Reinventing the Family Firm - Chapter 1

DEFINING THE FAMILY BUSINESS PORTFOLIO FIRM

Lachenauer (2021, p.206) have, for instance, suggested that a portfolio might consist of the following four parts:

♦ Moonshot – very risky investments, typically found in start-ups, and with significant payoffs when successful ♦ Core wealth creation – family-owned and actively managed businesses ♦ Steady income generation – to support a family’s living expenses, say, through rental incomes from real estate ♦ Hurricane – to support family members in case of a crisis, say, by holding gold (physical rather than certificates) in various locations. Holding Bitcoin may represent another way to achieve this. Another way to look at the configuration of one’s portfolio might be geographic: say, investments in the Americas versus Europe versus Asia. If in the Americas, how much is invested and where? If in Europe, how much in the Germanic part versus the Latin part? How much in Scandinavia? How much in Switzerland? In the case of Asia, how much is invested in China? Ensuring that businesses are located in sufficiently high-growth as well as politically safe areas is paramount. A portfolio might also be assessed according to which currencies the portfolio investments are exposed to: such as, for instance, USD, GBP, EUR, CHF, NOK, etc. Still other “cuts” might focus on the service sector versus manufacturing, on subscription businesses versus not, and so on. A final way of looking at what might be a good portfolio for a family firm is through the lens of the particular human competences in the firm. A business portfolio might be built based on the core capabilities that exist in a company. This is in contrast to an often industry-based portfolio delineation or a geography-based portfolio delineation. What is key for the leader, then, is to empower the people in their organization to actually take advantage of what they seem to know best, in a bottom-up process. The leader’s willingness to listen is key in such an approach (Koch, 2020). So, we can see that a portfolio can be viewed through several lenses. It is important to undertake these various assessments of one’s portfolio to come up with what one might consider a good mix when it comes to risk exposure relative to return. Thus it is important to operationally manage a portfolio in such a way that it allows for investment decisions to be made by drawing on accumulated know-how in each of the areas of the portfolio. The management of SUI, for instance, calls for considerable knowledge within each of the five areas in its portfolio. And periodically assessing the quality of this portfolio according to currency mix, geographic focus, and so on, is also critical.

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