Financial Capital (money) is the by-product of all the other forms of capital we’ve discussed in this series so far.
SPIRITUAL + HUMAN + INTELLECTUAL + SOCIAL = FINANCIAL
FINANCIAL CAPITAL
Definition: Money. Medium of exchange.
Money is the output of all the other forms of capital. Money gets the attention because it’s quantifiable. We can physically count it. It’s much easier to attach to the things we can see.
Financial capital can be an incredible gift or an incredible distraction.
After talking with hundreds of families and reading hundreds of books, here’s how I summarize how the best families think about financial capital.
Financial capital loves time.
The most underrated asset in family business is time. We are in the most enviable position to our competitors. We are not in a hurry.Time is the secret.
Stay focused on the inputs (qualitative capital): Build skills (intellectual). Build trust (human). Build relationships (social). Build with purpose (spiritual). Become capable in valuable areas and do it for a very, very long time.
Don’t stop. Wake up and do it again and again and again.
Let compounding become the superpower it is.
Slow is pro.
I forget this sometimes. I like to move fast and get things done. The reality in family business is we are not in a hurry. We don’t have a fund timeline. Great things take time.We can methodically build our flywheels, our vision, and our people.
The markets reward differentiation. We get to deploy capital differently. We get to invest differently because we intend to stay.
The markets have cycles. Margins go up, and they go down. Sit and quietly compound.
Be like the redwoods. Quietly compound. There will be seasons of drought and seasons of growth. Just keep looking up.
The fastest route to building a flywheel is usually by going slow. Keep building a foundation worth building upon.
Don’t scale mediocrity.
Take small steps over and over.
Survive
As Munger would say: “be consistently not stupid.”Don’t get sucked into the obsession of growth. Stay focused on durability. (Harder to measure and see, just like qualitative capital.)
Growth invites leverage. Buffett reminds us of the danger of leverage: "Whenever a bright and rich person goes broke, it's usually because of leverage."
Bridges and airplanes are built with redundancies to withstand extreme stress, and companies should be too. Our family businesses should prioritize a fortress balance sheet. (Read Jamie Dimon’s Last Man Standing to see the value in this truth.)
David Packard, co-founder of HP: “More businesses die from indigestion than starvation.”
Durability is not praised in public. Growth is praised and can often create fragility.
Stay in the game. There is always tomorrow.
Return of capital > Return on capital.
Awareness
The best families are not seeking attention with possessions. Money becomes junk food when consumption becomes the mode to receive attention. I’ve seen plenty of people buy cars eager for attention.Awareness that what we really want is respect, admiration, and attention. We want to belong. It’s easy for families to get lost in the loves of the world. The propaganda of marketing is persuasive and ever-present.
(If you think you are not vulnerable to advertising, then you are the biggest sucker.)
Financial capital will not deliver fulfillment.
The act of buying more horsepower (car) or more square footage (house) does not lead to more joy.
A tool.
Financial capital’s highest use is not consumption. It’s not scorekeeping. It’s independence.A tool for autonomy.
Think independently and act independently.
We get to be our true selves: seeing clearly, loving deeply, and living fully.
We are not beholden to Limited Partners or short-term interests.
This is what I hold most dear about being a family business. We get to live freely and true to ourselves. This is what makes our world a better place when humans are able to do this at a local level.
Financial capital is a very small piece to the success of a family business.
May we live in such a way that these five truths of money can be internalized by our kids and our grandkids.
Onward,
Matt