We often think of owners as either entrepreneurs who began their own business, or the children of entrepreneurs who inherited their family business. And while these may be the most common types of owners, they are not the ONLY ones. Watch this short video on different paths to ownership to learn a bit more about how a person can become a business owner.
As we will learn, Ownership encompasses many different roles, responsibilities and functions. Here we want to focus on ownership as an economic vehicle.
Most people think of becoming an owner in very traditional terms. In a family business, this is often seen as something that is inherited from their Parents or Grandparents. For example, Grampa starts a business where he is the sole owner. When he’s ready to retire, he gives some of it to my Mom and Uncles so they take over as the owners. Then comes my siblings and I, the 3rd Generation, and now, some of it is trickling down to us…finally! My little sister was too young to take ownership at this time, but we will look at her in a minute. This is still a very common route to ownership and should not be overlooked.
Now, let’s open up our understanding a bit and look at an emerging, yet still under appreciated, path to ownership.
This trend centers on investing to become an owner of a family business. Modeling itself on entrepreneurial start-up activities, this process is often referred to as ‘intrapreneurship’. This means using family capital, derived from the family business activities, to start another enterprise. This enterprise may, or may not, be related to the original family business. So, let’s say I give my younger sister $100,000 seed money towards an idea she has that I see having potential. Actually, scratch that, I’ll give her $50,000, I like my sister but, let’s be realistic here! After 2 years, the business is growing. My initial investment has now appreciated to $10,000. My sister is now coming to me more for advice on growth and the way forward. My investment has grown, which has made me happy, and I’m willing to spend a bit more time on shaping this initiative. After another 2 years, the business is doing very well and has expanded. An independent Board of Directors is the next step and I am asked to Chair. My investment now sits at $25,000, things are really cooking! I’m starting to feel like I have a real stake in this and want to establish the best scenario for all owners. 18 months later, the business is still moving forward and thriving. My initial $5,000 is now worth $40,000, increasing my stake. After 4 years and some serious Q&A, we have finally convinced my parents to throw in $10,000. We now have an ownership group of 4 family members, led by my little sister!