- Sustainable networks are hugely important for family offices.
- Despite this understanding, many family offices don’t invest the time to develop these sustainable networks.
- Many family offices rely on referrals from the existing community of peers around them who share similar objectives and practices. While this instills trust and confidence amongst investors, it can lead to a homogenous group who all think and work in the same way.
- The real benefit of networking lies in finding people who are inherently different, as they bring with them an alternate view, opinion and way of doing things. They can also guide the family office through unfamiliar economic landscapes. They can provide fresh inspiration and ideas.
- This can be especially helpful in emerging markets, where there is new wealth and little experience in next generation and wealth transfer.
Most family offices can agree that networking is an integral part of their work. Few people would claim they don’t take up opportunities to network when they present themselves. Additionally, most people would confirm that a strong network is beneficial to conducting business.
Networking is not only crucial to many family-owned businesses and family offices, it can also open doors to numerous great opportunities. Why is it, then, that so many family offices and family businesses don’t invest the time and discipline required to do networking properly? Why is there such a discrepancy between the perceived importance of networking and the actual efforts put into it?
Sustainable networks start outside of the comfort zone
Single family offices or more generally, investors, often maintain networks of peers that have shared interests. They share similar investment objectives, operate in the same industry and their principles have personal relationships that trace back to school, university or work. If these family offices or investors seek to expand their network of peers in which they operate, they often do this by asking for referrals from their existing network. This helps to establish second degree connections – similar to the process of LinkedIn. Although two family offices don’t know one other, they share a mutual contact and that instills trust and comfort amongst them. They are immediately open to the idea of exchanging thoughts and ideas to find common ground and synergies that can be leveraged. The downside of this, however, is that the family doesn’t break through the circle of meeting the same types of people over and over again. A homogenous group of people will continuously refer each other to the same type of people again.
The true beauty of networking lies in building relationships with people who, at first glance, might not be of great value. Often it is their unbiased approach, their neutral point of view and an entirely unrelated network that makes them so special. These outsiders can be the breath of fresh air that family offices often desperately need. These individuals allow the business to start questioning their long held beliefs and challenge antiquated strategies.
Meeting family offices and investors that are out of one’s own comfort zone can be a source of inspiration and creativity. They can offer strategic partnerships for investments or business ventures, previously unknown to the family.
An outsider can offer guidance in unfamiliar territories
A case from Saudi Arabia exemplifies the need for collaboration between family offices, especially when exploring opportunities in territories that were previously unknown to them. In this example, said family from Saudi Arabia was looking to invest in Africa. They did so, taking matters into their own hands entirely and without the support of a local partner. The deal and the success of the operational business, which the family invested in, heavily depended on an understanding of the political and economic situation in the country. Ultimately, the investment failed and the family withdrew from the continent, disillusioned.
It was the same family that insisted on the importance of having a local partner when entering the Saudi market. A partner who knows and understands customs and traditions, who knows how to do business and gets things done. The Saudis gave this exact advice to a German family office that sought out local partners to take their business to the Gulf. Yet, this Saudi family did not listen to their own advice when entering Africa. Reliable family office contacts can be the determining factor for the success or failure of a venture in parts of the world that investors have little to no experience in.
Next-generation wealth can greatly benefit from these sustainable networks
This also holds true outside of investment-related topics. Family offices have a growing tendency to establish networks for the purpose of peer-to-peer knowledge exchange. This development is particularly evident in regions where wealth is new and is still in the hands of the first generation. Issues like next generation or wealth transfer are particularly pressing in frontier or emerging markets, where family offices have no network of multi-generational wealth owners to learn from. Owners who can share their experience, insights and knowledge with their peers on how to transfer wealth and businesses to the next generation.
The same applies to family office governance, or the overall strategy a family wants to follow – in terms of sustainability and impact of their investments.
Establishing a sustainable network is the reliable alternative to consultancy services. It can also be a supportive tool when working with consultants on complex issues such as creating a family office governance. The family office network can serve as a source for best practice examples, as well as an open and friendly dialogue between a number of peers. It can help the family to find inspiration and piece together their very own strategy, which is implemented by advisors and consultants.
Sustainable networks pay off over time as they can become a resource of advice, experience, knowledge, ideas and inspiration from others. Research works, contacts and opportunities are often readily available and can be shared. One just has to know who to ask.
Porter Gale coined the phrase: “Your network is your net worth.” Yet, while families are advised to grow their network if they want to grow their net worth, they also need to focus on developing and nurturing sustainable networks too.