Some of the greatest business advancements happen when ideas or best practices are assimilated from one industry and utilized in another totally different industry. For instance, the Federal Reserve’s banking system’s use of a spoke-and-wheel business model was adopted by FedEx in developing its delivery logistics. As you will see, this can also be applied to the financial industry. For example, family businesses could borrow Xerox’s comeback strategy to help ameliorate their personal finances. In 1974, Xerox dominated 86 percent of the copier market. In the nineteen eighties, US and Japanese competitors started taking more and more market share from Xerox. It ignored new entrants like Ricoh and Canon who were consolidating their positions and gaining a lot of transaction in the lower-end market and in niche segments. Unfortunately, Xerox’s market share fell from 86 percent to merely 17 percent by 1984. In 1982, taking over as the new CEO, David T. Kearns begins to focus on quality control. To deal with the increase in competition and market share loss, Kearns introduced a benchmarking initiative across the company. By benchmarking against Japanese competitors, Kearns learned that it took Xerox significantly more time and money to bring a product to market. Xerox had no choice but to find ways to cut costs and make a leaner, more efficient company. Xerox’s turnaround became known as a textbook example of successful benchmarking. While family business owners may already be using benchmarks in their business management, very few are using the strategy for their wealth management. For example, benchmarking can help owners understand how well a particular investment has been doing. Just like Xerox, family business owners may choose to benchmark a number of things. On the first level, a comparison can be made between the returns needed to achieve a goal and the returns actually achieved. An investor might need 4 percent to achieve their goal or maybe that number is 5 percent, but there is no good reason to chase returns beyond what is needed to achieve the goal. A comparison can not only provide a snapshot of the progress being made, but also provide the business owner the possibility to make adjustments to the goal or the portfolio as needed. At the most micro level, owners may also look at the volatility and return numbers of the individual investments in the portfolio. An investment’s ranking in a given category could also be evaluated. In general, we would hope that the investments are not only beating the indexes but also in the top 50 percent of their class when compared to other similar investments over some acceptable time frame. To be realistic, you are not always going to outperform the benchmarks. Investors should aim to have their portfolio returns to be close or better than the benchmarks over longer periods of time. Family businesses can use these comparisons as part of their decision-making process to help decide whether or not to hold a particular investment. Smarter choices about money will be the likely result. To conclude, entrepreneurs should enlist the help of their advisors in developing a benchmarking strategy for their portfolios. Rather than waiting until their personal finances take a nosedive like Xerox did, owners should take action now, talk to their advisors, and start applying benchmarking to their financial strategy. For more strategies on how business-owning families can maximize their wealth across generations, watch Family Businesscast, the only show dedicated to family businesses.
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