The relationship between high net worth individuals (HNWIs) and family businesses in China is quite positive, according to the results of KPMG’s 2014 Global Family Business Survey. More than half of the HNWIs canvassed indicated that they had previously invested in family businesses, and all of that quotient indicated that the experience had been positive.
Family Businesses and Family Foundations throughout the world are increasingly interested in the areas of social entrepreneurship and impact investing. What is the appeal of these areas and how best can family businesses engage in them?
In the Middle East, family businesses certainly have a well-developed appetite for investment, reveals KPMG’s Global Family Business Survey. The fundamentals are in place to connect family firms with high net worth individuals (HNWIs) – four-fifths of our Middle Eastern respondents said they are seeking external finance, while three in five said they have previously offered equity in their business to external investors.
The overwhelming majority (92%) of family businesses canvassed in KPMG’s 2014 Global Family Business Survey that have attracted high net-worth individual (HNWI) funding say that the experience was positive in comparison with receiving financing from other sources. They explain this sentiment in part by pointing to HNWIs’ expertise and long-term investment expectations. One respondent from the United Arab Emirates noted this about HNWIs: “They are reliable and easily approachable compared to the other sources of finance; also we could add-on skills to our management through their expertise.”
Academic Insight: Personal Relationships and Family Businesses: Soft and Fuzzy or Just Better at Handling Paradoxes?
One of more intriguing aspects of the functioning of family businesses is their ability to mesh emotional with pure business considerations to generate original and often exceptional performance. One of the first academics to highlight this phenomenon was Professor John Ward at the Kellogg School of Management in his 2010 book “Family Business as Paradox”. To paraphrase the arguments made in the book, a family business is, by its very nature, a living contradiction. Successful, multi-generation family businesses have figured out how to manage these contradictions and in many cases turn them into the secret of their success in a world that is filled with dozen of paradoxes.
You’ve worked hard to make a success of your family business and to build your family’s wealth. The last thing you wish to see is the wealth built up over your lifetime squandered away by the next generation. That’s where financial stewardship comes in…
As discussed in The 3 defining traits of Blue Ocean leaders, Blue Ocean leadership is a leadership model devised by W. Chan Kim and Renée Mauborgane of INSEAD that promotes key traits for effective business leadership, the three primary traits being focusing on actions and activities, acting in close accordance with market realities, and disseminating leadership across all management levels. With these goals explained, Kim and Mauborgane then offer a four-pronged approach for actually implementing such leadership:
The working assumption of KPMG Global Family Business Survey is that natural affinities are drawing, or should draw family businesses closer and closer to high net worth individuals when it comes to raising the funds needed for their growth. This is premised on clearly established limitations of other sources of growth capital, in particular inconsistent investment horizons, unrealistic risk/return expectations or frustrating control tendencies.
In the past, succession in the family business was very patriarchal, with the entrepreneurial founder expecting his children to succeed him in the family business. There was little discussion of alternative careers, particularly for the older sons. The induction into the business was made through an apprenticeship model, in which the preparation of the next generation was based on observation of and direct learning from their father.
While entrepreneurs build up their empire, they think of growth and success and often forget that one day they may need to disconnect from and get their money back. That’s why every entrepreneur needs an exit strategy. Simply defined, it’s a method for getting out of an investment you’ve made in the past – in other words, getting out the money you put in (and then some).
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