Question: How to Start a Holding Company?


When we started a few years back we were an R&D project-based service company. In time, we developed some software as our own products. So, we decided to divide the group and establish a few subsidiary businesses. We also had some opportunistic M&A along the way.

We now desire for each business to be autonomous, with light governance from parent. Each key stakeholder/executive may have some ownership within a subsidiary, to ensure continuity. And we want to design a consistent, repeatable model which enables sound decision-making across many different verticals.

What is an efficient model? What are some some key challenges to be aware of?

Expert Insight


First of all, all businesses exist because they own and/or control an asset - the Key Component - that they use in their products/services which customers will seek access to because they provide them a competitive advantage. In other words, the products/services take the uncertainty out of achieving a specific outcome. Therefore, the Key Component is valued because without it the products/services cannot exist. Thus, the name Key Component.

Secondly, a business survives when its Return On Key Component is superior to the cost of capital. This difference in rates in known as profit. Profits are used to satisfy all needs of all the stakeholders who collaborate and cooperate in the business's processes to make the Key Component available to customers.

Based on my reading of your question, your business either has one Key Component and many subsidiaries operating in each vertical with the objective of maximizing the Return On Key Component, or your business has many Key Components each lodged in a separate legal entity with a responsibility for maximizing their own Return On Key Component. Both are sound strategies however their efficiency is very much predicated on the where the business is in its life cycle. Usually, more mature businesses will have multiple Key Components in multiple subsidiaries with a holding company at the top operating on a portfolio strategy. Whereas, young companies have one primary Key Component with maybe other complimentary Key Components reinforcing it and a limited number of subsidiaries in key geographical markets to maximize returns in one, or two, verticals and partnerships/strategic alliances in other verticals. There is not enough information provided to give a more complete answer.

Your challenge is to identify the Key Component(s) and measure the Return On Key Component.