When considering the reasons for a company’s successes or failures, what often receives less attention is why someone owns that particular company. The motives for ownership and the goals set for it significantly influence what the company should prioritize. Alarmingly, many owners neglect their biggest advantage by not defining their personal or the company’s collective ownership strategy.
This article delves into why an ownership strategy is as crucial for any business as a business strategy – if not more so.
What Should Be Included in an Ownership Strategy?
At its simplest, an ownership strategy defines how much money the owners want from the company and in what form: dividends or through a business sale. The business strategy, on the other hand, outlines how to reach that goal. Ownership and business strategies differ in that the former has a timeline of about 5–10 years, while the latter is typically updated annually or as needed. In family businesses, an ownership strategy can be created for tens or even a hundred years ahead, strongly focusing on what to leave for future generations, and ideally, the ownership strategy is updated across generational boundaries.
It’s advisable to include in the ownership strategy aspects such as how much risk the owners are willing to take or the societal themes they want to promote − or even the option of seeking external financing. Regardless of the content, it’s important to align and record things in a structured manner. Ownership strategies are too often tied only to monetary goals, when the consideration should rather be value-based.
When the ownership strategy is carefully thought out, creating and implementing a business strategy becomes much easier. Take, for example, investment funds. If a fund’s ownership strategy does not support environmentally burdening companies, it channels its funds elsewhere. Thus, an ownership strategy based on the fund’s values directly affects which companies it is willing to finance.
Utilizing an External Facilitator
Every owner has their own goals and wishes for the future of the company. To create a common ownership strategy based on these, discussions among all owners are necessary. As owners’ situations change, it’s wise to revisit and update the ownership strategy as needed. Often, an owner is also an employee in the company, which can blur roles, but the topic might not be addressed to the extent it requires.
Since ownership strategy discussions can be very personal, it may be advisable to use an external facilitator. With external assistance, it’s also easier to step back and consider the company’s situation and personal goals over a longer time frame. Additionally, a structured and documented ownership strategy can help avoid crises if disagreements arise about the company’s direction.
Aamu Partners’ SME Ownership Strategy Clarification service delves into the goals of business owners and challenges them to think about their wishes from a broader perspective. Our clients have gained great insights when this service has brought entirely new perspectives to their discussions.