Yale Case. By: Nick Di Loreto / A. J. Wasserstein
While the SF and ETA models offer MBA graduates an exciting and increasingly popular path to CEO roles and financial upside, they often mirror the principles of PE, prioritizing speed, financial engineering, and quick exits.
The authors argue that while this model has its merits, it can benefit greatly from incorporating long-standing, value-driven principles seen in high-performing family businesses. These companies are often misunderstood or undervalued in elite academic settings, but they have demonstrated resilience, longevity, and deep community impact.
The authors outline 3 foundational concepts that SF entrepreneurs should adopt from family businesses:
1/ Think like an owner, not just a CEO
– Differentiate ownership and management: Many SF CEOs become absorbed in day-to-day operations but fail to adopt a true owner’s mindset. Family businesses excel by clearly separating roles: owners make strategic, capital-allocation decisions, while managers execute.
– Move beyond the “optionee” mindset: ETA entrepreneurs typically invest little of their own money and are compensated primarily through performance-based equity. This can create misaligned incentives: risk-taking for personal gain without real downside. Family business owners, by contrast, have significant financial and emotional skin in the game.
– Embrace stewardship: Family business leaders often see themselves as caretakers of a legacy, not just profit-maximizers. ETA CEOs often sell the idea of continuity and legacy to sellers but may fall short of that commitment. By acting as true stewards, SF entrepreneurs can build trust, resilience, and value.
2/ Lead with a perpetuity mindset
– Adopt a long-term orientation: Family businesses typically think in decades or generations, while SF ventures often target exits within 4–5 years. This short horizon can compromise strategic decisions, culture-building, and customer relationships.
– Focus on cash and absolute dollar returns over IRR: The ETA world is obsessed with IRR, which incentivizes quick flips and high leverage. Family businesses, on the other hand, prioritize sustainable cash generation and after-tax dollar returns, focusing on building wealth, not just maximizing financial metrics.
– Manage for real cash flow, not hypothetical terminal value: ETA entrepreneurs often fixate on equity value at exit, but companies live or die by cash flow. Family firms manage conservatively, invest prudently, and view the business as a source of ongoing financial stability, mirroring Buffett’s approach to compounding capital over time.
3/ Optimize for the entire ecosystem
– Balance stakeholders, not just investors: ETA projects tend to prioritize investor returns above all else. Family businesses take a more holistic view, optimizing for owners, employees, customers, vendors, and the communities they serve.
– Value people and relationships: Family firms tend to foster trust, loyalty, and long-term relationships with employees and customers, something often lost in ETA’s more transactional model. These relationships are critical to long-term value creation.
– Maintain work-life balance and family ties: Many SF CEOs treat the business as their central identity, sometimes at the cost of family life and well-being. Family firms, by contrast, aim to harmonize business and family priorities, investing in both the enterprise and the people who will inherit it.
Conclusion:
The SF model offers an excellent career path for aspiring entrepreneurs, but it often lacks the depth and sustainability of family enterprises. By integrating principles from family businesses, such as true ownership thinking, long-term stewardship, cash focus, and ecosystem optimization, ETA entrepreneurs can build not only more resilient and valuable companies, but also more rewarding personal lives.
The message to MBA students and new CEOs is clear: If you admire the benefits of family firms, start building one. Every multi-generational family business starts with a Generation 1 founder. SF entrepreneurs have the opportunity to plant the seeds for their own lasting legacy, if they choose to think beyond the deal and design a life and business for the long haul.
That’s why some traditional SF investors are moving to the long-term hold model…
Read the full case in: https://som.yale.edu/sites/default/files/2025-06/Three%20Concepts%20Search%20Fund%20Entrepreneurs%20Can%20Learn%20from%20Family%20Businesses.pdf
