When deciding whether to sell your family-owned business, the choice for many families comes down to a number of factors – some of which will be uncontrollable. Peter Lorange, Emeritus Professor of Strategy and Honorary President of IMD, weighs up the pros and cons.
Many families have built their wealth over time based on owning a particular company. With the success of this company, the fortunes of the owning family have also grown. While this evolutionary path certainly represents a way for a family to accumulate wealth, there may also be potential problems.
One major challenge would be that the owning family might become too heavily exposed to the firm’s ups and downs. Should the firm run into difficult times, for instance, the wealth of the owning family would also diminish.
Many families have been facing this dilemma of being over-dependent of the firm they own. For some families, the “solution” might be that their firm is sold, or at least their ownership share in the firm is reduced, with proceeds going towards building a more diversified portfolio of investments. This means that the eggs are no longer in one basket, i.e., that the clustered investment risk the family is exposed to would be reduced. In my view, the various permutations of middle-ground positions offer the most attractive possibilities for augmenting and protecting long-term wealth.
But how might such a transition from a company-based focus to a diversified portfolio of investments take place?