Reinventing the Family Firm - Chapter 1

DEFINING THE FAMILY BUSINESS PORTFOLIO FIRM

creation. This process of “dressing up” a firm to add to its value is an important lesson for family business portfolios. Viking Ventures seem to be practicing so-called Blitzscaling as a way to induce rapid growth in the various entities it holds – to be discussed later (Hoffman & Yeh, 2018). For many family business portfolios, including that of SUI, having a value- based culture is therefore key. Values directly influence investment strategy, for example. Perhaps the most important aspect of this is that as large a proportion as possible of the funds generated from the various entities within the firm’s portfolio should be reinvested by the firm, with only a relatively small fraction of the firm’s economic result being paid out as dividends. Dennis Jaffe, in his research on successful family firms, has identified the importance of stewardship, i.e. such firms reinvesting the bulk of what is being earned (Jaffe, 2020), this being perhaps the most critical success factor for family businesses in the long run. It should be pointed out, however, that Jaffe’s research did not seem to make a distinction between various types of family firms, i.e. between those focused on one or a few typically related entities (heritage businesses) versus family business portfolios. What is unique about a family business portfolio in this context, however, is that while some parts of a portfolio might be relatively easily “milked,” generate reliable cash flows, others might be more suited for reinvestment. The owning family thereby has a much greater degree of flexibility when it comes to the withdrawal of cash from the business portfolio type of firm. Family businesses tend to do well in crises, as has been seen during the recent pandemic. They also tend to have lower insolvency rates than their counterparts. Their longer-term focus and greater resilience work in their favor. They also tend to be more frugal and less inclined to undertake “flashy” acquisitions. They are often more community-minded and more innovative, with more patents and new products per dollar spent on R&D than their public counterparts (Clark, 2021). Configuring a Portfolio As noted at the start of this chapter, SUI has defined its portfolio as falling into the following five business areas:

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Stocks/bonds

Shipping Real estate

Ventures/private equity

Education One way of viewing a portfolio might be according to its degree of risk. Baron &

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