Giving It All Away - Part I
Nothing is where a new business comes from. It's conceived out of a mixture of desires, hopes, fears, need, energy, guts and sweat - and everything that follows was created out of it. These economic "genes" determine the eventual shape of a business organization that eventually far exceeds even the most visionary expectations of its creator.
The founder - architect builds his dream mainly to achieve his own goals, whatever they are - freedom, wealth, respect, power - and usually by the time he reaches the top of his curve he has achieved those goals to a great extent. But that's not usually enough, because goals don't stay static. They change and grow as the founder and his circumstances change. The successful business founder almost inevitably discovers - even with his goals achieved and safely packed away in his personal safe - that another goal comes to stand between him and a serene old age.
The successful founder has already had to go from "doing" to "teaching." He's had to bequeath to others the knowledge, judgment and experience he's accumulated. But even teaching isn't his ultimate responsibility as he prepares himself, his family, and his business for the challenge and growth ahead. He has one further job: He has to do something with the business.
Nobody yet has managed to take anything with them when they slam the lid on the box. This fact forces the successful founder to somehow find strength and ability to shift his roles with passage of time and seek wisdom to accept age as an increasingly influential partner, and to listen to the subtle advice partner is trying to give. Because of the fact he cannot take it with him, the founder must eventually begin the complex task of giving it all away.
More Than WealthThere's more than wealth to be given away. He also has the responsibility of passing on a successful and functioning business. He has to give away knowledge and understanding he has acquired to others, to people who can do something with that knowledge and understanding. He must essentially give away the burdens he has carried on his shoulders from the beginning, burdens that come with wealth and responsibility.
The trouble the founder has, however, is he's been alone with the challenge of running his business so long he's accepted the problems and concerns as part of himself, as a natural part of his life. He may readily admit he has to give his wealth away, but the worries are something else entirely. They're his. Always have been. Nobody else could ever understand them as well as he can, he assumes, so they can't possibly be shared.
Since problems are such an intimate part of running the business, instead of planning carefully to transfer his wealth and problems to someone who's been prepared to accept and handle both, the founder is forced to hold on in desperation, hoping someday he can really be free. But the person never seems to show up.
Never, that is, unless the founder has done something to make sure his business can continue, through effort, ability and dedication of his successors. This requires preparation. Ability to accept wealth and responsibility isn't inbred in our children. To bring that ability into existence, we have to assume success from the beginning, teaching our children how to handle it and what it requires.
Once we reach the point of success, our heirs stand before us as they are. We have done our best and they are ready or not as the fates may have it. What we can do to load the odds in our favor I've discussed earlier. Here, I have no alternative but to assume the successful founder has been fortunate and is blessed with heirs and potential successors who understand the heritage of wealth and are ready for challenges, responsibilities and demands the business will bring to them. If he does not have this prerequisite, chances he will see his dream perpetuated among his heirs are very, very slim.
Transfer Without ConflictBut, even assuming the business can be perpetuated and the founderOs wealth can be safely distributed among good kids, some major questions still exist. The founder has to determine what he shall give to whom and in what form. Most business founders have multiple children of both sexes. They usually have varied degrees of interest and experience. Each has a little bit of something different, and this is why giving it all away comes in infinite variations, depending on specific facts. Every founder, when deciding how to give it all away, has to consider the facts of his multiple partners, their multiple children and wives, and whole groups of interested people - other minority owners, employees, and even creditors. Survival and growth of the founderOs company depends greatly upon how wisely and humanely management and ownership has been transferred. The founderOs goal should be to transfer management and ownership to make sure he prevents conflicts that have crippled and destroyed so many businesses.
He has to face the question of whether family and management should really be the same thing. Continued family control may or may not be an asset to the business, but few founders seem able to take realistic looks at business abilities of family members. ItOs relatively easy to compare family managers to non-family key employees of course. ThatOs done all the time. But this comparison usually does more harm than good because itOs just not done objectively. Either the kid is no damn good or he can do no wrong. ThereOs no middle ground. As I said before, competence and commitment must be major yardsticks, because the business is too fragile and valuable for it to be passed on any other basis.
Competence of family members who want to be family business managers is best judged by outsiders. These judgments can come from people for whom the heirs worked outside the business. The judgments can come from objective directors who have no ax to grind other than successful perpetuation of the business. These judgments seldom can be made with any real objectivity and accuracy by the founder or other members of the owning family.
The same sort of consideration must go into equity distribution. Who, in fact, should get the marbles? In what form? Why? These are invariably extremely agonizing questions for many owner-managers and their wives. They tend to think of the business as a heritage for their children, that itOs some kind of law of nature that all their children should benefit from it equally forever.
So many times I have seen second generation businesses run by one or two of many children, but ownership has been divided in many equal parts. Often, non-working shareholders may hold control and ownership equal to that held by working successors who are inserting sweat equity to build the business. A more fundamentally unreasonable situation is hard to imagine.
Inheritance Not a 'Right'I've never seen any document that states there is as a 'right' to a specific inheritance. A man bestows his wealth out of love and a desire to place a lasting gift of remembrance in his heirs hands. It's true the successful business founder has built wealth. But that's not what he leaves his children. Wealth is essentially neutral. Often, by itself, it's destructive. Of course there are economic reasons why we would want to pass our businesses on to our children. That's natural. After all, the best investment anyone could make in today's world is in earning power, and the best repository for earning power is a successful, growing business that we own and control.
But business is only an investment, not a guarantee. What we are offering our heirs is a financial advantage and some significant - but limited - forward momentum. Our heirs are being handed anything but a worry-free existence. They are being asked to enlarge a dream, to wrestle with their own talents and limitations, and to struggle with problems much larger in scale than even we faced as founders.
Every successor begins at his or her own beginning. They must make their mistakes and create their triumphs along the way. What they can be given by the founder is a foundation on which to build a dream and a powerful and effective tool -- a successful family-owned business -- with which to build that dream.
This investment is not for everyone, even though "everyone" is composed of our children. We can give gifts out of love, we love them equally. But a successful business is not a gift. It is a challenge. An opportunity. It is a commitment and dedication to the belief something worthwhile can be built. This business should not be treated as a gift, by the donor or recipient.
We can leave our heirs their heritage in two forms: as wealth or opportunity. The two are significantly different and must be given for different reasons. It is the founder's responsibility, once he's accepted the need to divest himself of his worldly acquisitions, to do so with great care under guidance of wisdom.
To do otherwise would be a great disservice to everyone involved.