I hold a strong belief in the impact of timing on the success of a business. Every successful entrepreneurial family I’ve worked with has boasted a deeply ingrained sense of timing. Jealous people would call it luck. I only work with family businesses, and I play a very long game in my role with them. This has afforded me a unique vantage point to see this skill of timing bear fruit – and to see those times that passion and emotion got in the way of the right call.
Timing
Successful families seem to identify an opportunity when its timing is what makes it inherently possible. For me, I started a property development business in my 20s that I was privileged to build to a point where I retired (temporarily!) at 30. What I did then in property would be impossible now. The opportunity opened, I saw it and I acted on it. When you get the timing just right, the profits can be fantastic. Over and again, I’ve seen great family businesses strike that ideal timing and have it become the foundation for profitability and growth. What makes it possible? There’s reading the market, leveraging innate curiosity and the gut instinct that propels entrepreneurs forward.
Unfortunately, as opportunities and profits are consumed, opportunistic businesses build a small crowd of ‘watchers’ with capital. They see what’s happening and, before long, competition arrives. What was a growth industry, becomes a mature one – and your competitive advantage needs to be re-geared. Positive behaviours during growth, like taking good risks, being nimble and building deep relationships, now become mature behaviours like building a brand, growing a footprint and achieving a low cost of capital. Then you have matters of compliance introduced due to the regulation that inevitably follows a mature industry.
In a mature market, one player at scale sets the standard for profit, second in the market generally makes about half that level of profit, and it reduces from there. The original factor of excellent timing that generated excellent and profitable growth, becomes a pattern of tightening margins. This is when the next critical moment for ideal timing is the consideration to sell.
Emotion and making the right call
I’ve been fascinated by family businesses all my life because I came from one. Founded in 1932, our family had the preeminent electrical contracting business in Sydney. Purely due to a family dispute and selfishness by one family member, a business that had grown every year, solidly and profitably, failed within four years of the conflict. The family member that branched out, for all the wrong reasons, started a new business that became no more than a pretty average ‘me too’ electrical contractor. From my youth and my own family’s story, to today, I’ve watched a significant amount of success and failure in family businesses. The link is often the pull between better judgment and emotion.
I said before that a maturing market can introduce ideal timing for a sale. However, one of the most challenging times for a family business is when the family decides it’s time to sell. I’ve seen families put a number on their business but not take it when it’s reached. The fact they put a price on their business meant the weight of challenges, the daily grind or the appeal of greater freedom gave them a reason to do so. I’ve been personally involved in building multiple sale scenarios for families when their very best interest (and the factor of timing) was to sell. On more than one occasion, for emotional reasons, they didn’t. The reasons themselves change from family to family. However, when the final decision is based on emotions, the ability to read timing, that gave them their entrepreneurial success in the first place, is blocked. I’ve seen families stay – even when their original sale figure was reached – only to suddenly face major regulatory changes or new competition. I hate watching the pain of these decisions.
There is a time to buy and a time to sell
When a sale process is triggered for considered reasons, and emotion drives the decision to hold, my experience is that it rarely ends as happily as it could. I’ve rarely seen the opposite, where going for the sale (at the right price) has been detrimental.
Just as it takes the skill of timing to turn a maybe opportunity into an enterprise, it takes the same skill to recognise when a family’s next transformation opportunity is in a sale and a new season.
