Family Enterprises and Owner-Led Businesses
Little is straightforward in a family enterprise, where the natural interaction of family dynamics and economics together create exceedingly high stakes. In a thriving family enterprise, collective purpose can be the driver for impact and long-term success, with values at the center. In fact, results can be spectacular for families that pool assets in a business or philanthropy or that invest collectively when conditions for success are actively enabled—a tall task.
Challenges to success and longevity can arise from every direction. Businesses in their second or older generations face competitive and familial tests different from those their founders faced: increasing numbers of family members have an economic stake as well as varied needs; families seek to make a difference through philanthropy; and liquidity of the business, in whole or in part, offers new opportunities to invest together or to go separate ways. Each “typical” transition a family enterprise faces—whether succession, governance (both corporate and family), strategy pivots, or next generation development—must be faced with both head, heart, and all available resources, including talent. Understanding the connective tissue that ties these challenges together, turning them into opportunities for continuity, is critical to sustained financial success and family harmony.
We have been at the forefront of the effort to systematically understand and help the family enterprise for close to 40 years. From our own origin in the early 1980s inside the Wharton School of the University of Pennsylvania, to our instrumental role in founding the Family Firm Institute, to our own experience of succession as a private company with long-tenured founders—CFAR knows, admires, and brings committed expertise to this world. We work with clients to locate and amplify both the will and the skill to make choices that propel themselves toward their chosen futures.
The creation of a family operating company, whether still in business today or not, also creates the possibility for family involvement beyond a founder’s original execution on an idea. Where most businesses fail in their early years, a multi-generational operating company has already beaten the odds. Successfully spanning generations means navigating change when change is rarely easy. What worked for a founder—strategy, leadership, capital—can fail if later generations do not work to examine their talent, their risk tolerance, their competitive landscape, in their time. Meanwhile, an aptitude for business is not genetic; it is cultivated and can be nurtured, with effort from all generations. Competitors don’t care how long a family business has been successful; customers sometimes do care, as long as their needs are met. Operating companies are for creators and can bring great reward, not the least of which is seeing one’s children and grandchildren live their own dreams through it. And when that is not possible, staying together in some way, with assets to deploy productively, can lead to great, collective things. CFAR helps operating companies find their routes to success with eyes wide open, bringing an understanding of capital, growth, and talent development, along with decades of experience decoding family dynamics to families willing to invest themselves in the work of continuity.
Like business, family philanthropy also requires a clear-headed exploration of goals, methods, resources, and results that drive their funders. They also need an understanding of how philanthropy fits into the larger family enterprise, as well as the values, history, culture, and network of relationships that make that enterprise unique. Challenges for family foundations range from their initial formation, to how they create and measure impact, to how they evolve giving strategies in response to changing needs in the world and/or changing interests in their family’s successive generations. CFAR helps these organizations institutionalize philanthropic passion into systematic approaches to making a difference, integrating the inspiration of some family members with new perspectives on mission, and building a structure that allows family members to have differential and meaningful roles and work, should that be the goal.
Family businesses have usually, from their inception, operated as the core financial asset of a family. More recently, enterprising families have consolidated their liquid assets, created through the sale of some or all of their companies, to diversify together, when worth the cost, into single family offices. The central question facing families at this stage is often about what the group wants to support collectively, on a scale that can range from “concierge”-type services to comprehensive money management, including investment advice, financial, and tax planning, as well as venture or later funding of other operating companies, and even family foundation management.
CFAR helps family offices address the central questions of the office’s mission and purpose, and then develops solutions for the questions that follow, including: what activities the office should collectively support; how to advance both financial and non-financial family goals through thoughtful organizational design of the office; and how to create cohesion among a family that is often varied in interests and dispersed geographically, where the benefits of a single family office may not be well understood and may have differential appeal.
This week's Spotlight features Analyst Dan Portnof. Dan joined CFAR in 2020 after graduating from Boston University (BU) with dual BAs in Philosophy...
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