8 Ways to Build Value In a Family Business
What would you say are the key ways to build value in a family owned business? I find myself so busy every day and yet my company’s revenue growth has been stagnant despite my industry’s moderate growth trends. We are in the packaging industry and the company has been in my family for 3 generations. I find it extremely stressful that the family’s legacy may end with me, but I am considering all options in order to do what is right for the company’s employees and customers.
I’m not sure where to start?
Thank you for your question!
First, I understand the pressure that can come with owning a multi-generational family business. It sounds like you have a great respect for the leaders in your family who came before you and I can appreciate how much you want to live up to that legacy. While each family’s situation is unique, your concerns are not uncommon among our family business owner clients. The important thing to remember is that you were chosen to carry on the legacy for a reason, and your leadership skills were valued.
It’s important to respect the past, but also recognize that things change. Did the 2nd generation face the same business challenges as the first generation did? I’m sure not, and likewise things have changed now – and you’re at the helm. You’ll need to make an honest assessment about current conditions of your business and the industry when you determine the best way to move forward.
Before we jump ahead to that line of thinking though, let me clarify the point that value is not the same as revenue growth. While healthy financials are part of the equation to determine value, they are only one piece of the story.
There are eight indicators of value we like to reference. Interesting you should mention employees and customers, because they are included within the key indicators of value. Here are the things we consider the 8 Key Drivers of Value:
One thing that might be helpful to help guide your day to day decisions is to literally list each of these out, and add bullet points for the types of strategic or operational decisions you and your team make that may contribute, either positively or negatively, to value in each category. You can turn this into a dashboard and have your management team report back to you on a monthly basis so you can track progress and set clear priorities.
Here are some examples of questions you can ask yourself for each driver:
- Financial Performance – am I promoting the right products at the right prices in order to get to the profits needed?
- Growth Potential – is my company keeping up with industry trends in terms of process, products, pricing and quality of employees ?
- Switzerland Structure – do I rely so heavily on one employee, customer or supplier that without them I would put the business at significant risk?
- Valuation Teeter Totter – am I creating sufficient cash flows to support day to day needs of the business?
- Recurring Revenue – how can I create consistent cash flows with recurring orders versus starting from scratch each month?
- Monopoly Control — what is the “why”, or reason my company exists, and how am I delivering on that in a way that my competitors can’t or won’t?
- Customer Satisfaction – how have I trained and empowered my employees to handle customer complaints or share customer praise to make sure we are doing the right things and making it right when we fall short?
- Hub & Spoke – How am I creating advancement paths to retain key employees?
Hopefully this gives you some ideas, and helps illustrate how much more goes into the value of your company than simply the financials.
If you’re interested in learning more about each of these, we have a complimentary tool called the Value Builder Survey that you can use to self assess where you stand on each of these key drivers of value compared to others in your industry. While this can lead to a further engagement with our company, it is completely complimentary and you will not be bombarded with sales calls. Based on your situation I think it would really help you look at how you can build value in your business in a new way, not just by growing revenues. In fact, it will help you see that growing revenues too fast could actually hurt the value of your business if it puts the other 7 drivers out of balance.
President, Capital Valuation Group