Why Do We Own This Business Together?
Summary: One of the most important questions a family must answer when owning a business together is “why do you choose to own this business together?” A superficial answer to this question will not be enough. Family owners need to discuss and agree on a compelling purpose for being in business together. This is one of the first steps toward creating a successful owner strategy.
Why do you choose to own your business together with family members?
When we ask that question of families, superficial answers sometimes arise: “We need to maintain our grandfather’s legacy.” Others make a financial argument: “It makes better financial sense to pool our assets.” But such answers are ultimately not compelling—they are what we call surface purpose. If your family business is bound together only by a surface purpose, it’s unlikely to last in the long run. It’s not enough to live someone else’s dream or maximize undistributed profits.
You can find a better answer to that question by working with other owners to identify a compelling reason to own the business together. While we like the term purpose, some families prefer to talk about their mission, vision, or values. Whatever terms you use, you need to define your purpose in these ways:
- The purpose should build family unity by making the family proud of their ownership and of their family.
- It should be aspirational, inclusive, and attractive to all generations and the entire family.
- It should encourage family members to spend more time together.
- It should define how you will exercise your right to determine what you value.
If you don’t have a clear—and shared—understanding of your family business purpose, you can start to identify it (or test it) through the lenses of growth, liquidity, and control:
- Do you own the business together to grow it? You may value growth because it is a path to change your economic situation or it creates jobs and other opportunities for family members. You may see it as a way to broaden your influence over society. The larger the business, the more you can influence the world. Or you may not value growth at all—if it happens, you might think, that’s great, but you might be more than happy with owning a business that stays more or less in place.
- Do you own the business together to take money out of it? You may see liquidity as a way to provide for the next generation in a way that your parents could not provide for you. You may view it as a mechanism for funding charitable causes that are close to your heart. Or you may see wealth outside the business as something to be avoided, given its potential to corrupt the family.
- Do you own the business together to have autonomy over your lives? You may want to control your own destiny. Maybe you started the company, or joined it, because you didn’t want to pursue someone else’s dream. Or perhaps you see control as critical to running the business however you see fit. You may value what the business can do for your family. Alternatively, you may not value control at all, as long as the business seems to be on the right track.
There is no right answer to the question of a business’s purpose. Most families find that each generation has its own reasons to stay together as a business family. The subsequent generation then updates these reasons for their own situation, renewing and refreshing the purpose of the business. Through these lenses, family businesses can express their purpose in countless ways.
We admire several companies’ clear sense of purpose. For example, one US-based family business that we work with lost family members in the Holocaust. It deeply values and appreciates that the United States welcomed the family in a time of terrible crisis. Part of the family business’s purpose is to support countries committed to freedom. As a business, it has explicitly decided to invest only in countries with a high score from Freedom House, a US nonprofit nongovernmental organization that advocates democracy, political freedom, and human rights investment in the United States. The company guards its ownership control tightly, as the owners know that an outside investor may not share their political views when making investment decisions.
Mars, Incorporated has set aggressive goals and takes committed actions to improve the lives of people in its supply chain and reduce the environmental footprint of the company. As the company website explains, “Mars has been proudly family owned for over 100 years. It’s this independence that gives us the gift of freedom to think in generations, not quarters, so we can invest in the long-term future of our business, our people and the planet—all guided by our enduring Principles. We believe the world we want tomorrow starts with how we do business today.” That clarity of purpose has led Mars to commit to invest more than $1 billion over several years in the early 2020s to become sustainable in a generation, to focus on improving the well-being of families around the world, and to apply and share its research to create a better world for pets.
Families often capture their purpose in a statement. Here are two examples.
Our family loves and respects this company. It represents the vast majority of the family’s wealth, it is an important source of our income, it holds us together as a family, and it gives us a chance to make some positive contributions to our troubled world. We want our children and our grandchildren to have these same opportunities to benefit from this company.
We deeply appreciate that a family company can contribute to the personal success of the owners. For us, success includes engaging in work that is meaningful and that could provide financial autonomy. Since personal success is unique to each family member, we want the company to support parents and adult “children” to maximize opportunities for healthy development, while guarding against any downsides of family wealth. We are more willing than most investors to compromise current income to meet our goals of helping family members find fulfillment. Nonfamily owners might not share these views. For this reason, we want the family to retain full control of the company.
Does your family business have a purpose? We encourage you to discuss with the other owners and the leaders of the family—including both the current and the next generation and both bloodline and spouses—your purpose in owning the business together. Doing so will not only help you decide why you are in business together but also help you clarify how your family business will define success.
*Adapted from the Harvard Business Review Family Business Handbook by Josh Baron and Rob Lachenauer. Pages 81-84.