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In the undefined world of family business, Twitter has earned its place

Family business

How Twitter is redefining the family-run business

Published 5 January 2023 in Family business • 4 min read

In a context in which private equity is infiltrating family-run businesses, Twitter could be considered the latest rendition of the family-run firm. 

Traditionally, the corporate world has been divided between privately held businesses and publicly traded corporations. Within this, family businesses tend to start small, gain funding, expand and then either become a large privately held business – such as Lego – or a publicly traded corporation, like Roche. A second phase of life then sometimes sees publicly listed companies leaving stock exchanges either because managers (MBOs) or private equity firms (LBOs) buy them out.  

This is how the lifecycle of companies can see them morph from private to public, and vice versa. Salient examples are Europcar, which went public in 2015, and the Dutch bank NIBC, which was acquired by Blackstone in 2020. In the case of family businesses, the outcome is often a public firm with family control, as in luxury conglomerate LVMH or Luxembourgian multinational steel manufacturing firm Arcelor Mittal.  

The public-to-private trajectory has become a path much more trodden in the last couple of years. Private equity firms poured a record USD 226.5 billion into such movements in the first half of 2022, up 39% from the same time period last year, Dealogic data shows. 

Private equity, which made its name by privatizing large corporations, is at the same time taking a shine to family-run businesses, especially in the US. Management is often left intact, with owners keeping big stakes.  

If this trend can be said to be creating a subset of family businesses – recently delisted and a blend of the family and the private equity firm – then what to make of Twitter? Newly delisted by just one person – the man of firsts, entrepreneur Elon Musk – Twitter is, in effect, a family-run firm in a purer sense than those entities that have been bought out by private equity. The anomaly? This is a family of one; after all families grow and dissolve.

In the undefined world of family business, Twitter has earned its place

Twitter, once clearly not a family-run business, has unwittingly become one. Its trajectory has not been the same as the Walmarts or Cargills of this world; it has gone through the scrutiny of the stock market before becoming private, in a highly competitive industry. Twitter’s executives have, as such, been brought up operating according to the intricacies of financial markets; focussing on quarterly reporting, cash generation and compliance with financial regulators. 

When a company becomes publicly listed, it needs to go “naked” to the markets, and Twitter was no exception. From products to suppliers, the external world now knows a lot about Twitter and it’s worth asking what the implications could be. 

Essentially, Twitter has sold its business model upside down to the financial markets. It has enjoyed the benefits of being public, including public feedback. 

Having gone the public-private route, if Musk now starts speaking the language required to create the next Tetra Pak he is going to face some unique challenges. For instance, he will need to get rid of even more staff and those remaining – used to bonuses, stock options, media attention and the fanfare of the annual meeting 

The Twitter model is now so well known that it absolutely must remold itself, or it risks being superseded by TikTok or BeReal. Musk could make an acquisition, bringing him fresh ideas. Inconveniently, reinventing yourself is easier when you’re a publicly listed company as you can tap the markets . In this sense, Musk has made life harder for himself.  

Family businesses tend to be more risk averse. With all their eggs tending to be in one basket, the board doesn’t take big bets. But Twitter, operating in the tech space, cannot afford not to embrace newness wholeheartedly. The only innovation Musk has carried out so far at Twitter is making tweets longer, and this fact is a big concern for analysts. 

The Twitter trajectory will be replicated by others, by pure virtue of the fact that Musk did it. Facebook will likely be the next in line.  
- Arturo Bris

But the road that lies ahead will be tough. Let’s take this analogy: you’re single, you get married, then you get divorced, and find yourself newly single: you’re not at the same party in your second wave of singledom. You’re looking for something different, but you can never regain the naivety you possessed first time round; nor rid yourself of either the happy memories or scars of marriage and divorce. Could Twitter be embarking on a mid-life crisis?  

In the last few years, the number of publicly listed companies has been reducing. And with Musk and Twitter out of the public markets, it just confirms their demise. I can see only one option for Twitter’s survival in the private stratosphere: it reinvents itself either by acquiring or by being acquired. Failing that, it will fade into insignificance just like Snapchat.  

Authors

Arturo Bris - IMD Professor

Arturo Bris

Professor of Finance at IMD

Arturo Bris is Professor of Finance at IMD. Since January 2014, he has led the world-renowned IMD World Competitiveness Center. At IMD, Bris directs the Strategic Finance and Navigating Fintech Innovation and Disruption programs. He also previously directed the flagship Advanced Strategic Management program between 2009 and 2013.

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