“FAMILY BUSINESS MATTERS”
by REG ATHWAL, FPSA
World-Renowned Family Business Executive Advisor, Author & Keynote Speaker; Founding Partner & MD, RTS Global Partners
“FOB to WOB”
Most family owned businesses focus their time on building a business, that will provide for their families lifestyle and give security. As their family grows to the 2nd and 3rd generation, the wealth pool must grow. There will be more blood-line family members to support, then some marry and another generation arrives. For those working IN the business, salaries will need to be paid. Then add on housing, travel, education, marriage and healthcare expenses for the entire family.
For over a decade we have been transforming FOB’s to grow, build the right structures and increase their wealth. We agree on targets linked to Family Member ROI (FM-ROI) and Profitability + Value Creation/Contribution (PVC) as a formula and success tracker. The highest Yearly ROI + PVC we’ve witnessed is $50m per family member. This can come from expanding an existing business with new products or shifting to new lines or new markets. We agree on a business plan and a model linked to increasing the Product/Service Offering with Volume + Frequency + Margin + Payment Cycles (VFMP). In some cases Innovation with New Ventures is the key to growth. Family businesses can be emotionally attached to existing businesses – sometimes it is best to let go or innovate or die.
A good indicator for a shift requirement in the business model and offerings, is when you know that the competition has grown in the same market and the margins have reduced overtime – we call this the Competitor to Margin Ratio (CMR). If your CMR has limited competition and high margin, this is healthy and leads to creating wealth, this is a positive (+) CMR situation. If your CMR has high competition and low margin, it’s time to get out or innovate, as this is a negative (-) CMR situation. For large family businesses we insist on no more than 2 family members to be IN the same business. Otherwise with more family members, this can then lead to slower decision-making and limitations in your execution ability, which means the competition win faster and your CMR is in a negative situation.
One of the mechanisms we’ve implemented over the last 5 years is our “Family MBA” program for the next generation. We create a customized 12 month program to support the next generation to incubate and launch a new business during this period. They get practical hands-on experience and have the opportunity to potentially create the next wave of wealth for the family. This sometimes is better than becoming an employee and trying to add value to an existing business with many family members, which can lead to a negative CMR. In the near future we will taking our private “Family MBA” Program and launching it as a Public “Family MBA” Program in partnership with Leading Business Schools and Universities, starting off in Dubai, United Arab Emirates for Next Generation Family Business Owners and Members.
“The Double Your Dollar Rule for Creating a WOB”
To shift from FOB to WOB there are many paths to consider to create wealth for the existing FOB and to re-invest your profits and create multiple leverage mechanisms.
Here are 26 for your consideration:
1. Cash Flow Optimization
2. Business Model Transformation
3. Spin-Off Fund Raising
4. Private Equity Placements
5. Investment Funds
6. Merger & Acquisitions
7. Initial Public Offering
8. Public Limited Company M&A
9. Off-Shore Governance & Trusts
10. Digitization & Virtual Platforms
11. Intellectual Property Creation & Patenting
12. Retirement Planning Funds
13. Real Estate Investments
14. Angel Investments
15. New Venture Incubation
16. Early Stage Growth Investments
17. Fast Growth Company Investments
18. Joint Ventures
19. Turnaround Ventures
20. Debt Financing
21. Bridging Loans
22. Trade Financing
23. Online Trading
24. Pension Fund Investments
25. Emerging Market Expansion
26. Global Partnerships
Pick 3 you can focus on for the next 12 months.
Now if we apply the Double Your Dollar Rule by using any combination of the above, the intention is to Double Your Dollar, every year ideally or at least every 3 years and then handover to the next generation to continue but try find Wealth Accelerators. Look below, at the multiplying and accumulation effect of doing this, just by from starting with $1 and doubling the same. We show this to young Family MBA students, who normally give up at around $1,000 mentally.
The formula or rule, can only happen by reinvesting in your business and then keeping a % of your wealth outside of your FOB. If your core FOB becomes the only focus to create wealth, it may not be enough to support many future generations, and if other areas of your FOB like a Family Office, Family Constitution and a Shareholders Agreement are not in place, future family members may want to depart or sabotage what you’ve built. The key to shifting from the FOB to the WOB, is to constantly look for ways to create or invest in the creation of others or your very own next generation and Unleash their DNA as we call it.
Start with $1 ($1)
(Y1) $1×2 = $2
(Y2) $2×2 = $4
(Y3) $4×2 = $8
(Y4) $8×2 = $16
(Y5) $16×2 = $32
(Y6) $32×2 = $64
(Y7) $64×2 = $128
(Y8) $128×2 = $256
(Y9) $256×2 = $512
(Y10) $512×2 = $1,024 ($1k)
(Y12) $2,048×2 = $4,096
(Y13) $4,096×2 = $8,192
(Y14) $8,192×2 = $16,384
(Y15) $16,384×2 = $32,768
(Y16) $32,768×2 = $65,536
(Y17) $65,536×2 = $131,072
(Y18) $131,072×2 = $262,144
(Y19) $262,144×2 = $524,288
(Y20) $524,288×2 = $1,048,576 ($1m)
(Y21) $1,048,576×2 = $2,097,152
(Y22) $2,097,152×2 = $4,194,304
(Y23) $4,194,304×2 = $8,388,608
(Y24) $8,388,608×2 = $16,777,216
(Y25) $16,777,216×2 = $33,554,432
(Y26) $33,554,432×2 = $67,108,864
(Y27) $67,108,864×2 = $134,217,728
(Y28) $134,217,728×2 = $268,435,456
(Y29) $268,435,456×2 = $536,870,912
(Y30) $536,870,912×2 = $1,073,741,824 ($1b)
For more information on how we can help you become a $1b+ WOB, write to the author in confidence: email@example.com.
About RTS Global Partners
We offer leading-edge scientific and practical advisory, consulting, education and venture solutions to family owned businesses and conglomerates, as well as large corporates with an entrepreneurial DNA. We also provide superior management consulting services for businesses who want to transform their human-capital and grow into new markets across Africa and Middle East.
As a rapidly-growing advisory and consulting firm, we have members supporting 85 key clients in 7 countries and adding value to millions of employees with our collective knowledge capital, DNA systems and DNA processes. Our company is the creator of the ‘Unleash Your DNA’ brand and ‘The DNA Model’. 80 percent of our senior leadership team are client-facing professionals from different nationalities. We have plans to expand our Partner Network to 22 countries by 2022 across Africa and Middle East and service 22,000 clients, which is all part of our Vision 2022.
Contact us to learn more about how we can help you transform your business.