Family businesses are a major part of the Canadian economy and being in one myself, I can see the strength of the more resilient culture. Employees may feel more of a sense of belonging and human connection more than working for a professionally run corporation. These are reasons that family businesses, in these troubled times, have been better performers. These are also the reasons private equity treasures family businesses above all other types of business ownership.
I have been working with family business owners over the past decade and I have come to see a big threat looming in their future which, if left ignored, will impact on the future of the Canadian economy.
My major concern is that I notice the main goal for family businesses is to preserve wealth, over accumulation. In other words, the family business is less likely to invest in new projects for the sake of growth.
“Why would I risk our own money to grow? If it is not successful, I am out of pocket,” is the typical comment. Quite understandable, but in this new environment, that sort of thinking will be the ruin of the family business.
I am not the only one has picked up this pressing crisis. Jack and Suzy Welch also write about this increasing crack in the foundation of the family business which will threaten their survival. Jack Welch says,
“That protect-the-assets approach often worked in simpler times, but it could prove devastating in a global environment where risk-taking and growth are essential to survival.”
There is direct action for family business owners to counter this global economy threat to the family business and I usually ask these question: Would you like to have the world's best business minds apply their ideas to the business? Would you like to grow into new geographic regions but without using your own cash? Would you like to reduce your growth risk by having experts who have already worked in those regions?
Private equity brings these valuable skills to the Board room table, and far more. To have Board advisors who are global and who bring a third of the money to the business, it is a winning path to growth of wealth.
I strongly encourage family business to bring in private equity partners who sit at Board level, but do not get involved in the day-to-day operations. This extra investment will allow the family to take money out to invest in other companies which diversifies their own wealth while also addressing their reluctance to invest in the risk of growth.
Jacoline Loewen, expert in family business and private equity, author of Money Magnet, now used as a text book for Ivey Business Schools' MBA program.
