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Ownership Philosophy
Episode 231st January 2022 • The Family Business Podcast • Russ Haworth
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On this weeks episode I discuss ownership philosophy. Have you as an ownership group sat down and discussed why you own a business together and what ownership means to each of you?

My thoughts are that when a business is set up, ownership is a byproduct of the founders passion, but as the business becomes something to pass to the next generation different perceptions of what ownership might mean to each of you can tensions within the business and the family.

Having the conversation around what ownership means to each of you, whether that is before or after ownership transition has happened, can be a really positive step in creating the foundation for a multi-generational business.


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Transcripts

Russ Haworth:

Hello, and welcome to this week's episode of

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the family business podcast.

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I hope you are doing well wherever you're listening to this in the world.

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And now that I have rediscovered the record button on my computer, I'm

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back into the flow of releasing these episodes on a more regular basis.

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Um, if you haven't heard already, there was a season preview last

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week, which covered the topics I'm going to be recording in this series.

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And I have a number of exciting interviews lined up for the next series.

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In today's episode, I wanted to talk to you about, um, ownership

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and in particular, uh, what I refer to as an ownership,

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philosophy or ownership structure.

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the reason I wanted to talk to you about this is that a lot of the conversations

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that I'm having with families kind of center around this as something that

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hasn't necessarily been either documented or discussed in any great detail and

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the suggestions that I'm making in terms of having those discussions.

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Uh, bearing fruit.

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So I thought I would share with you my sort of thought process

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on this and why it is that I'm talking about it a lot in this.

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Before we get into the detail of, um, ownership, philosophy,

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or ownership strategy.

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I think it's worth considering and bear with me on this, but worth

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considering when it comes to ownership, what we're actually talking about.

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For me, there are two types of ownership.

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There is obviously the legal element of owning a business, uh, via shares.

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Um, but there's also the emotional ownership that can come.

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, Often in the absence of actually the, the legal ownership, you can

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feel like you own something, even though legally it is not the case.

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And I think that's something that is very often present within a family

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business because of the nature of family business, the emotional attachment to

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it is very high amongst those in the family who, who may not necessarily own.

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The shares in a, in a legal sense.

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And I think what this can do is create an expectation of what it's actually going

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to feel like when the legal ownership then actually arrives at a future date.

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, it can obviously be a really positive thing.

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It helps to create longevity in the business that if there is a shared passion

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for it throughout multiple generations of the business, But what I also think

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it means is that the legal sense of ownership only really becomes, uh,

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something tangible or something to discuss at the second generation, uh, level of

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the business as, as it progresses from sort of founder to second generation.

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And the reason I think that is it in terms of.

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Y a business is established.

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It's very often to follow a passion or to put food on the table to earn a living

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or to grow something that is, something that, that the founding owners firmly

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believe in really strongly believe in it.

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My view is, and the large number of founders that I've spoken to

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about this tend to agree is that the business wasn't created.

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In order for the founder to have an ownership of something other

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than the, the passion and drive that is to create the business.

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Um, if you ask a founder what their business is, they're not

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going to come back to you and go, well, it's a hundred shares.

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That's what I own.

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Um, they're going to tell you about what the business delivers and what it does

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Ownership is a kind of byproduct of them following their passion.

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It happens to be the most convenient way or the most logical way in order

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to establish the businesses . Is to have it in a structure that contains

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shares and ownership, but it's not the sole purpose of why the shares exists.

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That's as I say, it's a, it's a coincidence.

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It's a byproduct of them setting up a business to follow their passion.

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, but when it then comes to pass it, Ownership on as a transition within

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the business, all of a sudden, there's this legal element, the shares in the

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business that are, something that has to be then dealt with and passed down.

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And I think by not having a conversation about what the, um, shares represent, what

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the ownership of those shares represent to those individuals it can result in

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a lack of clarity amongst our ownership group as to what the business is for.

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. And so by then having a conversation or

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to agree as a family, what the ownership, philosophy or ownership strategy is for

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those shares, it's then an opportunity for everybody to share their expectations

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and their feelings on, uh, what the ownership of that business means to.

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And that for me is where, uh, the discussion around ownership

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philosophy comes into its own.

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So with that in mind, what do we mean by ownership,

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philosophy or ownership strategy?

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Well, the first thing to clarify is that it relates to ownership So we're not

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talking about the overall strategy for how you're going to increase market share, or

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take your product to market that that set, uh, um, a management or board level as

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to the general strategy for the business.

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The ownership philosophy applies to ownership, and sometimes it can be,

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um, sort of broken down into two areas, such as your vision, your

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mission, the values that you want to have demonstrated within the business.

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And perhaps to a certain extent what returns you want

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to get from owning this asset.

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And that can be, um, financial in terms of setting expectations of whether you

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want to grow the overall value of it to sell it Southern future point, or

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whether you want to create a recurring income through dividends Or whether

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you want to build a business, that it becomes something that supports future

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generations, um, has the ability to contribute in a philanthropic sense.

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Um, regular listeners will know that I've managed to get better at pronouncing that

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particular word, but it's a conversation between you as owners as to where the.

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shared vision comes into play and where there might be differences

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that the benefit comes in my view from those conversations.

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It's the clarity that can be obtained by sitting down with,

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um, siblings, with cousins, with.

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It may be that the parents retain ownership or uncles and aunts, uh, retain

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ownership of sitting down with whatever that ownership group is and going, what,

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why is it that we own this business?

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What do we want to achieve as a result of that as an ownership?

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And then you can start having conversations about how best you go

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about that and what roles you play.

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Um, it may be that some will work within the business.

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It may be that some won't, but might want to sit, um, on a forum of

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some kind to be able to contribute.

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To the business or the board level or, um, via some of the governance forums that

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we've discussed historically, such as a family council and owner's council, but

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it helps to get that clarity and manage the expectations of everybody that's

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going to be within that ownership group.

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So that then.

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Parsis down into those, um, areas of the business that do need to make

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the strategic decisions as to how to deliver against that ownership

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Strategy.

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So having clarity on your ownership, philosophy, your ownership strategy,

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the reason you own the business, how however you want to term it, to help

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it fit with your circumstances helps you to make ownership decisions.

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So if we take an example Well, perhaps you're producing something that has

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a negative impact on the environment.

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And you decided as an ownership group, that the purpose of the

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business is to contribute positively towards, uh, environmentally.

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As part of, uh, an ESG strategy or a sustainability strategy, then you

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can make decisions about what you do with the negative contribution through

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that lens, through that framework, understanding that you have an agreement

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between your ownership level, that that is something that you want to do.

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So you may go, we want to address our environmental impact and

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understand it better as an ownership.

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And then you can set up a task force within the business

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to allow you to do that.

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. So you might be wondering

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of having this conversation.

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If it's not one that you've had historically, and you can, ask, somebody

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like myself to come in and facilitate those discussions and share some ideas,

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uh, from other families as to how they've approached it, or if you feel comfortable

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in doing it yourself, sitting down and arranging, setting aside the time.

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To be able to have this conversation, but to have it in a very open and honest

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way with ideally as little judgment on the responses, um, as it is possible.

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So within a regional.

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But what you might find is that by understanding what

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ownership means to each of you.

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And that's what I think is a good starting point.

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As a question to ask yourself is what does ownership of this business mean for me?

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What are my ambitions?

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Do I want this to become something that is an enabler

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for me to follow my own passion?

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In which case do I need to have a very active role as an owner within the.

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Or do I want it to be fulfilling from a, an emotional perspective

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because the work that's done within the business is something that I'm

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very passionate about in which case you're more likely to want to be an

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active participant in the business.

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Whatever ownership means to you is personal to you.

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And in the same way, as you would want that respected by your, Siblings or

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parents or cousins, whatever, whatever level of conversation, you're having an

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ownership level by putting everything in on that table and going, this is

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what we're looking for out of it.

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You're likely to then have an understanding of the different

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motivations that might be at play within each of those owners.

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Now that doesn't need to be seen as a negative, if all of you don't agree on.

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That it's a starting point for you to agree with what, what can we do

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in order to get a level of compromise between all of us that allows us to

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progress forward with the business?

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, it may be that you all agree with what the purpose of the business is, why your,

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the most effective owners of that business and what roles and responsibilities

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you want as an ownership team.

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But as that, isn't always the case.

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It might be necessary to have conversations around what

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compromises might need to happen.

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Now, I like to use analogies when I'm working with clients or when I'm, um,

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explaining or running through things.

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It is the way my brain learns.

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So.

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apologies if it's not your preferred method.

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But the analogy I use here is if you see the opportunity that you have with your

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businesses as a blank canvas, and what ownership means to you is your own version

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of a picture that goes onto that canvas.

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If there are say 10, 15, 20 of you all with different cards, Paint

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brushes to paint your picture.

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If you just go ahead and paint your idea of ownership or the vision

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for that business onto the canvas, without any conversation, without

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any cooperation or compromise, you're likely to just end up with a mess.

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All the different colors will be mixed in.

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There'll be no shape or, structure to the painting.

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It'll be, uh, a brown mess on, uh, on the camera.

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Whereas, if you take a step back and have that conversation around what

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ownership means to you and what you want the business to do for each of

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you, that's akin to saying, well, we're understanding that we bring different

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things to this canvas and in order to paint the best possible picture,

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we need to take a little bit of this color, a little bit of that color, a

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little bit of structure and agreement.

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And so by understanding what you're able to contribute, what you're willing to

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and able to contribute to that picture.

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You're far more likely to get to, a closer version of the vision.

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Then if you just all throw your pain brushes in without any of

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that conversation or structure.

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Now, maybe that there's a branch of the family or an individual

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that has a completely separate idea to what everybody else.

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Is having, and it may also be that then the conversation needs to be had

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around, well, if everyone else wants this, um, beautiful blue, seascape,

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for example, as, as the vision and the, the, the person that has a different

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viewpoint, it has an orange paintbrush.

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It might be that little touches of that.

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Orange will enhance the rest of the colors.

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Whereas again, if you try to Chuck all of that orange into the

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mix, it would mock up the pain.

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So by having the conversation and understanding what it is, the ownership

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means to everybody, you can then start to have the conversations as to, okay.

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How do we create an environment that allows everybody to get as close to what

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they want out of it whilst also having a profitable business at the end of it?

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You can then decide what communication forums need to be in place in order

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for people to feel a part of it.

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If they're not within the business or to separate out your roles as owners

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and board members and employees, if you happen to work in all of those

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different areas, but you can then start to base that on something.

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Is your ownership, philosophy, your strategy for why you

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as a family owned this.

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So, although I said earlier in the show that, um, ownership is kind of a

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by-product of somebody following their passion, when they set up a business, if

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the business has been successful and has, turned into something that can be passed

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on to future generations, it's really important not to ignore the emotional

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ownership that exists within that founder.

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And so by asking the founder the same question, what does

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ownership mean to you now?

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You're likely to get a far different answer to when the

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business was established.

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Because as I say at that point, it was almost a by-product for

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the passionate was being followed.

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And so.

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One of the other elements that you may uncover.

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And it would be interesting to, to talk to the founders of the business

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as well as, as, um, those that are perhaps taking on ownership is the

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question is what ownership means to you.

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Blocking any future transition of either ownership or management roles.

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So it may be that for a founder ownership of the business means control.

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It means power.

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It means, uh, influence and status and their sort of place in the

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world is defined in their view by the ownership of the business.

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. And it may be that the thought of giving

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a bit more conversation a bit more time.

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Um, it's not just the legal element of that ownership that needs to

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be discussed is very much more the emotional side and how some of those

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elements of what ownership means.

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Can they be replicated?

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Can they be replicated in an alternative role or by pursuing alternative passions

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in a way that retains the element of wellbeing that is derived from the

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ownership of something, but allows the business to continue to progress

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and function via the next generation.

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It's beneficial to understand different people's perspectives on something like

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ownership, particularly when it comes to a family business, because it's not

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the same as when you own shares in a footsie or a Dow Jones listed company.

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There can be some emotional attachment to that, but generally the metrics as to

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why you own those, is is this going to allow me to achieve my financial goals

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and what dividend yield am I going to.

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And things like that, but when it comes to a family business and when it's your

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own family business, that emotional tie to it creates far more complexity

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than if it were a, a standard, shall we say, share on a stock exchange.

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So to summarize, what I was hoping to get across on this episode is to share with

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you a discussion that I've had with many families over the last two or three years

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around why it is that they own a business together, what they want that to represent

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collectively and for them individually.

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And then how best do they create the forums around

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which those can be satisfied?

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And it is very likely that if what I'm talking about resonates with you, or isn't

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a conversation that you've had with your own family, it may very well be that there

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is the need for an element of compromise.

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Now, for me, that is a positive step because it means that the

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business can support the ambitions of more than just say a founder.

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It can be something That helps create this multi-generational business that

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can go on to support different members in different branches of the family,

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over many, many generations, but it starts for me with a conversation

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about what ownership means to you.

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Now, if you want to get in touch and get a sample of a questionnaire

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that I use to help with this, I'd be really happy to hear from you.

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You can drop me an email.

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It's Russ at family business, partnership.com, and I'll be happy

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to share some of the methods on how to start this conversation.

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. So, if you think that would be useful,

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please do get in touch

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, and I hope you found the episode useful.

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As I said in the series preview, these are going to be

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shorter, more succinct episodes.

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And, uh, so with that, I will bid you farewell and hope you have a fantastic

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day and fantastic rest of the week.

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And join me on next week's show.

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