Alon Lichtenstein - All In The Family: An Investment Primer For Scaling Companies
Updated: Sep 10, 2020
Mention the words “family office” and you’d be forgiven for conjuring up images of discreet investment managers who provide services to magnates and the mega-wealthy in a manner not unlike an agency out of the James Bond milieu. In fact, London-based multi-family office Stonehage Fleming was formed to look after the interests of Ian Fleming, the creator of the 007 franchise, and members of his extended family.
They may bear an innocuous name, but family offices have a long and proud history of impacting the investment landscape and early-stage ventures dating back to 15th century Florence, when the Medici family put their money behind emerging artists. This patronage would give rise to great masters like Leonardo Da Vinci and Michelangelo.
The family office tree
However, many family offices don’t share the same spirit of adventure as the intrepid Medicis, and have chosen to walk a more conservative path in preserving and building the wealth of their founders.
Family offices have traditionally relied on asset managers to ascertain the viability and integrity of investments and only considered entering deals as limited partners. Along with adopting a business and financial strategy focused on the business that was the source of the family’s wealth and occupying a long-term view on capital appreciation, the offices have had to grapple with the perennial challenge of generational change.
The approach is a far cry from the one taken on by their more entrepreneurial, trendier cousins, the venture funds. Hardly surprising when you consider that family offices were functioning some 500 years before the first formal venture capital firm – ARDC – saw the light of day.
The winds of change
In 2020 and over the next few years, the traditional role of family offices may be about to undergo the most significant transformation in their history. It’s an exciting development that would no doubt have the Medicis grinning from ear to ear.
As waves of economic and political uncertainty sweep the globe, many of the world’s wealthiest families are looking at how and where their wealth is managed and invested from a fresh perspective. In a tumultuous economic environment pockmarked by falling returns and under-performing stocks and funds, many offices are redefining investment strategies and honing their in-house resources to capitalise on a modern approach. Increasingly, fuelled by the desire for greater control, reduced fees and greater returns, family offices are engaging in direct investment in businesses, including tech-focused concerns.
Family offices are entering into an exciting space, where they’re able to participate like venture funds in not only pursuing younger, more tech-oriented businesses, but building the capacity to rethink established businesses that are technologically empowered. The increasing institutionalization of family offices is a sign of a sea change in evolution. These offices move to become more sophisticated investment vehicles, harnessing deeper specialist expertise with the aim of in-house management of a great range of complex investments. Also proving attractive is the path that involves acquiring established businesses to optimize them using smart new paradigms and technology.
Buy to build
This last idea, espoused by acquisition entrepreneur Walker Deibel in his influential Buy Then Build: How Acquisition Entrepreneurs Outsmart the Startup Game manual, has gained traction and influenced investment strategies the world over. Deibel’s method is centered on combining the drive of building a business with the safety of running an established organization, using their entrepreneurial skills to grow the value of the business.
“The main benefit of acquisition entrepreneurship is that existing companies are already established with customers, brand awareness, employees, and most importantly, revenue and profits — everything a startup doesn’t have,” writes Deibel, who has acquired seven companies, and exited two.
This is all well and good for removing the risk inherent to entrepreneurship, but what does it take to prepare the business for acquisition and apply the hybrid investor-entrepreneur mindset required of all business professionals?
Optimize and reap the benefits
Today, optimization is the name of the game when it comes to piquing the interest of investors. Enhanced organisations are geared for profit in a light, tight kind of way – the archetypal lean startup that is tech-empowered and open for business, around the clock and around the world.
In such a workplace, there are no geographical boundaries. The lack of locational hurdles means the business’s ability to align marketing resources in such a way becomes key to align scale. Developing dynamic, adaptable sales, and marketing processes that harness AI, machine learning and other technologies under strong leadership and a compelling vision is crucial (at HANGAR49, we use a process that looks a little like this H49 Workflow).
With this in mind, it is prudent to consider and build for centralized sales, assembling a motivated and organized team to provide a white glove service to prospects. A key cog in the optimized machine is the realignment and targeting of sales, marketing, and leadership functions to reinvigorate business activities. Door-to-door sales in the era of rapid technological change is not only encouraged, but it is fundamental to success. Cold outreach continues to be one of the most effective ways for businesses to acquire new customers, drive in more traffic, and directly book more appointments. Some 75% of executives are willing to make an appointment or attend an event based on a cold call or email alone.This is exactly the type of outreach in which HANGAR49 specializes.
Centered on value creation and relationship nurturing, inbound marketing strategies have been proven to be more cost effective and generate a higher rate of return in the long term. Attracting qualified prospects, offering a more targeted approach and using helpful, relevant interactions and content to generate leads should form part of the plan here. Of course, this can also be evergreen. Set up for inbound interest through search engine, content and other digital marketing outlets, as well as developing sales funnels to educate and motivate curious prospective customers. Every company has a different set of marketing demands and it’s therefore important to assess how each of these key elements will work best for the organization:
1. Search Engine Optimization
2. Social Media Marketing
3. Pay-Per-Click Marketing
4. Landing Pages
5. Content Marketing
6. Email Marketing
Thinking should be guided by how prospects and customers engage with the brand and its impact on the stages of the marketing funnel. Conduct a comprehensive review of how digital content is being used from a content marketing perspective to drive reach, engagement and interest.
Identify a clear and unique value proposition that describes benefits, solutions related to customer needs and differentiators. It will inform the messaging used across website, search, social, and email touch points, allowing for the creation of a distinct brand voice. It’s this voice that calls out to clients, but also to potential investors.
Know your customer
If you don’t know your target, how can you be sure that you are hitting it? knowing who you are after is fundamental to the success of business so maintain a strong handle on your ideal customer profile. Understanding the customers’ psyche isn’t a simple task and requires continuous development, demographic details, data touch points, etc. It requires profound analysis to identify preferences or purchase patterns to anticipate needs and exceed expectations.
An ideal customer profile (ICP) is a combination of firmographic and behavioral characteristics that define an organization’s most valuable customers. It leverages assets covering real-time customer behavior, customer service and engagement platforms, and data on tastes and preferences to pinpoint the buyer persona. Specializing in targeted lead generation, at scale, HANGAR49 has compiled ICPs for dozens of clients – you are welcome to use our services, we are always ready to assist in this complex process.
Solve the regulatory riddle
The family offices of old existed in a more benign regulatory environment. As their evolution gathers pace, regulators will no doubt be monitoring the process carefully for compliance issues.
It is therefore essential that the business complies with General Data Protection Regulations and other sweeping legislation affecting any enterprise that collects data to avoid heavy punitive measures. This is a significant segment of the optimisation process and one that HANGAR49 has considered at length in its own dealings to produce a set of compliance principles.
Begin by implementing a full strategic plan with standards, rules and procedures for securing data privacy and supply chains, and effectively demonstrate precautions to protect the personal information of clients. But compliance means more than https, contact forms, and cookies – at the core, it is about instituting a security-first culture and thinking to secure the trust of the market on the understanding that preventing data breaches is beneficial to both business and client.
The time is right for family office investment
With the trend of concentration of wealth to the top 1 percent of the population propelling the growth of family offices both in developed and emerging economies, environmental factors supporting growth and plentiful cash reserves opening up opportunities to double-down on investments and explore new sectors, the stage is set for family offices to play a significant part in reshaping the global economy.
There’s never been a more fruitful and thrilling time on both sides of the negotiating table – for tech entrepreneurs priming their businesses for investment by family offices and for newly minted portfolio managers eyeing a new era of wealth creation for their storied organizations.