Reinventing the Family Firm - Chapter 1

DEFINING THE FAMILY BUSINESS PORTFOLIO FIRM

focusing a portfolio, for example if there is a strategic choice to go for scale. Choice of currencies (including Bitcoin) might be another and so on. ♦ Starting a portfolio may not only be driven by financial considerations, manifested as profits, cash flow, risk, and so on. There may be personal motives too, to do with career fulfillment. The founder of SUI, Captain Samuel Ugelstad, for instance, started out as a seafarer, and then became captain, before founding the firm, initially as a ship-owning entity. The author has an extensive background in the business educational sector that served as a guide to SUI’s entry into the education business. ♦ Let us now finally discuss “decline,” or the closing down of a portfolio. How does a business family manage a portfolio’s decline? How might the portfolio’s sustainability be enhanced? Akhter points out that this is not a linear process but that expansion and contractions typically occur at intervals (Akhter, 2016a). Freeing up resources for new investments when exiting a business might be seen as an entrepreneurial activity rather than a scaling back. Family offices may often be dealing with these issues. Raising more capital – say, for mergers or acquisitions – is also primarily a family concern. These decisions will likely impact the concentration of ownership: Is the owning family comfortable with the potential dilution created by such a move? Alternatively, acquisitions might be financed through taking on more debt, implying a higher degree of risk for the firm, with no dilution of ownership other than by “paying” with shares in the company held by the owning family. This is also an issue of control that affects much more than the decision about whether to merge/acquire or not. There might also be situations, of course, where the acquiring firm uses its cash reserves to make the purchase, which is in many ways an ideal situation, implying a relatively small increase in risk exposure and no dilution. Such situations tend to be rare, however. Family offices are again often central when it comes to these decisions. The business environment seems to be becoming more and more volatile, with increasingly rapidly changes. This is often described by the acronym VUCA, which stands for: Volatile, Uncertain, Complex, and Ambiguous (Davis & Lombard, 2019, p.124). Product life cycles are tending to become shorter, with increasingly rapid changes in customers’ preferences and with significant technological shifts as well. So, anticipating change and demonstrating great agility in pursuing new opportunities will be more important than ever: the ability to adapt, reinvent oneself and show strong resilience, vision, and responsibility. A common pattern tends to be for the family initially to have owned a particular business enterprise – such as a manufacturing plant, a store, a building, a fleet of ships. Let us label this the “heritage” or “legacy” business; and for the family to then diversify, in the light of an increasingly turbulent and unpredictable environment.

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