Wednesday, May 20, 2015

How important is the financial "Big-Picture" focus?

How important is a strategy-driven and big picture focused financial mindset for the growth of enterprise and accumulation and preservation of capital?

It seems most successful entrepreneurs have the "big-picture focus".

Successful entrepreneurs have a habit of building one business, selling it fully or in part, and then moving on to the next—building wealth through a series of "equity events“.

Roughly 80% of typical entrepreneurs’ net worth is tied up in their companies. This changes over time as successful entrepreneurs grow business interests outside of the core business.

What are some of the challenges faced by entrepreneurs and business owners, as they grow their enterprises?
  1. Raising capital without losing control 
  2. Recruiting and retaining top talent 
  3. Business continuation and succession 
  4. Converting profits and value to wealth
How entrepreneurs and business owners deal with the above challenges makes a difference for their business enterprises,
“The difference between a business family and a business dynasty is the strategy. Everything must be in line with strategy. Selling assets, exiting ventures… followed by reinvestment of capital – in everything strategy sets the rules.” - Baron Albert Frère, Founder and Chairman of Groupe Bruxelles Lambert, one of the largest family enterprises,
Here are some interesting statistics on family-owned businesses:
  • One third of FORTUNE 500 companies are owned or controlled by entrepreneurs or their families
  • 67% of NYSE companies are owned or controlled by entrepreneurs or their families
  • Only about 30% of family businesses survive to the second generation
  • Only 12% make it to the third generation
  • Only 3% make it to the fourth generation
  • 1 in 4 family businesses have a continuation plan
  • 37% have written a strategic plan
“The difference between a business family and a business dynasty is the ability to withstand the shocks of intergenerational transfer, combined with each generation’s ability to adapt”. - Rolland B. Hills, Chairman of Hill van Breen Continuity and Chair of Redmount Capital Partners advisory board.
Our observations identified that most successful entrepreneurs have a formal approach to managing their "big picture" - strategy setting and implementation, and financial and risk management.
  • Noticeably, for these, successful entrepreneurs rely on people outside of their core companies. 
  • They structure formal entrepreneur's offices or family offices for these purposes. Initially they may rely on shared Entrepreneur's Offices or family offices.
  • Strategic events, such as selling or buying companies, increasing or decreasing ownership in companies are handled by these structures
  • Raising or repaying personal capital, financial reorganizations, debt restructuring activities, etc. are evaluated and executed at these levels.
  • Cash management is given a high priority, striving to manage cash balances efficiently, See more on Cash Management 
  • Risk and liquidity management is paramount.
  • Employees or officers of their core companies are rarely involved in these processes.
Below are some examples of very successful entrepreneurs and family-owned company leaders, in our opinion, commanding a "Big-Picture" focus. 

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Susanne Klatten: Dynasty Company as the Backbone of Dynasty Fortune. Wealth created though growth of a single company, BMW. Company is still a key asset of the family and its business identity. Other key assets are acquired and sold in line with “Dynasty Company” strategy

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Leonardo Del Vecchio: Multi-Generational Family Company Leading to a Dynasty Fortune. Wealth creation through growth of a single company, Luxottica. Company is the identity of business family. Strategically and selectively diversifying dynasty fortune.

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Bill Gates: Company Value Leading to a Multi-Company Family Fortune. Wealth creation though a growth of a single company, Microsoft. Diversification of holdings and assets. Establishment of strategic wealth thought.

Statistics: Courtesy of Financial Strategist Board.

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