In this series’s first and second parts, we talked about living in a volatile, uncertain, complex, and ambiguous world. We also provided case studies and a framework you can use to build stability in today’s VUCA world.
In this final part of the series, you can review growth strategies that will help you sustain the stability of your family business for generations to come.
Growth: the Engine
Profitable, sustainable growth is the engine that allows your total family wealth to be transmitted to future generations. Developing a long-term growth strategy will involve studying megatrends in the sector(s) where you are operating and doing deep-dive opportunity and risk assessments across all asset categories in your wealth portfolio.
Long-term growth requires the careful balancing of asset growth, liquidity, and ownership control over time, combined with sustainable consumption and careful management of risk-reward tradeoffs. Spreading risk is an important aspect of wealth growth and can be achieved through external partnerships, mergers and acquisitions, minority stakes in some investments, and diversification.
Diversification as a Growth Strategy
Diversification is a good way to spread risk and gain access to capital, know-how, and experience. It is not without risk itself, however, so compatible diversification is the safest route. That approach involves diversifying along the family’s core competencies (ie, knowledge, capabilities, and resources that distinguish you from others). The further into the unknown you go (ie, Tier 2 diversification), the greater the risk.
One of my family clients – a third-generation Asian apparel manufacturer – began exploring new opportunities as growth slowed in their legacy business. Over the years, they had developed several core competencies in sectors that were adjacent to their textile business, such as warehousing and distribution (eg, drop shipping) and e-commerce.
The owners considered venturing into Tier 2 by diversifying into areas they knew less well, but they ultimately decided against it. Instead, they leveraged their core competencies to invest in companies that distributed non-apparel products via e-commerce (eg, medical products). On the warehousing and distribution side, they invested in a company that owned several Amazon distribution centers. It was a winning strategy.
Growing a Multigenerational Portfolio
A total wealth portfolio with elements that address the interests and risk profiles of each generation (eg, impact investing for younger members, lower risk for senior members) supports both asset diversification and differing family needs. Family members can partner across generations to gradually architect a “generation-adjusted portfolio” that engages and motivates each generation in pursuit of their long-term family mission and goals.
Agility: the Adaptor
With the amount of rapid change occurring in the world today, no portfolio, organization, or ownership group will succeed without agility – the ability to pivot and reinvent. Constantly scanning the horizon for signals of change and being prepared to adapt quickly to new realities are critical to survive and thrive in an ever-shifting landscape.
For a family wealth portfolio, agility is the ability of owners and managers to move financial and human resources quickly to address threats and seize opportunities. Its key aspects are speed, decisiveness, preparedness, flexibility, and the ability to pivot to new models or strategies and, as necessary, detach from a particular investment, business, or way of doing things.
An owning family must exercise agility on multiple dimensions. Capital flexibility (eg, different types and structures of capital for new investments), ownership flexibility (eg, different ownership structures, some minority stakes, openness to new partners), and decision-making flexibility (eg, fast and effective governance) are all essential to building agile portfolios and organizations.
The family holding company described in the stability case study above also offers a good example of agility in turbulent times. During the Covid-19 pandemic, it balanced short-term stability needs with efforts to reduce leverage and free up resources, enabling it to quickly seize emerging opportunities in its legacy industrial company and outside investments.
The Change Imperative
Agility requires an openness to new ideas and a willingness to let go of old methods and forge a new path. Reinvention and transformation are hallmarks of success for today’s enterprising families, which can be a challenge for owners who define stewardship as clinging to the status quo rather than looking for opportunities to build value according to their values in each generation.
Not everything has to change – and not all at once – but families need to recognize that what has worked for growing their family’s business and wealth in the past is not likely to keep working for much longer and moving slowly (or not at all) will come at a cost. Failure to keep up means being left behind.
The Future Is Here. Are You Ready?
The future is here, and it is turbulent. According to results from a global survey conducted by the Cambridge Institute for Family Enterprise, enterprising families expect continued turbulence as the decade progresses. They recognize that their families and their enterprises will need to change to proactively adapt to turbulent times, but they don’t feel change-ready.
Our wealth playbook’s total wealth perspective and SGA formula for managing a family’s total wealth provide frameworks and tools for assessing your current situation and identifying improvement opportunities. Skillfully applied, they can help you navigate through and beyond the 2020s.
Do you have the mindset, skills, knowledge, and relationships to navigate the new era and grow your family’s wealth for current and future generations?
For more in this series:
- Family Wealth: A New Playbook for Turbulent Times, Part 1
- Family Wealth: A New Playbook for Turbulent Times, Part 2
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