Profitable Business Growth
A sustainable family business is an operating company that remains commercially relevant and achieves profitable growth over the long-term. The inherent multiple pressures at play in family companies are complex to manage: There are the typical requirements of any corporation, such as the challenges of business growth, developing and achieving a winning strategy, and talent renewal, among others. But in addition, family companies must balance trade-offs inherent to these systems, such as the alignment of business strategy with the family’s identity and mission; management of family risk tolerance; nurturing of family talent; anticipation of family cash needs from the business; and resolving the desire to reinvest as much as possible in the company to protects its financial health while adhering to a dividend policy that rewards owners sufficiently, but not so much that family members lose their drive to perform.
Family companies tend to think and act long-term to maximize shareholder value, but often need some encouragement to embrace needed changes to their business model and corporate strategy that are critical to their viability. They must balance the respect and celebration of the family business’ roots and initial sources and causes of success, while anticipating and embracing changes in industry and cycle maturity. This can sometimes shake family beliefs and push the family owners and business leaders outside of their comfort zone. As Professor John Davis reminds us, “Family companies are living experiments in holding on and letting go. The good ones know how to do both well.”
Neither comfortable steady state, nor aggressive growth, are options for family companies: Healthy profitable growth is. Studies show that family owners provide the stability and stewardship that can breed superior long-term growth and returns for a company. To achieve this, family owners need to partner with capable leaders and craft a business vision, strategy, organization design, and change process that well anticipates and responds to the evolving business, ownership, and family context. Sometimes this requires adopting a portfolio approach to the family company’s growth—placing bets across a few complementary sectors and leveraging unique skills developed over long periods of time. A balanced mix of knowing when to make such bets combined with a clear strategy, capable governance, motivating leadership, and operational skill is essential.
CFEG’s Business Advisory Practice works with business owners, leaders, and boards in developing meaningful strategies and governance systems to grow and sustain long-term shareholder value. We integrate the various needs and trade-offs when accompanying families in the shaping of their business strategy and change implementation process. The CFEG approach is iterative, grounded, and creative; its pace and sequence is set with family owners, while working hand-in-hand with them. Building long-term shareholder value is at the heart of it.
Disruptive Global Forces and the Family Business