In aiming for multigenerational wealth, business families face a high level of uncertainty surrounding their business environment, juxtaposed against a conflicting desire for long-term legacy wealth
There are approximately 145,000 high net worth individuals (“HNWIs”) in Africa, with combined wealth holdings of approximately $800billion. This number is expected to grow by approximately 36% over the next decade. Despite this large amount of wealth on the continent, most business families struggle to transfer their businesses and wealth across generations: only 2% of Nigerian family businesses survive beyond generation one, compared to 33% globally.
In aiming for multigenerational wealth, business families face high level of uncertainty surrounding their business environment, juxtaposed against a conflicting desire for long-term legacy wealth. Furthermore, the family typically grows exponentially over time, as members of the next generation get married and have children of their own, yet concurrently the business that is a generation old, may be entering a season of maturity, characterized by declining revenues and profitability. It is therefore critical that the family is able to diversify in the business and in its wealth to generate sufficient returns to sustain the expanding family.
To do so, families crossing the generational bridge need to focus more on strategic direction: The most enterprising families globally are those where each generation adds a layer of entrepreneurial contributions to that of the previous, resulting in increasingly complex structures. Therefore the next generation will need to emerge as entrepreneurial leaders able to contribute to the existing business. These contributions may include new businesses, new products or services, new regions, new partnerships and/or new technologies.
Furthermore the family can diversify such that they build a robust wealth management system. Emphasis needs to be made on the family’s wealth management structure, such that profits are extracted from the operating businesses and invested in liquid, performing investment portfolios that have a low correlation with the underlying operating business, in terms of asset type, industry, geography and currency, paying particular attention to the opportunities that are viable in our future fourth industrial revolution world, characterized by artificial intelligence, block-chain, big data and mobile.
This two-pronged diversification strategy enables the family to build its long-term resilience, such that it can bounce back from setbacks, achieving sustainability. Diversification is like a weapon one prepares for the day of adversity, by sharpening one’s spear. The more diversified the family is, the more potent its weapon is, moving from a reactive defensive state to a proactive attacking state.
Family businesses are the engine of our economies and as such their sustainability is important to our economic development. Despite huge amounts of wealth being generated in Africa, statistically most of the wealth will be lost within a generation. Families can be intentional about fool-proofing the future of their family businesses and wealth by being clinical about diversifying. Despite many businesses having been adversely affected by negative setbacks, it is possible to rebuild on a stronger foundation, having had clarity on this framework.
Nike Anani is a Speaker, Author and Mentor for NextGens that seek to be effective change agents in their Family Enterprises. She is a guide and a spark-plug for action: helping NextGens identify and implement new opportunities, shortening the journey from identification to impact. She fuses her 9 years’ experience as a NextGen executive in her Family Enterprise and as a Chartered Accountant, to bring practical solutions to the table.
She is the co-founder of African Family Firms, a pan-African association of family businesses: here, they build a community for family businesses, founders, and NextGens alike.
She is a member of Family Firm Institute and a fellow of the Institute of Management Consultants. She sits on the boards of several companies, including ARM Harith Infrastructure Fund and Mixta Real Estate Plc.
Nike loves working with NextGens who are ambitious and passionate about their Family Businesses and need some guidance in precipitating change.