Nowadays, graduates, career starters, young professionals, and executives strive for "purpose-driven" jobs. What is now subsumed under the term "purpose-driven" was also the main motivation for founding many a family business in the early days. Some representatives of this Generation Y see themselves as the "purpose movement," primarily as a countermovement to a capital-driven society. Purpose entrepreneurs are rethinking business. Their companies should serve employees and society, not the capital market. Of course, every healthy company also has the intention of making a profit, and as the basis of a long-term entrepreneurial strategy, it is even essential. But it is not the main purpose of founding a company. Purpose instead of profit, that is the motto, or: problem solving instead of profit, as an established Family entrepreneurs it might express.
Encouragingly, over the last 15 years, Germany has seen a renewed interest in entrepreneurship. This development is shaped by the university environment. But this wasn't always the case: Recall the disastrous crash of the Neuer Markt (New Market) 20 years ago. The high availability of venture capital and the subsequent establishment of a certain market for investments in startups created a culture that encouraged the "trading" of the few good startups relative to the available capital at very high prices. Consequently, company foundings were also venture capital-driven and at least partly motivated by the prospect of selling at an opportune time in order to achieve a valuation that was excessive relative to the company's value. The individuals involved cannot be blamed for this behavior. The result was a "bubble" that led to an uncontrolled collapse of the venture capital market for financing talented entrepreneurs.
One thing is certain: it makes a significant difference how you perceive your company. As an object of speculation that, like a rare bottle of wine or a coveted work of art, can fetch exorbitant sums on the market, or as a personal investment in the future of society? Successful family entrepreneurs take a clear position here. Like startups, they too had to establish themselves in their early years, but this was primarily achieved through their own efforts. They built "brick by brick." Organic growth, based on reinvestment, was the path to stability.
The family businesses of tomorrow
In the tension between a capital-driven startup culture on the one hand and the well-considered, sustainable management according to classic entrepreneurial principles on the other, it becomes clear how companies that also successfully serve as objects of speculation can undermine the traditional laws of the market. Perhaps the most prominent example is the history of Facebook: In October 2007, NBC Newsthat Microsoft acquired a 1.6 percent stake for $240 million. This pushed Facebook's speculative valuation up to an incredible $15 billion. But Microsoft wasn't alone. As the Financial Times Deutschland reported in 2012, Facebook generated $16 billion in its NASDAQ listing and was valued at $100 billion as a company. This not only represented the largest IPO of an internet company to date, but also occurred at a time when Zuckerberg's platform, at $32 million, had yet to generate any significant profits.
Because substantial companies are commonly valued using the formula: EBIT(DA) x multiple, i.e., earnings before taxes (and depreciation/amortization) times a fixed multiple that depends on the industry, size, and market environment, in this case, one would arrive at a multiple of "around 3,000," a calculation that may be incompatible with sustainable entrepreneurial values. At this point, it might be worth discussing which paths investors can take to promote sustainable company start-ups. What environment must be created to create "the family businesses of tomorrow"?
What opportunities are emerging?
One initial opportunity lies in selling startups to family businesses. Rouven Dresselhaus, founder of the venture capital firm Cavalry Ventures and successor to the Herford-based family business Dresselhaus, knows both worlds very well. In an interview with Handelsblatt, he refers Article from 2018 as follows:
"In Germany, 0.03 percent of gross domestic product flows into venture capital; in the US, it's around 0.35 percent; and in China, around 0.24 percent. We must quickly overcome our reluctance to invest equity capital." (...) "If Germany wants to continue to play a leading role in the future, local capital must step in."
The second major opportunity lies in the role of family businesses as startup incubators. As incubators, these corporate divisions establish and develop startups to drive the development of new digital products and services. They combine infrastructure, knowledge, and established networks. The company's "brightest and most competent minds" are placed in these new areas and have the opportunity to work in a high-tech environment characterized by a sustainable focus, yet still agile and innovative.
One example of this is Voith, which has been manufacturing turbines since the 1970s as its core business. In 2016, the company set the course for its digital agenda with the founding of Voith Digital Solutions, pursuing three primary goals: First, the digital enhancement of the existing product portfolio with digital competencies that offer customers additional functions. This included, for example, the development of "Hyguard" monitoring (now "Oncare Acoustic") in the form of sensors that, similar to experienced company employees, can listen to the turbines to determine how long their remaining service life is and pass this information on in good time before the devices fail. Second, the development of new digital solutions in the established core markets. One example here is the introduction of “Myvoith” as an online platform for digital applications, and thirdly the development of new products and business models for markets not yet covered by Voith, such as the founding of the joint startup “Merqbiz” with the Boston Consulting Group, a proprietary online platform for the waste paper trade.
