Author: Kathy Marshack

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‘Soft’ side of estate planning in the family business

By Kathy J. Marshack, Ph.D., P.S.

Most entrepreneurs are so caught up in the passion of their enterprise that they rarely plan ahead for the wealth that will accumulate. Although there is a desire to make money, only a select few entrepreneurs actually make money their goal. Rather wealth is a byproduct of having done well. Furthermore, most entrepreneurs did not grow up in wealthy families, so they don’t have role models for managing their money or planning for the continuity of the family business. As a result when it comes time to develop an estate plan, many entrepreneurs are at a loss for where to start, or to even know they should start.

It would seem that the logical place to start is with your attorney, CPA, investment advisor or banker. However, while all of these professionals should play a part in the development of your estate plan eventually, the first stop on the way to a successful estate plan is the psychologist’s office to deal with the soft side of the family business. Many an estate plan has been left undeveloped because the interpersonal relationships in the family were counter to the best interests of the business.

It is important to understand that the most important part of our lives are spent not as individuals but in relationships. And the relationships that we hold most dear are those of our family (whether or not we hold them fondly or with resentment). Within the context of a family business this fact is quite evident. Regardless of how successful, famous or old the family business, the family still comes first. Understandably the system that has been around the longest has priority.

Gerald Le Van, an attorney explains this concept from the perspective of the changes that have occurred in the business world in the latter half of the 20th century. The Industrial Revolution that lead to the technological revolution created the philosophy that the business world was like a clock, where successful enterprises were machines, conceived by engineers and monitored by accountants, where the goal was maximum industrial productivity at minimum cost, and workers were a collection of individuals or parts of the machine. Today, however, the business world is not envisioned like a clock, but like a rain forest.

According to Le Van, “Enterprises are no longer machines, but ecosystems whose fitness to survive is determined by their relationships to other organizational ecosystems in the rain forest world. Enterprises are no longer collections of individuals, but systems.”

Within the world of family business the rain forest model is very effective. Family firms are a system of family members, in-laws, shareholders and stakeholders. These systems interact with vendors, customers, employees, and the commercial community at large. It is a delicate balance to maintain a successful business and a successful family enterprise when the systems are integrated into a family firm. The stress on the system becomes even greater when it is time to develop a plan for the continuity of the business and the family, and a fair apportionment of the wealth. If the family does not have mature and healthy interpersonal relationships, the process of estate planning can be costly, painful and unsuccessful.

Consider for example a CEO who is about to retire. He has two daughters and his instruction to his attorney is to develop a plan that gives each daughter an equal share. One daughter has worked for years for her father, helping him to manage his investments. She has proven to be a leader and visionary, much like her father. The CEO wants her to succeed him in managing the business because he believes in her competence. The other daughter has never worked for her father but has benefited indirectly from the growth and wealth of the business. Although she has never been interested in the management of the business before, now that her father is retiring, she and her husband want to take a more active position in the company. The first daughter doesn’t mind continuing as the president of the company. In fact she believes she deserves the position. But she is not pleased about her sister’s new interest, nor her father’s decision to treat them equally. Where this family once got along just fine, a new problem is growing that they never had to face before. How would you are your advisors handle this “hot potato”?

Consider the entrepreneurial couple, who for decades have successfully founded and managed three enterprises. They have sent two children through college and now one of them works for the family business. The husband, now 58, would like to retire to the new vacation home they have recently built in a resort community. However, the wife is ten years younger and is not ready to retire. She is still excited by the challenge of managing their investments. Furthermore, she is grooming for the presidency, her son by a previous marriage. She would like to stay on long enough to see him well established in the leadership of the business. There are more than business challenges that this couple faces. Will the marriage withstand one working while the other retires? Will the husband trust that the new president will be trained well by his wife? How do other family members feel who are not related to the wife’s son?

Consider the attorney who must advise his client on an estate plan. The attorney and his client, a CEO of a national corporation, have always trusted each other and seldom had a conflict. The attorney has always known that his client is alcoholic, but the alcoholism never interfered in their dealings, even though it did cause great personal tragedy for the CEO (i.e., a divorce and estranged children). Now, however the attorney is in conflict over the advice he must give his client. The CEO wants to place in the presidency the only child who is not estranged from him. Unfortunately this child is alcoholic too and has never held a responsible position within the company. The CEO is ignoring other possible successors, such as loyal executives who are not family members. The attorney appears to be in a no-win situation. If the attorney says nothing, the CEO may proceed with a plan that will ruin the company. If the attorney confronts a non-recovering alcoholic with the foolishness of his plan, he may lose a valuable client. In either case there is no healthy solution.

To create an estate plan that truly integrates the success of the family and the firm, it is necessary to seek the help of a psychologist who understands the soft side of families and particularly those families who are in business together. Cleaning up root interpersonal problems can mean the difference between the development of a meaningful estate plan or the development of increased family conflict. For example, with the help of a psychologist, the father with two daughters learned that “fair” was more appropriate than “equal” when it came to dividing the wealth and the business with his daughters. The entrepreneurial couple learned that their marriage could survive the transition of the wife’s son to the presidency if they developed a clear buy-in for the son. Fortunately for the CEO of the national corporation, his son went into alcohol treatment after a serous auto accident. The CEO participated in family therapy at the treatment program, which forced him to look at his own untreated alcoholism. He eventually could see how he was letting his alcoholism make business decisions that were neither sound for the business, nor his family.

If you have worked hard to create an enterprise you can be proud of and if you want to create a legacy to pass onto your children and grandchildren, first evaluate the soft side of your family system for any unresolved issues that could spring up and bring the whole system down, during the process of estate planning. Also be prepared to deal with problems that never would have surfaced except for the need to discuss money matters with family. Then take these concerns and realizations to the psychologist, the professional uniquely trained to help with untangling family knots and reweaving a healthy family/business tapestry.

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Why are entrepreneurs often alone with their new ideas?


By Kathy J. Marshack, Ph.D., P.S.

One attribute that I believe is absolutely necessary is the ability to weather criticism. In order to do something that no one else has done, to go where no person has gone before, the entrepreneur must recognize that they will be criticized and humiliated by others, family and friend alike, throughout the process of developing their ideas. Selling your idea to the bank or venture capitalist is nothing compared to the agony of those negative looks you can get from the ones you love.

Jasmine was frustrated, confused and hurt. She had invited a group of friends over to her new place (a small business in her home, opening within a few months), but instead of compliments she received a lot of negativity. People were shocked that Jasmine would consider such an undertaking. Some were even angry that she had not shared her secret sooner. Several friends warned her of pitfalls in her plan. Another friend congratulated her on her success, but took it all back with a comment on how they would have done it differently. There was only one friend who gave her hearty congratulations. He even acknowledged that this project fit Jasmine to a “T” and that he could imagine a prosperous future for her.

Except for the one friend who gave Jasmine her due, why did the others react in such a negative way? It’s hard to believe that Jasmine would have such unkind friends. Would these same friends warn the bride and groom at the wedding that they were making a bad choice or that they should stop everything now before it’s too late? Probably not, but they did feel free to dump on Jasmine.

Envy is a logical choice but I think you need to dig a little deeper. Many of Jasmine’s friends are successful in their own right, so why would they be envious of her accomplishments? Also many of them had heard her talk for months about her project, so it wasn’t entirely new when they attended her party.

Another logical answer is that Jasmine’s friends were trying to help her by warning her of problems. In other words they wanted to prevent her disappointment when she failed. Unfortunately in the warning is the implication that she will fail. Many people avoid success by preventing failure. It is a common human strategy. Mediocrity is the outcome.

In order to weather the negativity and continue on your path to business success, entrepreneurs need to understand something of how people accept change . . . change in you which produces change in their circumstances. When Jasmine invited her friends over to see her new business, she was introducing them to change. Her ideas were becoming reality, which meant that Jasmine was changing and that their relationship with her would change also. The first reaction that most people make to change is negative or denial. Many of Jasmines’ friends acted as if the party was their first notification of the business venture, when in fact she had talked with them for months about it.

To check out this phenomenon scientifically a couple of psychologists conducted an experiment with volunteers. They wanted to find out just how people adapt to change, and what steps they go through to accept that their model of reality has to change to include new information. The psychologists photographed playing cards, one at a time, so that they could flash them in front of the subject at varying rates of speed. The subject was told that the experimenters wanted to learn how fast the subject could see the card, register the identity of the card, send that visual information to the part of the brain that interprets what we see, and then speak the name of the card. The results of this experiment are astounding.

At first the psychologists flashed the cards so quickly that the subject saw only a blur. Then as the cards slowed down the subject began to identify the cards without any problem. However, the psychologists had a little trick up their sleeve. Some of the cards were altered to make them incompatible with the standard for playing cards. For example, the ace of spades was red and the ten of clubs had nine spots. The psychologists wanted to know how slowly they would have to flash the cards for the subject to recognize the deception. And they wanted to know what steps the subject has to go through to change their “map of reality” to include the possibility that they had been duped.

Just as in real life the subject went through denial at first. They called off the playing cards with confidence even though the cards were altered. After another run through, the subject’s denial began to slip, at least unconsciously. They named the cards as if they were normal playing cards, but they had a puzzled look on their face. In a third or fourth run through, the subject noted aloud that there was “something wrong” with a card, but they weren’t sure what it was. With another trial or so, the subject correctly identified what was altered with one card, and could correctly identify all other alterations.

It appears then that Jasmine’s friends are in varying stages of expanding their consciousness to include the possibility that Jasmine is changing. The negativity is a common way that we respond to change. It’s as if denial will somehow keep the status quo so we don’t have to learn anything new or demonstrate a lack of skill. But eventually, if Jasmine is persistent in following her business dream, her friends will adapt. They will deny; then wrinkle their noses; then comment on how “something is wrong”; then laugh and get it. When they get it, they will either join her in support or move away to a reality more to their liking.

If you need a lot of approval to follow a dream, you are probably not an entrepreneur. Entrepreneurs rarely get approval in the initial stages of a project, when only they can see the spots on the cards. However, if the entrepreneur can hang in there, if you have done the research and you really believe in your idea, eventually your family and friends will back you. Most of the time they are not trying to hold you back. Don’t be so paranoid. They just need time to alter their perceptions to include the new possibilities you have created.

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Will your family business survive the death of its founder?


By Kathy J. Marshack, Ph.D., P.S.

The death of the founder of a business can take many family businesses by surprise. A strong willed entrepreneur takes advantage of an opportunity, builds the business to success, then dies leaving the family totally unprepared to continue the business. The business gets sold and the family legacy dies with the founder.

Family business owners are notoriously poor at planning for the future of their businesses. They literally act as if the founder will never die. They don’t think about the possibility even when that person is in his 70’s or 80’s. As a result, most family firms don’t live beyond the first generation.

Death is not an easy subject to talk about; nor is retirement, especially for rugged individualist and entrepreneurs or their families. But it a subject that needs to be addressed by all members of a family firm. Is the business merely a reflection of the founder? Is it his personal property? What part do other family member play, shareholders and stakeholders alike? Who will run the business after the founder steps down? When will the founder step down?

Answering these questions and others leads to the development of what is known as a “succession plan.” Even though it is tough to plan ahead to the day when you are no longer running the business you founded, it can be exciting and rewarding to know that your creation will live on and prosper under the guidance of a trusted family member. Equally rewarding is knowing that you have provided for your family.

While it is too late to work on a succession plan after the death of a founder, it is never too early to plan, even if you have no successor or just started your business or your kids are too young to even work yet. Succession plans can evolve over time to fit the changing needs of the family or the business or both.

At first, you plan may be nothing more that the understanding with your spouse that you both want the business continued after you retire. The initial plan my include provisions for how to groom the successor when one is chosen, for example. The key ingredient in all plans is that the stakeholders are communicating with each other about the need and that you are looking towards a healthy future.

When considering a succession plan it is best to enlist the aid of professionals who are knowledgeable about the unique needs of a family firm. Attorneys and CPAs can assist you in addressing the issues of estate planning. Management consultants can advise you about the most desirable business structure. Perhaps it is time to look at professional management, for example. Or perhaps your niece is better suited for he presidency than you son.

The toughest questions that need answering about succession, however, cannot be answered in an attorney’s office. The founder and his or her family need to break down the old barriers to talking about death and retirement. All of the old “skeletons” in the family closet need to be cleaned out. Emotions, biases, age-old grudges need to be vented, explored and settled.

Until the family can talk openly and honestly about how they feel about each other, they cannot make a reasonable decision about how to run the company. Like it or not, the family system or style is what really dictates how things will go in business. So understanding your family system and improving it contributes to a healthier business.

Just as with legal and financial decisions, the emotional or psychological aspects of succession planning usually require the assistance of a professional. Psychologist trained in the dynamics of families as well as the workings of a family business are best suited to guide you through the emotional process of succession planning.

The psychologist’s job is to meet with all stakeholders individually and in a group to discuss absolutely everything that can affect the succession plan. This is not a time to be secretive. The future of the business and you livelihood depends upon open and honest communication. Families who don’t plan ahead not only lose control of the business, they often have a myriad of other problems associated with the loss of the business, such as infighting, divorce, alcoholism, depression, etc.

A psychologist understands these kinds of “people” problems that are intertwined with business decisions. Their goal therefore is to help you create a plan that suits two purposes, 1) To ensure the success of the business, 2) To ensure the health and happiness of the family.

In order to accomplish these important goals family members need to face the tough issues that most other people avoid.

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Entrepreneurs live and breathe their businesses in everyday lives


By Kathy J. Marshack, Ph.D., P.S.

At one of our Entrepreneurial Couple Networking Breakfasts, Steven was trying to describe to a new member what it means to be an entrepreneur. “It’s like when you’re buying orange juice at the grocery store. I think twice about buying the more expensive brand, because I realize that every penny saved makes a difference for our business.”

There’s more here than saving a few cents. Steven is demonstrating the basic philosophy of successful entrepreneurs. It’s not really how much money he saves on orange juice that will make his business successful. The significance of his statement is that to be an entrepreneur, you must think like an entrepreneur. By considering the cost of orange juice, Steven is aware that he has made the success of the business a top priority. He thinks about the business needs even in the simple act of picking up orange juice for his family.

If you want to be an entrepreneur you must think like an entrepreneur. In other words you must have a vision that is bigger even than your business idea. Your business is a part of your life, just like your marriage and your children. It’s not a job you check in and out of. An entrepreneurial venture is a reflection of you, your values, your beliefs, your strengths and your faults. Even if you have another job to pay the bills while your business is getting going, the true entrepreneur does not think of his or her venture as a part-time business or a hobby. They live and breathe the business, day and night, week in and week out.

Yes it’s true that this kind of commitment can cause problems for the entrepreneur. They sometimes make no time for their personal relationships or their own health. But if kept in perspective the entrepreneur can find tremendous satisfaction in working at something he or she has created. Watching this creation grow, seeing it benefit his or her family, achieving a long dreamed of goal . . . all of this can be quite thrilling.

Interestingly Steven is not even the founder of the business. He is what I call a supportive spouse, the one who works at a job to provide the income and insurance benefits for the family, while his wife pursues the business venture. But Steven is thinking like an entrepreneur too. He realizes that as a spouse his attention needs to be focused on the welfare of the business every bit as much as his wife. Successful entrepreneurs frequently have glowing praise for their spouses, the people without whom they could never have succeeded. So not only do you have to think like an entrepreneur, but your spouse needs to think like one too, or at least be open to supporting your vision.

Entrepreneurship is not for the feint of heart. It is a tremendous responsibility to recognize that every action you take is related to the business and to the people who depend upon that business, such as you, your family, your employees and customers. When Steven considers which orange juice to buy, he is weighing all of these considerations. It may surprise you but entrepreneurs are not really risk takers. In fact they weigh all of their decisions very carefully. While they may be willing to go where the average person is fearful of going, they analyze every move to reduce the risk as much as possible. Because their venture is a top priority, and because they think in terms of the big picture, the entrepreneur buys the orange juice that is good for his family and good for his business.

If you believe you have what it takes to be an entrepreneur, ask yourself if you can do the tedious work of integrating your every move and decision into the template of a business venture. True entrepreneurs don’t even realize that they think this way. It is just natural for them to be whole-brained thinkers, with their heads in the future, but their feet firmly planted in the present. When they buy orange juice, they may not really think about the cost, but they are aware that time and money are precious, and that they want to use them wisely to accomplish their dreams.

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Couples can balance dynamics of decision-making process


By Kathy J. Marshack, Ph.D., P.S.

Have you ever wondered why the symbol for “Justice” is a woman and she’s blind to boot? Or another curiosity is that the statue in New York harbor, representing the United States of America is Lady Liberty. What is it that these female spirits represent? Why are women the symbol of our judicial system and the country as a whole? I think a partial answer may come from observing the growth of entrepreneurship among American women, both as solo entrepreneurs and as entrepreneurial couples.

Now that women are starting businesses in record numbers (i.e. three to five times the rate of men!) there are many more stories about startups that involve women entrepreneurs. Especially the Internet and telecommuting have opened an avalanche of opportunities for women. Women are also better educated than before and many are educated in traditionally male dominated fields such as business management, the sciences, and engineering. As a result we are gathering more and more information on how these women function as entrepreneurs and how they are different than men.

In spite of parity in education, equal access to financing and an Internet marketplace that doesn’t impose gender restrictions, there are a few male/female traditions that hold. When the owner is female you may not see much difference in a company, either with the product or the revenue. However, the differences between male and female entrepreneurs become more apparent when a husband and wife equally own and operate a company. Management, decision-making, even operations are powerfully influenced by these style differences. This can be an asset, of course . . . the integration of a male perspective and a female perspective. But often a husband and wife get stuck because they do not recognize the dynamic that is going on.

One of the most interesting of these dynamics between a husband and a wife who are both entrepreneurs is how they make decisions. One way I sum it up is that men make the first best decision, but women seek out the best-best decision. In the fashion of Lady Justice (where the blindfold represents impartiality), women want to look at all sides of an issue before deciding anything. They value everyone’s opinion in the process of moving toward a decision. They may have a strong opinion themselves, but like the blind Lady, they are willing to stay impartial until they have gathered enough information from others. Men on the other hand seek to move the organization along as swiftly as possible. Regardless of everyone’s view, men tend to value the efficiency of getting to the answer quickly. If a man has an opinion, dialogue with others is not always to merely gather information, but to persuade others toward his point of view.

How does this dynamic work when a husband/wife team needs to make decisions together? If they understand each other well, then the decision-making dynamic is powerful. If they don’t, then each party can feel very misunderstood. For example, if the wife is gathering information from her husband regarding some aspect of the business, then she may initiate a discussion with her husband. He often doesn’t hear that she wants to discuss the subject. Rather he hears that she wants him to make a decision. Therefore he tells her his decision and considers the discussion completed. She leaves unfulfilled because she wants to toss ideas around before a decision is made. Later when the husband’s decision is not carried out, the husband may feel frustrated because he thought a decision had been made. Sound familiar? It’s because women tend to have discussions and men tend to go strait to decisions.

When a husband and wife work together there is the potential to create a strong leadership for their organization. When a husband recognizes that his wife needs an impartial discussion with a variety of options before deciding, she feels understood and more inclined to move toward decisive action.

When a wife recognizes that her husband has a need to get things done as efficiently as possible, she can refocus her energy onto solutions, even if she would like just a little more discussion.

Lady Liberty represents this principle of the combined talent and energy of an entrepreneurial couple. That is, a woman was chosen to represent America rather than a conquering male warrior, because of the desire to represent our country as welcoming immigrants (i.e. “. . . give me your tired, your poor, your huddled masses yearning to breathe free”). Lady liberty is carrying a torch in her hand, not a sword, symbolizing the enlightenment of democracy that shines out to the world. She holds the Declaration of Independence in the other hand as evidence that we are all created equal. On her ankle is a chain that is broken, representing freedom from oppression. Yet the statue is enormous, representing strong and powerful leadership and even domination in the world.

In other words, when making a business decision an entrepreneurial couple can combine the wife’s strengths and the husband’s strengths, and may just be what the business needs to keep its competitive edge in the marketplace. Just as Lady Liberty welcomes immigrants, the wife can welcome a variety of options and possible solutions to a problem, weighing those options impartially just as Lady Justice does. Lady Liberty also represents decision making in that she is holding the Declaration of Independence or the law of the land, just as the husband’s strength is to get the decision made and follow it with action, as is implied by the sword that Lady Justice holds. In either case, whether it be the husband’s or the wife’s decision-making strategy, the goal is a fair decision, something both Ladies stand tall for.

To be sure many women entrepreneurs have the same decision-making qualities as men do. And there are male entrepreneurs who carefully weigh options before deciding. However, it is the interaction between men and women where you see the tendency to lean toward the more traditional roles. If you work with your spouse, you probably know what I am talking about. Now take this awareness and use it to the fullest to take your enterprise to a new height and enlighten the world with your success.

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Investing in yourself pays off in business, personal relationships

By Kathy J. Marshack, Ph.D., P.S.

“I feel like I’m always walking on eggshells around you!”

“I never seem to know what will make you happy!”

“Why can’t you make up your mind?”

If you have ever made these comments or heard them from others, then you know how exasperating this kind of relationship can be, whether it is a personal or business relationship. Never really sure where you stand with the other person leads to this problem. Either you are not being clear or the other person is holding back. And often the reason for the reticence is fear of appearing selfish.

Especially among women there is a fear that if she speaks up about her desires, or dares to put her needs first, she will appear selfish and unloving, or worse yet, aggressive. Not wanting to rock the boat, the woman holds back her own opinion, only later to find that her husband, coworkers, even employees are mad at her. I have had more than one entrepreneurial husband complain that he would love to know what his wife’s opinion was on the subject. Because he doesn’t know where she stands, decisions are unclear and projects are stalled.

A side affect of being “nice” but unclear is that the woman often develops resentments because she is not being recognized. These resentments grow and do not go unnoticed by others. Unfortunately others do not know why she is annoyed, but do feel as if they are walking on eggshells around her. If the spouse, friends, coworkers or employees are not able to cut through the communication problem, they may also begin to hold back for fear of an argument. Then no one knows what anyone wants or what is going on. Obviously this is not good for business relations not to mention the marriage.

The reason this problem is more common for women than men is that women are more concerned about maintaining balance in their relationships whether they work in a family firm or not. Unfortunately most women tire themselves out trying to keep everything in balance, when a few shakeups are in order. For example, in one study the researchers found that career women (including entrepreneurial women) are very reluctant to change things in their work environment if it will upset their spouse, their employees or their customers. Instead these women just do more and more and more to accommodate the wishes of others, growing more tired, annoyed and depressed as time goes by. While balance is a nice goal, it is not always the way to get there. In order to keep creativity alive, in order to grow a business (or a family) there are many changes and corrections that need to be made along the way. Maintaining the status quo may mean stagnation.

The best gift you can give people you care about and work with is to be clear with them about your goals and desires. Even if they don’t agree with you or don’t like your goals, at least they know where you stand. Nothing is hidden. The agenda is on the table and negotiations can proceed. It also may be that your difference of opinion is just what the system needs to be more profitable and productive.

Remember when you were a small child and got a new dress or a new toy or accomplished a new feat like tying your shoes? Weren’t you excited about the acquisition? Didn’t you want to share it with others and watch their faces light up too? Didn’t you feel proud? Those days have long gone and we have been socialized to hide many of our accomplishments and opinions because they may not be acceptable, especially if you are a woman. But it is very important to put your true self out there or you will confuse others and deprive them of your talents.

Here’s another way to look at it. Most people spend their paycheck and if there is anything left other, they may put it into savings or invest it. The problem is that there is usually nothing left over to save each payday. The advice of many financial planners is to put money into savings first and then adapt your budget to live on what’s left. With this latter method you are much more likely to actually save money and create wealth. Just as with saving money, it is equally important to put yourself first (or invest in yourself first). By putting yourself first, by letting people know what you want and who you are, you are investing in yourself in a way that will pay off tremendously. People won’t have to walk on eggshells around you. They will know what your talents are and how to benefit by them. You will surround yourself with people who appreciate you instead of people who need you to appreciate them. This creates an energizing flow between people, just as wealth invested, creates more wealth.

If you have a loved one on the Spectrum, please check our private MeetUp group. We have members from around the world meeting online in intimate video conferences guided by Dr. Kathy Marshack.
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