Patient capital and staying power

“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, instead of focusing short-term on 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.

After more than a year of living and working with the impacts of COVID-19, how has this unanticipated human and financial crisis - on such a massive scale - affected the patient capital and long-term resolve of European family businesses?

In a recent survey of 1,332 European family business leaders, forty-two percent of respondents reported that they had adopted a strategy to leverage their patient capital to support the value of their 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.

Though COVID-19 has presented extraordinary challenges, this is not the first time that family businesses have faced major economic, health and political crises. Having previously succeeded in the face of seemingly adverse challenges, many leaders of family businesses are confident that they will persevere again, through the present and into the future.

Their confidence is partly the result of the multi-generational nature of most family businesses. With every unanticipated hurdle, family business leaders have been able to leverage the experience and know-how of senior family members who have addressed a variety of major challenges successfully in the past. And COVID-19 has been no exception. Experienced family members 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.”

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. This is enabling them 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, there are signs of a 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, these values have been on full display in the philanthropic actions, community support and care that family business leaders 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, putting their businesses in a strong position for the future.

There are two forward-focused characteristics that contribute to the endurance of 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.

It’s clear that one of the distinct competitive advantages of family businesses – and a source of their 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,  they’ve passed with flying colors - their resilience has proven to be undeniable.

For more information, read the special report Taking the long view: Lessons in endurance from European family businesses, released at the recent EFB Summit “Family businesses: Resilient in recovery”. The report is based on the survey responses of 1,332 European family business leaders and is the result of a collaboration between PMG Private Enterprise, the STEP Project Global Consortium and European Family Businesses (EFB).

Interested in learning more about how KPMG Belgium can help your family business? Contact our advisers or read more here.