Reinventing the Family Firm - Chapter 1

DEFINING THE FAMILY BUSINESS PORTFOLIO FIRM

A note on risk-taking may be appropriate here. Taking risks is crucial. The proviso must, of course, be made that prudence be shown when it comes to risk-taking: both when it comes to not taking excessive risks (family firms are typically rather conservative) and to not taking higher risks than necessary (i.e. when seen as a “technical” issue). Still, it seems to be the case that the lack of some risk-taking tends to correlate with periods of stagnation of organizations, rather than development. As Merkelback says, “a company’s success at risk is … to stop taking risks” (Merkelback, 2020, p.27). As a manager of a family business portfolio, the following question might be raised when considering a new investment: “Am I … risking enough for this project?” (Merkelback, 2020, p.28). And risk is not only financial but also reputational. The manager’s job might even be at stake. As noted, ship owning was S. Ugelstad’s legacy business for around 80 years. The author was the sole owner of S. Ugelstad Rederi A/S. The firm then specialized in offshore supply ships (so-called platform ships), with a fleet totaling seven ships at the time of the sale of the company. The positive liquidity effect from this sale formed the initial basis for SUI’s current investment portfolio. Selling one’s legacy business is not easy, however. Jaffe, among others, has researched and discussed this in great detail and has provided many relevant insights (Jaffe, 2020, pp. 99–112). The specific circumstances around the decision to sell S. Ugelstad’s ship-owning business, its legacy, are perhaps worth noting. The author had for a long time worked with the senior broker at one of the leading Norwegian ship brokerage firms, Per Engeset in R.S. Platou, shipbrokers. Per Engeset advised that the business cycle for the value of platform supply ships was approaching an all-time high. Also, during that same time, the author was monitoring the number of new-build orders relative to ships actually sailing, and noted that this ratio was shooting up. Oversupply, with a potential collapse of the relevant market price, was at serious risk of becoming a reality. Hence, the author decided to sell. This decision was not universally well received at the time, however, particularly among members of the firm’s own organization. The author was even characterized as rather backward by some competitors and fund managers. A general lesson from this suggests that a decision to sell requires a robust mind. A decision-maker should be mentally prepared to be more or less “alone” when it comes to making such decisions. To outperform the market, one should be willing to think independently, with all that this entails, including receiving blunt preliminary criticism from many. From Family Business to Family Business Portfolio

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