Why families can't create Unicorns!

If you look at the list of all Unicorns, you have to admit that all are created by one, perhaps two persons but never by families. Why can’t a family that proved to be extremely successful in the past now has difficulties to duplicate it again? Is there an incompatibility? Was it just luck that created their first wealth or is there a recipe to get this done a second time?

As many of us know the common saying about family office money: The first generation makes it, the second generation spends it and the third generation blows it. According to one often cited?study, 70% of wealthy families lose their wealth by the second generation, and 90% by the third. Also, a family office is created to manage the collected wealth, not necessarily focusing on the creation of new wealth.

I believe with the right recipe, family offices can start creating their own Unicorns so let us look at a 4 step approach!

Element 1: Set up the right team.

Families operate as families creating in many cases a role problem. The only way to solve it is to have a clear separation between:

·????????The brainstormer. A key person that detects new business opportunities from nothing, who sees new sparkles in the dark, that links/add new business initiatives (so extra revenue opportunities) to the core activity. The only issue is that those people are extremely bad in executing so you never put them in the lead!

·????????The executor. With his excellence in executing, this person can handle fast growth management. He/she is at ease in go to market, run new corporate initiatives, integrate acquisitions and so on. The executor likes challenges, going fast, moving on to the next file and he/she doesn’t like daily hassle at all. So you need to add again an extra person.

·????????The COO or CFO. The one that takes care of all daily item. A COO doesn’t like change so you have to appoint a “CFO” type meaning Chief Follow-up Officer. The one that does the paperwork at perfection!

·????????And then there is the family office owner. He/she should not be one of the above profiles as his role has to be to manage the “CASH”. He is the one that has to secure through its own resources but also from his network, to find all necessary cash to sustain rapid business growth – and at the same time, focus on cash collecting from revenue.

Finding the right people for those 4 positions inside one family is pretty difficult and it is quite possible the need to recruit externally. By mixing external recruited executives with family members, we could also creating extra tension between family and these external executives, limiting again rapid growth.

Also critical is to avoid family governance for Unicorns. A Unicorn always runs fast taking daily major key decisions. Having a family governance board to decide as a family on a monthly basis on what is best for the Unicorn will kill any Unicorn opportunity.

Element 2: Commit to rapid growth

·????????Create a Unicorn company that is extraordinarily driven to create something very disruptive.

·????????Prioritize inside your initiative, clear company's mission, values, and culture. As this is a different business than the original family business that created the wealth, these could be extremely different. Underline it and don’t try to duplicate what worked in the past.

·????????Firmly believe the product or service will radically improve users' lives.

·????????Have a business model that draws revenues (and if possible) from day one.

Element 3: Be agile and test constantly

It is easier to say than to do but family owners have to be extremely agile when creating their Unicorn. Knowing that most risk-management procedures block rapid growth, be agile and go faster than traditional wisdom and practices.

Unicorns also constantly test their assumptions, target large market segments and look for key indicators. They are “rapid growth” focused and their product/service portfolio allows to do it. This in opposition with traditional business (and family offices) that focus on “improving products or services” that allow to create growth. Unicorns have a quite different mind-set.

Element 4: Give your Unicorn the space to grow

Consider your unicorn as a flower. With elements 1 to 3, you picked the right flower, recruited a gardener and gave it the necessary potting soil. But now you have to give it water (cash) to grow and once it starts growing, you need to supply even more water (more cash) to create astronomical growth. So as head of the family office, your task is supplying the “water” on a daily basis. Fast growing companies always need cash to sustain their growth and this at many levels. From cash for international expansion/acquisitions to internal growth (including extra people so extra office space)… it all matters. Too many blitz-growing companies accelerate fast and then have to halt waiting to receive additional cash to reboot which is a shame as it reduces their impact and speed to market. It also reduces the chance of survival.

Conclusion

That makes a lots of constraints and each of them is a cause to why family offices can't create Unicorns. With the right approach, I believe it can be done!

Also, most family offices act like bankers looking at the quantity of water they give to the flower and try to optimize the quantity of water to be sure not to overspend… however this is a bad attitude as without the right amount of water, our flower automatically grows slower than expected and probably misses to become a big “unicorn” flower.

Family offices should take the attitude to look at the flower, not the watering can, to create their next Unicorn.

That is the key for any success!