“Patient capital” is a familiar long-term investing approach. In family businesses, patient capital has a similar, but more profound, meaning. Not only is it the basis for making important financial decisions, it is also an extension of the business family’s entrepreneurial mindset and a deeply rooted commitment to sustaining their legacy.
In this context, patient capital is focused on creating value for multiple generations, not the company’s quarterly or annual financial results. This long-term orientation has made family businesses resistant to short-term reactions that might have serious repercussions for their companies and families down the road. It is also why patient capital has become such a powerful influence on their business decisions.
With the onset of COVID-19, we questioned whether an unanticipated human and financial crisis on such a massive scale might have put the patient capital and long-term resolve of European family businesses to the test.
To find the answer, KPMG Private Enterprise, the STEP Project Global Consortium and European Family Businesses (EFB) collaborated on a special report on the impact of COVID-19 on family businesses across Europe. The report Taking the long view: Lessons in endurance from European family businesses, released at the recent EFB Summit “Family businesses: Resilient in recovery”, is based on the survey responses of 1,332 European family business leaders.
Staying power on full display
Forty-two percent of the survey respondents reported that they adopted a strategy to leverage their patient capital to support the value of the business. They have taken the time to assess the immediate and longer-term impact of COVID-19 and adopt a fresh outlook and strategy for the future.
We spoke with family business leaders to learn more from their pandemic experiences, and they shared an important insight: even though COVID-19 has presented extraordinary challenges, this is not the first time they have faced major economic, health and political crises. They have succeeded in the past and are confident that they will persevere again.
Their confidence is partly the result of the generational nature of most family businesses. With every unanticipated hurdle, they have been able to leverage the experience and know-how of senior family members who have addressed major challenges successfully in the past. And COVID-19 was no exception. They understood what actions needed to be taken immediately to minimize disruptions to the business, while not losing sight of its future prospects.
As one family business leader explained, “We have extremely ambitious plans, and the pandemic merely slowed that down. Staying on track is relatively easy when the sea is calm; the difficulty is in weathering the storm. We have already proven we can do it. In the last century, our business has withstood two world wars, global economic crises and now the pandemic. Our answer for overcoming every difficulty has always been to never stop looking towards the future.”
Leaning on the past and looking to the future
While leaning on the practical lessons from the senior generation’s experiences, family businesses across Europe have also been able to tap into the knowledge of the “upcoming” generation to transform and adapt their business models or service offerings with digital solutions that are revitalizing their vision of the company’s future. Similarly, younger generations are elevating ESG as a strategic business priority and opening up opportunities for families to extend their legacies even further.
With their eye on the future, I believe we will see an increasing trend towards diversification among family businesses in sectors that have been especially hard hit by COVID-19, and those that have low operating margins. Successful diversification can require both strategic foresight and the family’s ability to stay the course by leveraging their patient capital to adapt the business for long-term success.
Another factor is how family businesses define success based on the family’s purpose and the value that family members derive from the business. Passing a legacy to future generations and preserving the family's social capital, reputation and emotional connection to the business are as important to them as the company’s financial performance.
Throughout the pandemic, their values have been on full display in their philanthropic actions, their community support and the care they have taken to safeguard their employees and their customer and supplier relationships. Some temporarily paused their planned investments or deferred part of the family’s dividend payments to use their available financial resources to keep their employees and suppliers engaged, and their businesses in a strong position for the future.
A forward-focused mindset
There are two forward-focused characteristics that I believe contribute to the endurance we have seen in family businesses. The first is the ability to leverage their entrepreneurial mindset and patient capital to sustain a long-term orientation for their businesses. The second is having the foresight to tap into the diverse experience, skills, knowledge and insights of every generation.
This has confirmed my view that one of the distinct competitive advantages of family businesses – and a source of its staying power – is the composition of the family itself, and their engagement in the business.
If COVID-19 put the patient capital and long-term resolve of European family businesses to the test, I believe that their resilience has proven to be undeniable.
I’d welcome your views on the staying power of family businesses, and I hope you’ll reach out and connect with me directly at firstname.lastname@example.org.
Interested in learning more about how KPMG Private Enterprise can help your family business? Contact your KPMG Private Enterprise adviser or find a KPMG Private Enterprise Family Business adviser.