Growth without outside equity
Unlike the modest 2018 world GDP growth of 3.6% predicted by the International Monetary Fund, the family businesses surveyed have an average revenue growth target of 9.1%, which is in line with the S&P 500 long-term return of about 10%.
This is notable, given that 62% of the businesses said they have never released equity to a third party in exchange for investment. The minority that did indicated they used this equity exchange only for a short time, a four- to six-year average. Two-thirds of survey respondents say they grow and innovate by investing their own money. And family businesses appear conservative in their willingness to take on debt.
“Going public or accessing third-party-private equity capital is not for them,” says Dr. Joseph Astrachan, Professor Emeritus, Kennesaw State University. “They have a completely different way of operating. Being a private family company in control of its investment means they can react quickly as conditions change. They can seize the moment in areas with high potential for growth or make long-term potentially disruptive investments — without answering to public shareholders or outside investors looking for short-term payoffs.”
And these growth goals are not just wishful aspirations. They are consistent with their return on equity, the ultimate limit on the ability to grow.
Disruption: a threat and an opportunity
Family businesses tell us that in the areas they have targeted for growth, they are planning to invest to counter disruption, or better yet, to capitalize on it.
Top investment areas over the next three years identified by family business respondents include new products and services (59%), IT systems and controls (57%), human capital (53%), and production capacity (48%).