What family offices can learn from the startup growth cycle
Though family offices vary in size and shape, every organisation shares a common origin: entrepreneurship. Without the first generation of pioneering entrepreneurs, they simply wouldn’t exist. With the dawn of the internet age, entrepreneurship has become increasingly commonplace practice with many startups powered solely by strong cups of coffee and a fast internet connection. But what can family offices learn from this new age of entrepreneurship? We take a look at the startup growth cycle – and what lessons family offices can adopt.

By Francois Botha & Freya Williams
Published on Simple November 20, 2020

Family businesses that someday evolve into family offices find their genesis in entrepreneurship. Most family businesses begin with a single owner, typically the visionary and indispensable nexus of business activity, building value and directing activity. As these businesses grow from the startup phase and their life cycles unfold, more formal structures and processes become necessary — these help to ensure unhindered growth and harmonious succession.

An organization’s evolution is driven by the need to adapt to the challenges that present themselves in each phase of its life cycle. A steady professionalisation process is a vital mechanism for continuity and renewal. Petru Sandu’s “Framework of family business professionalization,” demonstrates the effects professionalization can have on the family business. But what might family offices also learn from startups where growth is rapid and exponential?

The changing face of the family office

Family offices have evolved from the mega-money-centric, often hidebound institutions of a bygone era. Today the services offered by an energetic family office more closely resemble those of a life coach, creative director or spin-doctor, than a financial advisor. Tasks, like positioning the family business within a specific area, managing potentially negative ‘press’ or guiding the business to the “next big thing”, are all within the scope of the new family office.

As the sheer speed of change today in virtually every business and communications sphere nears the social equivalent of light-speed, many older family offices have had difficulty keeping their services relevant. Ponderous is definitely out—family offices today need to be light, agile and able to pivot. Borrowing from the startup growth cycle allows family offices to make this transition.

Family businesses that someday evolve into family offices find their genesis in entrepreneurship. Most family businesses begin with a single owner, typically the visionary and indispensable nexus of business activity, building value and directing activity. As these businesses grow from the startup phase and their life cycles unfold, more formal structures and processes become necessary — these help to ensure unhindered growth and harmonious succession.

An organization’s evolution is driven by the need to adapt to the challenges that present themselves in each phase of its life cycle. A steady professionalisation process is a vital mechanism for continuity and renewal. Petru Sandu’s “Framework of family business professionalization,” demonstrates the effects professionalization can have on the family business. But what might family offices also learn from startups where growth is rapid and exponential?

The changing face of the family office

Family offices have evolved from the mega-money-centric, often hidebound institutions of a bygone era. Today the services offered by an energetic family office more closely resemble those of a life coach, creative director or spin-doctor, than a financial advisor. Tasks, like positioning the family business within a specific area, managing potentially negative ‘press’ or guiding the business to the “next big thing”, are all within the scope of the new family office.

As the sheer speed of change today in virtually every business and communications sphere nears the social equivalent of light-speed, many older family offices have had difficulty keeping their services relevant. Ponderous is definitely out—family offices today need to be light, agile and able to pivot. Borrowing from the startup growth cycle allows family offices to make this transition.

1. MVP and product-market fit – launching and surviving

Family businesses are, for the most part, founded on entrepreneurial models. This means that they’re often built on the founders’ abilities to offer a product or service rather than their management skills. Launching a MVP and finding the right product-market are crucial in the launch phases. Leadership development both within the family and among non-family members is critical during the initial stages of the business life cycle to ensure survival and transition into the growth phase.

In the early stages, the family business also requires a degree of formalization and professionalization of its financial processes. Informal advisors often play more significant roles at this juncture.

As the business prepares for growth, the development of professional relationships with key external stakeholders becomes a priority. External sources of expertise may be sought to professionalize various functions. Management development remains vital, as does the delegation of authority.

2. Growth – finding the right channel-product fit

With organizational growth, the professionalization of structures, processes and systems intensifies. Growth brings with it new levels of competition as companies leave niche markets and enter larger, more competitive arenas. Finding the right channel-product fit is crucial to this stage.

Channel-product fit is all about following a princess if channel discovery in order to find the most effective avenues for reaching target customers. Identifying how to find the right channels and compete in these markets requires professional strategic planning and professional management that may encompass both family and non-family members. These disciplines become crucial as the organization heads toward the maturity-renewal stage.

Talent, both within the family and outside of it remains an integral part of the organization’s success. As formal job descriptions, hiring, performance evaluations, promotion policies and compensation may emerge as sources of conflict between family members as well as non-family members at this stage, implementing professional human resource practices is vital.

3. Maturity – renewing value and continuing to grow

As the growth trajectory of family businesses continue, they eventually reach a stage in their life cycle where the key stakeholders face a strategic choice between further growth efforts and maturity. If growth is not prioritized, pursued, or achieved, these businesses remain in the maturity phase. This brings with it a heightened risk of decline, particularly if these organizations are not agile enough to adapt to the ever-changing business environment.

Startups are hyper focussed on scale – though the growth rate slows as a company matures, in the world’s top tech companies it never stops. Growth is baked into the culture and DNA. For family offices, a desire for return on investment is too ever-present. But reinvention and renewal often pose a serious challenge.

“Research indicates that most family businesses experience delayed recognition of the necessity to reinvent themselves as they endeavor to preserve their socio-emotional wealth”

Petru Sandu, Associate Professor of Entrepreneurship and Management

This can be a costly oversight. Primarily because at this stage of the business life cycle, continuity often depends on organizations reinventing themselves and investing in new technologies and emerging markets. It can, however, be avoided by focusing on two integral factors.

The first involves strategically cultivating a professional culture. This facilitates strategic insight and continual evaluation. Questions like where the business is, where it is going, and what is required to get there are continually asked and answered. Answering these questions leads to the formulation of clearly defined business objectives which can then be communicated throughout the organization, along with detailed directives for each function.

The second, by adopting an agile approach that allows organizational talent to strategically address these questions and function optimally within a structurally flexible framework. This facilitates the precise and rapid communication of shifts in intents and purposes to various stakeholders as the company continues to grow. It also enables those involved to rapidly adapt to manage any threats or take advantage of opportunities that arise in meaningful ways.

Family business to family office

It is often by the maturity stage that family business interests, along with family members’ portfolios grow and diversify. The company may be sold, or it may expand as it enters new markets, evolving from a family business into a family office.

Within the family office, formal structures and higher degrees of professionalization are required. These are necessary to not only manage the core family business but also the family’s wealth and everything that goes with it.

On continuous value-creation

It is evident that professionalization fosters growth, opportunity and success within family businesses and becomes increasingly necessary as the company moves through the various stages of its life cycle. It is, however, essential to be aware of the fact that professionalization beyond certain levels can lead to bureaucracy wherein formal standards dominate.

This paralyzes the organization’s agility. It can also impact family business values and practices, ultimately leading to the decline of the company. Continuously seeking to create and add value is essential to survival.

The challenge facing family business members is to implement professionalization without affecting the business’s entrepreneurial values. Doing so effectively requires a clear definition of purpose, values, and objectives. Maintaining agility should be a focus when professionalization efforts are made. This will allow the organization to continue to take advantage of opportunities, reinvent itself, and enjoy continued growth – just like the world’s leading startups.

About the Authors

Francois Botha

Simple Founder. Strategy Advisor

Francois believes that the next generation of family leaders need new, simple tools and trusted experts with a fresh outlook.

Connect with Francois Botha View Francois Botha Profile

Freya Williams

Insights & Expert Engagement

Freya is a business anthropologist specialising in qualitative insights and user-driven innovation. With a background in NGO’s and consultancy in London and Copenhagen, she works with Simple to co-create insights with our network of experts

Connect with Freya Williams View Freya Williams Profile

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