The Key to Scaling Your Business
Reid Hoffman, Co-Founder of LinkedIn, said, “No matter how brilliant your mind or strategy is, if you're playing a solo game, you'll always lose out to a team.”
We often cite visionary leaders, crackerjack strategies, and disruptive technologies as the catalysts for stratospheric business breakouts. Still, nearly every successful CEO will point at their team. Hoffman is right, though. There’s no such thing as a billion-dollar solopreneurship or even a nine-figure one.
If a business wants to grow, it needs to invest in HR. Beyond the conventional usage of the term “HR” as a compliance enforcer, we're zeroing in on “human resources” in the truest sense — the flesh-and-blood people that drive expansion.
But people are expensive. Young companies often consider investing in marketing or R&D, but talent is usually the most costly vector of a business that wants to grow.
We have discussed the importance of family offices as an often-overlooked source of capital for growing businesses. Let’s explore the war for talent and how family offices' financial backing can help win the talent that tips the scales in favor of growth.
The Strategic Importance of HR in Business Scaling
Many businesses start as solopreneurships or small teams of founders. Everyone wears many hats. They may rely on business-process outsourcing to get them over the early hump of growth, but eventually, every business that wants to grow has to hire.
Why? CEOs can only focus on the high-return tasks of business growth—strategic relationships, PR, process optimization, etc.—if a dedicated team manages the other functions.
Many companies fail at this crucial juncture. They have mastered a process that produces results for their clients or customers, and it’s time to hire. But due to capital constraints, they struggle to achieve the same results at scale that came effortlessly with a smaller team serving a few clients.
It might have all worked fine if they had top talent … but top talent is expensive. That’s the Catch-22 of profitable growth — you need to spend to get the people you need, but you don’t yet have the means to spend without risking bankruptcy. Yes, the investment could produce those returns … but who knows how long it will take to dial that process in. Meanwhile, the corporate credit cards are screaming for mercy, and the founders are losing sleep at night.
A growing company needs to thread the needle—how do you hire like a billion-dollar company when it’s barely a multi-million-dollar company? Companies that can accomplish this will have a crucial competitive advantage.
Diverse Financing Solutions: The Role of Family Offices
Many business owners think their only viable financing sources are inflexible lenders or demanding private equity investors. The lenders want their timely payments; private equity investors want their fast exit, or else.
Family offices are a little-understood, little-known player in the business financing space that fills a much-needed niche — patient capital.
A quick primer on family offices: A family office is a discrete firm that manages the financial affairs of a single family (or, in other cases, a group of families). The office's employees provide various services, including allocation of investment capital.
Families usually need a sufficiently high net worth to cover the costs of a whole office to manage their finances. The benefit is that they don’t have shareholders or a board of directors clamoring for quarterly earnings. They often think generationally in terms of their family’s values and legacy. They can make creative deals with companies they believe in and can afford to wait years, even decades,for an exit.
Leveraging Family Office Investments for Organizational Scaling
Family offices are suitable partners in financing organizational scaling because they are often patient and invest in alignment with their values rather than solely pursuing returns.
Investments in people are always uncertain. Five-year plans can quickly become ten-year plans as you iron out and adapt to the unpredictable. You can address this by paying a premium to entice top talent … but that takes a lot of capital, with results still stubbornly beyond the horizon for years.
Because of their independence and value-driven, generational approach, family offices can offer capital and flexibility — ideal for a company that needs to scale its organization over time.
Forming Strategic Partnerships with Family Offices
Strategic partnerships with a few family offices can make all the difference in furnishing a company on the cusp with the capital it needs to break through — whether through HR or any other vector.
The right family office partnership can offer substantial and flexible financial support. They can be a source of equity investments, debt financing, or both, often with terms more adaptable than traditional funding sources.
Of key importance is finding alignment between your company and the family office—finding the family who aligns with your long-term financial goals and your company’s vision, mission, values, and desired impact on the world. Your legacy can become part of theirs, and family offices become uniquely generous under those circumstances.
The Catalytic Role of Capital-Raising Firms
The challenge, then, is finding the right family office partner. Family offices don’t exactly advertise in the Yellow Pages. In fact, many high-net-worth families don’t want to be that accessible.
Moreover, family offices are as diverse as families themselves. Some may not make private equity or debt investments, while others focus exclusively on the family’s holdings. Even if you get the meeting, it may not be the right fit.
Specialized private equity teams, also known as independent sponsors, serve as valuable catalysts for forming partnerships between capital-hungry companies and the family offices that align with their goals and values. For more information, please refer to our article focusing on these groups.
When it’s time to scale your business, the who is more important than the how. Not just: “How will we scale with a capital provider?” but “Who do we need to scale?” The right talent often makes or breaks as businesses seek to bring their offerings to a larger audience.
Most businesses never get there because they don’t have the capital to attract top talent. They either fumble the ball by being stingy with their HR investments and limping forward with weak talent, or they saddle themselves with debt or equity investment obligations that put them on the razor’s edge of insolvency.
Family offices provide a vital source of patience, flexibility, and values-based capital to fund the talent pool that growing companies need to scale.
If your company is ready to invest in HR and you think family offices may be the right funding source for that ascent, contact Cap Expand Partners. Since the 1970s, we have leveraged our network to support rising stars. Contact us for a free consultation today.