I have run across business owners, usually the founders, who sometimes say that they want the business to stay in the family “forever”. Well, forever is a very long time, and it’s clear that a business that is valuable today may not be particularly valuable in the future. Technologies change, economies change, and businesses change.
Effective succession of a family business is often reflected by flexibility in what the family business is seen to be.
Governance arrangements that are put in place should provide for procedures to determine when and how elements of the family business can be “harvested” - sold when it makes strategic sense to sell the business, likely with a view to reinvesting the proceeds in new businesses that form the constantly evolving “family business”.
Businesses and families are dynamic, and the constitution, and family thinking and discussions, should accommodate this.
This reminds me of the Continuum of Behaviours
which contrasts the differences between a Family Business and a Business Family. While there is no right answer, families demonstrating behaviours closer to the Business Family
end of the continuum are far more likely to maintain family wealth for the very long term.
Some of the more interesting Harvesting discussions I’ve had recently:
- Two wealthy families looking to swap equity in their family businesses to diversify each family’s concentrated wealth into another industry. I discussed this on the podcast with Dave Whorton.
- A family looking to back-door list the family enterprise through the acquisition of a publicly listed company, offering the wider family group easier access to liquidity.
- A very large Canadian Family Office looking to invest permanent capital for minority stakes in other generational family companies. Offering a single LP, an effectively permanent hold period and leaving families in control of their primary asset.
- A patriarch who doesn’t believe anyone (his children or outside managers) is capable of succeeding him, so he’s liquidating everything with his name on it during his lifetime.
- A family conglomerate which is splitting off business divisions for each child who is interested in running one and forming family office vehicles for those who aren’t.
Every family has a story and every business tells a story. The intersection of the two and the wealth they can create continue to fascinate me!