“Twitter has extraordinary potential. I will unlock it.” – Elon Musk
Elon Musk, in Elon fashion, tweeted his SEC filing to acquire 100% of Twitter for $54.20, a 38% premium above the pre-announcement price. This is after Musk’s 9.1% stake in the company was revealed, followed by his rejection of a board seat, all accompanied by the public fanfare and consternation that generally follows the CEO of Tesla and SpaceX.
The board of directors adopted a poison pill to prevent a takeover if Musk’s share in the company rises above 15%. Musk subtweeted a Goldman Sachs “sell” rating and price target of $30.00 on Twitter stock.
Just another week at the office for Elon.
What can family businesses learn from the current saga unfolding on social media and in the B-section of the Wall Street Journal? Through the memes and tweets, we see two areas family businesses should keep top of mind related to Musk’s offer to take the helm of what he sees as a sinking ship: 1) don’t stay stagnant and 2) stay true to your business meaning.
Don’t Stay Stagnant
How does your family company avoid being left behind? We have written on diversification numerous times at the Family Business Director. We understand you have to focus on your core competencies, no matter your business, and too many new initiatives can distract you and your company’s key proposition to the market. Twitter has a robust digital infrastructure and owns the “breaking news” space for quick online dissemination. It’s the de facto “public square” for debate in the digital age, and even a begrudging social media user (like myself) has an account in order to be plugged into the most up-to-date news.
But there is a balance – a look at Twitter’s diversification reveals a surprising lack thereof for a tech company whose peers include Facebook, Instagram, Tik Tok, and non-social media FAANG stocks. Over nearly a decade, the platform has remained essentially unchanged, with its most significant innovation being doubling the number of characters permitted per tweet. Family businesses with a strong core offering/product are often tempted to rest on their laurels, but unless they diversify intelligently around the core, they will not be able to fully unlock the potential value in the business.
Stay True to Your Business Meaning
In our experience, families tend to assign one of four basic meanings to their family business:
- Economic growth engine
- Store of value
- Source of wealth accumulation
- Source of lifestyle
Readers of Family Business Director will be familiar with these concepts, but in sticking with the Twitter theme of TL;DR (that’s “Too long, didn’t read”), the idea is that your family business’ appetite for growth and investment relative to current income and capital preservation depends on what meaning your family assigns to the business.
Twitter shareholders likely view their investment as a growth engine – or at least a part of their “growth” portfolio. Taking a look at the scoreboard (stock price), returns from Twitter have failed to materialize. From its IPO price of $26 in 2013 to today ($48 at writing time), Twitter has had stock appreciation of over 7% annually. If you didn’t snatch up any IPO shares and bought in at its closing day one price ($44.90), you’ve had almost no return. Dropping the recent Elon meme-induced buzz, the return drops to negative. In terms of returns to investors – Kevin O’Leary, aka “Mr. Wonderful” of Shark Tank fame, leveled this nuanced take on Twitter’s performance, “You know there’s Dante’s Hell, and at the very bottom of that is Twitter.”
Facebook, Instagram, Tik Tok, and other social media peers have far exceeded Twitter’s performance because they have focused on diversifying their offerings, freshening their platforms, and investing in R&D – all characteristics of growth engines. Operating your family business as an economic growth engine for future generations requires a different attitude toward risk, investment, and innovation than “store of value” or “source of lifestyle” businesses. Growth engine companies take advantage of investment opportunities and focus on the future. Musk sees that Twitter has failed to do that.
We understand that for many enterprising families, a greater focus on capital preservation and current income provides a better fit. In any event, the same general rule applies: Family businesses should make capital allocation decisions that fit their company’s meaning.
For example, is your company in a mature manufacturing space with a shareholder base focused on dividends? Then don’t finance a risky acquisition with debt that restricts returns to shareholders. Remembering what the family business means to the family keeps your decisions grounded within a framework that ultimately benefits the company and its shareholders.
Where Can We Unlock Value?
Beyond the more grandiose ideas of free speech and censorship, Musk is a savvy investor and wants to buy Twitter because he thinks it is poorly run. The world’s richest man sees locked-up value in the business, but management and leadership won’t get out of the way. Sound familiar? We hope not.
Family business directors: Where would Musk see opportunities to run your family business better?
Give one of our family business professionals a call today for help with unlocking value for your shareholders today.