Spotlight On: Defining Value
Determining What your Family Values Most
Defining your Owner Strategy
Determining how your family will define success typically translates into three possible outcomes for the business. You can aim for growth, looking to maximize the financial value of the business. You can seek liquidity, distributing cashflow to the owners to use outside the business. And you can want to maintain control, keeping decision-making authority within the ownership group. An Owner Strategy will help you determine what you want to do with your company.
The best family businesses have a clear Owner Strategy that defines what winning looks like.
Owner Strategy is different from business strategy. Here’s why your family business needs both.
Defining your Purpose
Why do you choose to own your business together with family members? If your family business is bound together only by a surface purpose, it’s unlikely to last in the long run. It’s not enough to live someone else’s dream or maximize undistributed profits. You can find a better answer to that question by working with other owners to identify a compelling reason to own the business together.
What makes family businesses successful across generations? A culture that enables the business, owners, and family to evolve.
Setting Owner Goals and Guardrails
A clear definition of purpose will help you make concrete choices about, and see the trade-offs in, how and where to create value. We call these choices Owner goals. And then you have to set Owner guardrails, boundaries around standard business strategy decisions, to ensure that those running the business day-to-day are directing their energy and resources to what you care about most. Clear Owner goals and guardrails enable more effective ownership.
Crafting your Owner Strategy Statement
To capture and express what you value, owners should create an Owner Strategy statement, a document that articulates your purpose, goals, and guardrails. This statement becomes a sort of credo for your family business. A good Owner Strategy statement should form the basis of a dialogue among owners, the board, and management.
Philanthropy in Family Business
Giving back is a priority for most of the family businesses we know. Primarily, they do so to make the world a better place. But, the most successful philanthropic efforts are part of your Owner Strategy, too. It’s important to take the time to identify your philanthropic objectives, including how giving back can help you accomplish your goals.
Effectively giving back to society takes hard work, but the results will be more than worth it.
Value Thought Leaders
Owners have the right to define what are the high-level financial and non-financial priorities for the businesses that they own together. When they are able to align and articulate those, it gives direction (goals) and limits (guardrails) for those making decisions on their behalf.
Co-founder and Senior Advisor
Families are often programmed from birth to avoid conflict in the name of preserving family relationships, holidays, etc. Unfortunately, in most cases doing that pushes issues of real important under the rug. Rather than trying to avoid conflict, focus instead on how to manage it. When you do, your family and your business will be far healthier in the long run.
Owner strategy conversations provide a special opportunity for family members within and across generations to share their goals and expectations. Working through differences can bring your family closer together and set a clear path forward.
Nick Di Loreto
Conflict, by definition, increases as families grow and their interests diverge. The most successful family business owners are those who know how to raise and harness, rather than suppress, their differences.
Family business owners benefit from thinking like investors by answering a few questions: What are we trying to accomplish with this business? What are our financial and non-financial expectations? What risks are we willing to take? How will we measure performance against our expectations? Alignment on the answers to these questions allow a family to commit financial and non-financial resources to a shared vision of long-term success.
Senior Research Fellow
In an uncertain, volatile world, you can’t anticipate what will happen or when. But there are two things you can do: create a structure and family mindset that is open, flexible and responsive to change, and put in place processes for managing the most likely disruptions.
One of the best things about family ownership is that you don’t have to define success the way other companies might. You can follow your own path in determining what matters most to you and your family.
Marion McCollom Hampton
Senior Research Fellow
In the best cases, people marrying in to a family business bring that outside culture of their own family, and that makes the business family stronger.