What You Can Learn From Family Business

Family Business
1. focus on resilience more than performance
2. forgo the excess returns during good times
3. invest with a 10- or 20-year horizon
Seven differences in their approach
1. 1.- They’re frugal in good times and bad
  1. don’t have luxurious offices
  2. keep their expenses under control.
  3. have leaner cost structures
2. 2.- They keep the bar high for capital expenditures
  1. judicious when it comes to capex
    1. capex investments have a double hurdle to clear
      1. a project must provide a good return on its own merits
      2. judged against other potential projects,
  2. " we do not spend more than we earn"
3. 3.- They carry little debt
  1. associate debt with fragility and risk
  2. debt means being beholden to a nonfamily investor
4. 4.- They acquire fewer (and smaller) companies
  1. acquisitions worth 2% of revenues VS nonfamily businesses acquisitions worth 3.7%
  2. prefer organic growth (partnerships or joint ventures ) vs acquisitions
  3. favored smaller acquisitions
5. 5.- Many show a surprising level of diversification
  1. 46% highly diversified VS 20% of the comparison group
  2. diversification key to protect the family wealth
6. 6.- They are more international
  1. ambitious about their overseas expansion
  2. on average 49% of their revenues come from outside their home region
7. 7.- They retain better talent that their competitors do
  1. 9% of the workforce turned over annually VS 11% at nonfamily firms
  2. extol the benefits of longer employee tenures
  3. they create a culture of commitment and purpose

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What You Can Learn From Family Business

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