The Wall Street Journal reported in June, Some of the world’s richest people derive their wealth from closely-held business. At $3 trillion, private businesses controlled by “ultra high net worth” families are valued at a fraction of the world’s roughly $55 trillion stock market capitalization at the end of 2012, according to data from Wealth-X and the World Bank respectively. Wealth-X, a Singapore-based data provider, defines “ultra high net worth” as people with at least $30 million in assets.
North American closely-held businesses made up $860 billion, or 34% of the total.
“Families are always rising and falling in the America” often misquoted and attributed to Hawthorne, the actual line from The House of Seven Gables is “The truth is, that once in every half-century, at least, a family should be merged into the great, obscure mass of humanity, and forget about its ancestors.” The Gothic novel written in 1851 explores themes of guilt, retribution, and atonement in a New England family.
The value of these closely-held businesses is growing. Last year – the first year that Wealth-X began tallying such data — the value of these companies increased 5.5% from 2011, outpacing global GDP growth by more than 3 percentage points.
What’s especially interesting about the data is that more than half, or 54%, of first-generation family business owners are 60 or older. That means the future of these businesses, including decisions around succession, selling the company or taking it public, will move to the fore quickly. In the U.S. alone, the net worth of these business owners is about $1.3 trillion, which includes the value of their business operations as well as other assets.
That’s a lot of wealth waiting to be managed.
Family businesses need a business plan. Recently, working with some clients we asked, Paint a Picture for me, what does your company look like in 3 years, in 5? Often the answer is “I want the place to be rocking, new customers, clients and more employees.” These visions need to be framed with specifics, not just what but the how. Without metrics or incremental steps, the owner’s dreams may never be achieved. Part of the balancing act understands that progress matters, trying lots of thing and keeping what sticks. Part of the balance is to understand the environment, the patterns and the population dynamics. The environment can be divided into eight slices: customer, competitor, economic, technological, social, political, legal and physical.
Family business need to plan. They need to invest and not make too much or too little of the need to plan. In planning we must do four things:
- Define outcomes or goals
- Determine Actions
- Commit Resources
- Aim for the defined targets.
Some of the world’s richest people derive their wealth from family-owned businesses. The Koch brothers, the Ferraro and Mars families, whose names appear on the candy they manufacture, and the Otto family, owner of retailer Crate & Barrel, are just a few of the influential billionaire families that belong to that club.
All their firms Plan!