Accelerating Wealth: Removing Family Obstacles from Wealth Creation
An interview with John Messervey
As we enter 2018, we asked well known family business advisor John Messervey how his clients are accelerating wealth creation opportunities in the new year. From his office in Lake Forest, Illinois John travelled more than 100,000 miles last year, advising clients in twenty-two states and overseas. Over his career, his advice has been sought by almost 400 high performing families.
John finds his work enormously satisfying. One client recently shared, “I’ve told my family’s story a hundred times and how helpful you were in the process. John, in all honesty, we would not have made it without your counsel; I’ll never forget it.” John believes that almost any family can grow their wealth if they remove the family obstacles that limit their performance.
Let’s start our wide-ranging discussion there…
TL: So, do families create their own limitations?
JM: Absolutely, often without realizing how much they restrict themselves. Families are the prototype of all organizations. If they can understand the patterns of behavior and unlock their self-imposed limits, the business and wealth can thrive. The good news is building a business with your family can be one of the most nourishing experiences in life if many of the most common mistakes are avoided.
TL: Why is this important now?
JM: We are in an unprecedented time for business owners to add an exponent to their wealth. Unfortunately, too many families are mired in frozen succession plans, ineffective governance, family strife and a lack of inspired leadership. Many are treading water — accepting the status quo. For the high performers in the family, excitement about the future has all but evaporated. Many of these families need to take a realistic look at their long-term future.
“At one time or another all successful families get stuck. My job is to get them unstuck.”
TL: Are they stuck?
JM: At one time or another all successful families get stuck. My job is to get them unstuck. Many families are several well facilitated conversations away from a major performance breakthrough. These discussions, however difficult they may be, are critical to moving forward. Getting unstuck includes addressing the unspeakables woven in their family, business and wealth story.
JM: Yes, there are things they cannot talk about. Virtually all families have a short and/or long list of unspeakables
TL: That sounds ominous.
JM: Not really. Unconsciously, some family members are in unspoken collusion to avoid addressing the real source of their angst. These issues almost never go away on their own. Paradoxically, they want to talk about these issues, but need an open and conflict free venue to do so. A large part of my work is to get a family to talk about business issues in a mutually supportive way.
TL: How does that happen?
JM: We accept individual differences, focus on overall solutions and create a collective future—it’s a collaboration. In my work, I ask myself, what is the next biggest step this family can take? Then what is the next step after that and so on. Consultants that share “top ten to do” lists for their clients do not understand families—or process. I do not advise that families spend time dwelling on the past or staying stuck on problems. I know it is hard to overcome some old hurts and resentments, but one needs to frame a brighter future. The key is to be solution driven. Discussing family matters in a non-judgmental setting has great value. Little victories and short-term wins build the momentum that accelerates family wealth and harmony.
TL: What are some of the other issues limiting wealth creation and continuity?
JM: There are many. On the business side, individual and company performance, compensation, succession planning, strategy, governance, and a lack of clear direction come to mind. Too many families are managing for the short term, the status quo. They are harvesting their business. New entrepreneurial ventures need to be launched; supporting family members who think differently, challenge assumptions and take a long-term view of wealth creation. We are no longer competing in a regional or national market. Competition is global, quick and intense.
TL: How do millennials see working at the family business?
JM: A very timely question! Many have mixed feelings. Loyalty, financial security (and performance insecurity), legacy, identity and individuality are major themes among the next generation. I look for motivation, passion and commitment, then recommend pouring resources into the next generation. Parenting competent young adults is a major issue within my client group. High performing families are doing far more with prospective heirs than five or ten years ago. Let’s talk about exactly how in a future interview.
TL: Earlier, you mentioned that this is an extraordinary time for building wealth. Tell us more…
JM: In the post “great recession” period, we have enjoyed, and many have benefited from a low interest rate environment. For almost a decade, the cost of money has been low. So, many of my clients have easily financed and acquired platform businesses. For some, the strategy is buy, grow, sell, repeat— add to wealth pile. Others are buy, grow, hold, buy again, grow again. There are many paths to wealth creation. You must accurately assess your skills and talent, determine your strategy and tactics, then execute.
TL: Are your clients also selling their family businesses?
JM: Yes. There are two notable events that change ownership within families. The first is an internal sale, “pruning the tree” among family owners. I recommend that liquidity options be available at the turn of each generation. Providing exits for family interests clears the way for those who are truly interested and committed to growing the business. The other event is an external sale. Both are life changing decisions that requires a year or more of planning, considerable family discussion and an experienced team of advisors.
TL: Either way, why do family members sell?
JM: Many reasons, including financial security, health issues, lack of competent family heirs, market risk and investment limitations. Every family manager has what I refer to as a “talent ceiling” — they can no longer grow and manage effectively at higher levels. In a highly competitive environment, they can’t “hit the pitching.” Other family owners may no longer desire to invest sufficient capital in their enterprise— they may want to take some of their chips off the table. As an aside, value multiples are high now so selling in entirety is an enticing option for many family business owners.
TL: Aren’t most family businesses celebrated for their longevity?
JM: For some, it seems that survival driven longevity is all that matters. I see it differently. I do not want to advise the last wooden pencil or slide rule manufacturer in America. Growing a family business is, and must remain, dynamic and opportunistic. For instance, too many family enterprises are surrounded by loyal, but low performing employees, sycophantic board members and artificially employed family scions. These practices almost always end badly—for everyone. The family business should never be the “employer of last resort.” Many have vague, “only dad or mom knows” succession plans. Far too few have a high performing outside board of directors who truly ask tough questions and provide valued counsel.
TL: Are the much-quoted family business three generation longevity statistics valid?
JM: Probably not. those stats are so often quoted that they have become urban legend. It is my understanding that the original research data did not include name changes, sale of businesses, new entrepreneurial starts and more. My point is that only a few family businesses are in the “Uber” class of specialized, sustainable, high margin, recurring income, technologically adept enterprises with high barriers to entry. For the remainder, it is a very competitive month-to-month, year-to-year struggle.
“Culture matters. One of the greatest strengths of family business is their ability to craft an expanded family culture of trust and mutual respect. ”
TL: “Uber” family businesses?
JM: From my perspective, I see family businesses divided into five tiers: Uber, Alpha, Status Quo, Survivor and Sunset. My work is centered on Alpha and Status Quo enterprises with an occasional Uber business group. The Survivors are mired in family disharmony, perhaps addictive behaviors, litigation and no real leadership or direction. Usually, no one is accountable. They will survive, but only for a short period of time. The clock is ticking. The Sunset family businesses are in a death spiral—often careening toward bankruptcy and about to be sold off in pieces, including their real estate. Survivor and Sunset family businesses made a series of poor choices, self-inflicted wounds from long ago. Along the way, many simply fell asleep.
TL: What else is unique to Uber and Alpha family businesses?
JM: Culture matters. One of the greatest strengths of family business is their ability to craft an expanded family culture of trust and mutual respect. As talent in the American labor pool continues to shrink, culture is the major off-balance sheet asset. The right culture comes down to a thousand small decisions that show how the family owners truly care. In Uber and Alpha family businesses, everyone knows the deal. Employees operate best in teams, with consensus and alignment.
JM: Yes, alignment means that everyone knows what is important and where their firm is headed. They mutually support other team members. Trust is a critical element in creating a culture that survives in the long run. Alignment and trust start with the family and then carries through the board and senior managers.
TL: The deal?
JM: Yes, in every family and in every business, there is a “deal” – an often-unspoken unique arrangement that explains why things work the way they do. It is essential to understand each “deal.”
TL: What else defines the high performing family businesses?
JM: The “small” things matter; alignment, genuine caring, collective vision, and transparency. It also helps to empathically see the difficult issues through the eyes of the employee. Recently, one family business employee explained culture as, “That is just the way we do it here. We all know what is expected and who has our back.”
TL: For those family members who want to accelerate the success of their business/wealth, what would you suggest?
JM: Start by thinking what you are afraid of—that is usually what is holding you back. Some family behaviors are deeply rooted, and everyone needs an entirely different set of non-business skills to address those issues. Emotional intelligence (EQ) and self-awareness help. I work with the alpha wolves of capitalism. They have figured out how to create and sustain wealth. It’s the unresolved issues within their family that they find so perplexing.
“Yes, in every family and in every business, there is a “deal” – an often-unspoken unique arrangement that explains why things work the way they do. ”
TL: Can families change?
JM: Absolutely. Most often, families change because they have to, not because they simply want to. Usually, there is usually some urgent issue, some pending crisis that leads to my work. Many share, “I wish I would have called you two or even five years ago.” I ask, “what have you tried before?” For many, the way a family has tried to solve its issues is more of a problem that the matters at hand.
TL: So let’s return to accelerating family wealth. JM: Uber and Alpha family businesses build relationships with potential resources before they need them. Reciprocity helps, but they do not keep score.
They are in business for the long run. They are confident, unafraid to try something new. They are not afraid of failure. They are mutually supportive. Watch a great sports team—when one player makes a mistake, there are plenty of teammates around him or her to pat them on the back. They know that they will need that hit, long pass play or field goal before the game ends. No high performing team tolerates a lack of effort.
TL: Lack of effort?
JM: Yes, that is one of the major issues among family managers. Amid entitlement and a name on the door, a complacent sense of “we have it made” can emerge. Business is taken for granted. Owners take their eye off the ball. So, they often end up in a high performer/low performer dilemma that limits the company’s performance. Too often they accept the low performer’s excuses for lack of motivation. This is very frustrating to the high performer.
TL: What’s the answer?
JM: The high performer needs to end his or her part of an unspoken arrangement where they cover for the low performer. The low performer needs to accept that certain metrics, benchmarks and financial goals must be met or there are consequences (as in adjusted compensation, bonuses, benefits, position, employment, etc.). This high/low dilemma is most common when the family adopts a policy of equal pay for all family managers. That practice inevitably leads to disharmony.
TL: One final piece of advice?
JM: Never, ever take your wealth for granted. Study history—the list of failed family enterprises is long and growing. The world is so dynamic, competitive and innovative. You need to stay focused, nimble and opportunistic.