areas of Long Island. The LJHutchen instruments (named for Lucy, Jesse and Hutch) are designed to facilitate beginner-level music learning. The line is sold both directly through Hyson Music and through other retailers like Amazon ( AMZN) and eBay ( EBAY). The instrument line was not born in the bad economy, though. " It had everything to do with the need for a less expensive instrument that we could service and support to sell to our students," Hutch says. As the program expanded, many students were renting or purchasing poorer quality instruments, which may have been cheaper, yet were wrought with problems (tuning issues for instance). The situation led some students to get too frustrated when they couldn't master the lessons and quit or lose interest in the instrument. What's next? While Paul's risky decision to become a music entrepreneur paid off, it's the next generation that is solidifying the company's future. "We want to continue to duplicate what we're doing in LaGrangeville. We want to set up a retail location on Long Island where we want to have more private lessons teaching kids. We're starting to do it here and there's an opportunity for us to do it here, but it means looking into other facility options," Hutch says. "Hopefully, there are always going to be schools that need our services. We're always looking to service more schools and continue servicing schools that we already do. We're in the process of redesigning our online store and making that a more prominent part of the overall picture," he adds. One downside to the Effmans' success is the potential for competition. The company already has the credibility, so now it will be important for the company to wrap up the market. Having a strong brand that customers will automatically refer to when they think of private music education and lessons is the key, says Thomas Shinick, president and CEO of Corporate Development Partners and a professor of small business management and entrepreneurship at Adelphi University.
Cost-effective ways to enhance the brand include strong social media and LinkedIn ( LNKD) pages, as well as strong search engine optimization using Google Analytics, Shinick says. The company's traditional focus on Catholic schools implies at least one slowing growth avenue, given that many are closing from lack of tuition. Shinick suggests expanding the user base. Offering the service to public schools may be difficult, though Shinick says it is not an idea the company should rule out. However, demographic groups ripe for music education are seniors and Asian communities, typically known for encouraging instrument music playing amongst their children. With a business as successful as Paul Effman Music Service, one of the most important issues that family-business experts point to is that of succession planning. "It's much more than just the legal estate planning," says Otis Baskin, a consultant with The Family Business Consulting Group and a professor emeritus at Pepperdine University's Graziadio School of Business and Management. "It's all about how they are going to keep this one very valuable asset together because that's where the potential to generate future wealth for the family is as it grows. And so it so important that they keep it together and are able to work together as owners of the enterprise, not just as managers of various assets," Baskin says. "Every so often I hear parents who say 'Well, we haven't gone through succession. Our kids love each other and they're smart people and they'll figure it out.' That's a time bomb," Baskin adds. Creating a formal governance system by establishing a board of directors and holding quarterly meetings with specific agendas is a good first step. "It's really a good best practice to start now where dad could be the chairman and really make it work now while he's able to take that leadership. That will get the kids talking to each other at a different level, as owners, not as managers of different enterprises," Baskin says. Another part of the succession planning will have to involve distribution of profits. Currently, all of the company's profits are reinvested in the business. Succession planning is a sensitive topic for the family. Hutch declined to give details other than saying that everyone will be provided for in the event that something happens to his parents, but the specifics are "a work in progress." "There is a general consensus of myself and Lou being in charge and Jesse and Justin running Hyson and Lucy running the office in Long Island," Hutch says. One thing the family is clear on: there are no plans to sell the business and no plans to raise money through public or private investors. The company has no outside investors. Since his kids and Lou have taken over running the business, it has freed Paul up to return to his roots of playing and teaching music. Two years ago he created the Paul Effman Cocktail Band that plays in local restaurants and vineyards. He also comes to the Syosset office weekly to give private lessons. -- Written by Laurie Kulikowski in New York. Follow @LKulikowski To contact Laurie Kulikowski, send an email to: Laurie.Kulikowski@thestreet.com. >To submit a news tip, email: firstname.lastname@example.org.