Tom Deans

 
  • What’s Your Greatest Legacy? Hint: It’s Not Your Family Business

    What’s Your Greatest Legacy? Hint: It’s Not Your Family Business by Tom Deans, Ph.D     I was playing my regular Saturday morning squash game and had my friend two games to zero. I was only three points away from taking the match in a clean three-game sweep. But something happened. I started to drift and lose focus. To make a long story short, I flamed out and went down three games to two. The sting of defeat is always more acute when you’ve already begun to celebrate before victory is earned.   On the drive home I wondered how many business founders have always imagined that the surest succession plan – the sale of the business to their own children – is a slam-dunk, only to find out too late that their children love their jobs but hate risking capital.   The plan is to talk later   I also wondered how many business owners never really know how to broach the subject of selling the business to their kids. The issue feels so emotionally complex and dangerous; the best plan is to plan to have the conversation…later. Many business owners in my audiences express to me the sentiment that if their kids were “real” business owners they would make the first move and raise the subject of a buy out. Similarly, kids will say “hey, I’m waiting for the big guy to make the first move.”   I wondered how many families feel the sting of defeat, never experiencing what could have been a great transition because no one knew how to start what is perhaps the most important conversation of a business owner’s life.   The blunt truth is that too often owners never have the conversation. Life unfolds, and parents who are controlling shareholders become incapacitated and die. And then their family discovers that the owner has done what feels so utterly right: he or she has treated their children “fairly” and proceeded to gift, via the owner’s will, an equal number of shares to each child, irrespective of whether the children are working in the business or not.   What unfolds next is unpredictable and often wealth destroying. Children working in the family business can find themselves reporting to their brothers and sisters outside the business. And too often children outside the business are disappointed with the dividend stream and clamor for more. Many children on the outside looking in assume that their siblings working in the business are overpaid – not because they know this to be true, but because they find themselves awash with emotion about what the business is, what it was and where it ought to go.   Exceptional advisors force awkward conversations   Advisors can play a hugely influential role in sparking the right conversation among the family about the sale of the business – when everyone is still healthy and thinking clearly. When the answer emerges that there is a buyer in the house, what a magnificent event for the […]

     
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  • The New EBITDA: Emotions Before Interest Taxes and Depreciation

    The New EBITDA: Emotions Before Interest Taxes and Depreciation by Tom Deans, Ph.D.     Sitting in the departure lounge at LAX, I couldn’t help but overhear a conversation between an investment banker and his younger associate. I learned two things. First (and most business travelers can relate), it is amazing how cavalier people are about discussing confidential details in public places. The second confirmed something I had been thinking about family businesses for some time.   The older of the two bankers was whining about how he thought the slam-dunk deal they had just presented was now probably never going to happen. On and on he grumbled about the time he had spent running the numbers, lining up partners and generally bringing the deal to a crescendo, only to have the business owner change his mind about selling.   The investment banker was completely perplexed about why the offer, the numbers, the multiples that looked so good weren’t enough to entice the owner to do the deal of a lifetime.   It took everything I had to stop myself from leaping into the conversation and selling him a copy of Every Family’s Business (it wouldn’t have been the first time). But I exercised extraordinary restraint and settled back and listened to him talk about the clever structure of the deal, the tax that could have been saved and the instant wealth the owner would have secured if only he had been smart enough to take the deal.   Emotions are Squishy – Not the Stuff of Deal-Makers in Suits   The funny thing about listening in on a conversation is that the longer you listen the harder it is enter the conversation. So I bit my tongue and instead simply wondered how many other business brokers, M&A professionals and investment bankers expend such effort trying to bring deals to fruition only to have sellers back out. I wondered how an entire industry of intermediaries could so badly underestimate the emotional connection that owners have to their businesses, and also fail to understand how these emotions can scupper so much good work and extraordinary planning and lead the owner to ultimately destroy the business’s value.   When really bright finance experts hear the word “emotions” you can so often see their eyes roll back and the calculators shut off. Yet students of the greatest financiers of all time – deal-makers like Warren Buffett – know that these people get deals done by running the numbers and then engaging business owners in the one corner of their life where most number crunchers don’t go – their family. It is the rare rainmaker who has both the left and right brain firing on all cylinders.   Warren Buffett Buffett and other great deal-makers know that the sale of a business will typically result in a “liquidity event” that will leave owners with more wealth than they feel comfortable consuming. Most business owners accumulate wealth precisely by denying themselves consumption. Sellers will often kill deals, blaming a low bid price, […]

     
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  • Why Do Family Business Owners Often Die at their Desk? by Tom Deans, Ph.D.

    Why Do Family Business Owners Often Die at their Desk? by Tom Deans, Ph.D.   I was speaking to a friend who owns a successful manufacturing business and asked him when he plans to sell his business”. His response echoed something that I’m hearing more and more from business owners in my audience. “I can’t afford to sell – if I sell and take the proceeds and invest in this market, I couldn’t replace half my current salary”.   Of course the danger with this logic is that if unforeseen risk visits the business and it fails, my friend will neither have his salary nor the equity that he’s accumulated in the business over the past 20 years.   Misaligned financial interests of family members   But here’s the real problem. My friend, like so many, has other shareholders, namely other family shareholders who aren’t working in the business who want the sale proceeds now! His family dinners can best be described as a food fight waiting to happen. What to do?   What we do know is that doing nothing is a plan. Do nothing long enough and we know that a business owner will die at his desk. But where does the stock in the company go? Will it go to his or hers estate, to minority shareholders?   What usually unfolds is chaos especially when family is often left out of the planning loop. Financial advisors are doing a much better job these days of getting business owners to play the “what if” game. In fact there is a brand new breed of advisor brandishing a tough to acquire professional designation known as the Certified Business Exit Consultant — CBEC. I delivered a keynote to a recent convention of CBECs in Boston and they’re a rather impressive group of professionals committed to exit planning excellence.   The best advisors never stop reminding clients about the risks of business ownership   Asset allocation has forever been the first principal of sound investing. As investors near retirement, advisors constantly rebalance portfolios away from equity to income. The business owner who allows their high salary to cloud their thinking about the dangers to their equity in their business don’t need to travel Las Vegas to gamble – they’re already there!! Extraordinary advisors will keep this risk in focus for their business owner clients and work on divestiture strategies and timelines that meet the financial needs of both business owners today, their retirement tomorrow and the needs of surviving family.   Savvy advisors remind business owners that the sale process seldom unfolds quickly and even after the sale of a business, the new owners may either insist or welcome the seller to continue working and drawing a salary. It took our family 5 years to find the right buyer for our business and another 4 years to receive the full sale proceeds – that’s almost a decade from start to finish. Business owners in their 50’s, 60’s and 70’s often completely […]

     
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  • A Family Wired For Perpetual Dependence by Tom Deans

    A Family Wired For Perpetual Dependence by Tom Deans, Ph.D.     When the sale of a family business is all about a founder becoming wealthy and their children losing their jobs, you can see why so few ever put themselves in play and sell.   The CEO – the Chief Emotional Officer (Mom, and increasingly Dad) – just can’t stand to see the family pull itself apart. Killing the business with love has always felt like a better plan.   With a wave of aging business owners trying to figure out how they’ll fund their retirement, you can understand the temptation to simply throttle back on their day-to-day involvement and draw a salary while Junior runs the business until the final curtain falls.   Of course, as I’ve discussed in previous articles, with owners living longer, it’s improbable that Junior is going to hang around the business into his or her 70s, when Mom and Dad finally reach their 90s and hand over the reins of control – not operating control, I mean real control, control of the voting stock transferred when the last parent dies.   How About an Exit Where Everyone Makes Money?   But what if an advisor could frame the exit of the controlling shareholder as the day when all family members become wealthy? Far too often, death is the triggering event for the transfer of stock. Few children are offered an opportunity to risk their capital to buy the stock of their parents’ business at an early age. I recommend that when a child is 14, the parents and advisors begin the process of implanting the idea that the family business will be bought, not gifted, and that employment is different from ownership.   For a variety of reasons, the majority of parents signal that there’s no real or pressing need to recycle dollars in the family: “Hang around long enough, Junior, and all this will be yours – for free.”   Of course we know that nothing is ever really free and that while the ownership question is left hanging, there are as many underpaid children working in family businesses, as there are overpaid children. My experience on the speaking circuit is that few overpaid children ever risk their capital to buy out their parents. Why derail the gravy train? Parents who use their business to purchase and control family harmony do more harm than good and always pay the greatest price of all – a family wired for perpetual dependence.   Family Business Math   The dysfunction around the issue of compensation percolates and festers because the stakes have always been high. When Junior complains about low wages, some parents simply say, “If you don’t like what you’re paid, leave.” Emotionally and financially, it’s never been easy for a child to quit a parent’s business.   Child Quitting Over Compensation + Aging Business Owner = Less Inheritance For Junior.  You can see how family business math becomes really interesting when only one child working in […]

     
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  • Isn’t It Time You Bought Your Competitor Lunch? by Tom Deans

    Isn’t It Time You Bought Your Competitor Lunch? by Tom Deans       For me, business has always been about dominating the competition – not just beating them but seriously overpowering them. Personal enmity has never driven this approach but rather a kind of institutional loathing underpinned by the idea that there is a finite number of customers worth battling for. I have never sought my inspiration from business books, but rather from centuries-old classics like The Art of War.   One of the most surprising aspects of selling our family business in early 2007 was how effortless it was to bury the hatchet with the competitors who bought us. In some peculiar way I think our “dominate our sector” attitude made us oddly attractive to our competitors. “Attractive” may be the wrong descriptor – perhaps “irritating” better captures the essence of why they bought us. It would be awfully tempting to imagine that our purchaser was enamored with our technology, our marketing moxie, or our nimble turn-on-a-dime management style, but in moments of clarity it seems reasonable that they simply wanted us gone.   And so it was on a cold, gray February day in 2007 in a downtown Toronto skyscraper that we closed the deal. I remember my father – founder, chairman – being handed the check and making an inspiring, heartfelt and sincere speech. There were no quips about nailing the deal of the century, no comment about how much fun he was going to have golfing, traveling, and indulging his passion for his new vineyard – there was none of that.   Instead, I watched and listened to a founder methodically wish his acquirers well with his business. It was real, it was touching and everyone in the room felt it – the junior law clerk across the room shot a look to a colleague that told me she knew she had just witnessed something rare. Little did I know that six months later that poignant moment would help guide my pen as I wrote Every Family’s Business.   From Warrior to Poet   That short, powerful, emotional speech didn’t frame the deal as win/win. It was utterly devoid of spin, politics, and ego. It was instead a speech full of hope, promise, gratitude, and humility. Only a business founder who truly understood the essence of commerce, who understood the role of business, could have given that speech.   It got me thinking how utterly amazing it was for a founder to make the transition from warrior to poet. It got me wondering how many business owners will never get to experience that beautiful moment when a check crosses the boardroom table, a life’s work monetized, because for them business will forever be war. As long as the buyer of a business is cast as the victor and the seller as the vanquished, too many business owners will miss their exit and miss the opportunity to experience the bliss of being both – which is precisely what […]

     
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  • Family Business Owner Driving the Kids Crazy – Someone Call Security – Tom Deans

    Family Business Owner Driving the Kids Crazy – Someone Call Security – Tom Deans     Last month I was speaking at a convention in Vancouver and took a question from the audience that made me laugh, even though I’d heard versions of the question before: “How do I get my 85-year-old father to stop coming to the office and causing all sorts of disruption?”   Before I could answer someone in the crowd shouted, “Remove the wheelchair ramp to the office!” The place went crazy. Laughing uncontrollably myself, I tried to get the room back on track by sharing my own family business story.   Now we all know it’s the prerogative of business owners to work as long as they choose – it’s one of the great perks of owning a business: voting control = management control. The great casualty is most often the succeeding generation, who are forced to walk the fine line between respecting a parent’s right to work and maintaining responsibility for driving profits through innovation.   But sometimes those profits are elusive precisely because parents never, ever leave and change is discouraged.   Fortunately, there is a simple and often overlooked solution that can channel the abilities and desires of both generations while keeping the fundamental goal of making money in focus – it’s called the Honorary Chairman.   Honorary Chairman: Complete with Job Description   I still have a vivid memory of my grandfather’s last business card, carrying the title “Founder and Honorary Chairman.” I loved that title and looking back, I think he did too – the title and the role he carved out for himself was that of wise counsel. It was a job that in some peculiar way suited him, as the founder of a significant manufacturing business, perfectly – a job he was driving toward his entire career. He was a naturally inclined philosopher and contrarian who loved provoking debate – the “why” was always more interesting than the “how” for him. Most importantly, in the last chapter of his life this role was carved out, respected and resourced but was really limited to board meetings and special projects.   The idea of the Office of the Honorary Chairman – and the literal office – always remained a safe haven from the threat of a mundane retirement (code for being relegated to staying home with my grandmother). The title was not, however, a license to wade into the details of ongoing operational issues. Rather, it was a place and a space for the founder to think and offer historical context and principled counsel without all the background noise of everyday business issues that too often cloud judgment.   Interestingly enough, I watched my father do precisely the same thing when I assumed the position of president of his manufacturing business. Culturally, the notion of wise counsel has resided in all our family businesses.   Business owners should be encouraged to establish truly independent advisory boards. Your freshly minted Honorary […]

     
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  • Top 10 Reasons You Should Never Write a Will by Tom Deans, Ph.D.

    Top 10 Reasons You Should Never Write a Will by Tom Deans, Ph.D.   1. You have spent a lifetime working, saving and generally deferring consumption to fund your retirement. Now that your money has outlasted you, it will be awesome to see how the government divides your assets. Governments always make amazing decisions about other people’s money.   2. The idea that a Will simplifies matters for your family after you die is so overrated. Why deny your family that special moment when they gather at your funeral and one relative whispers, “I wonder how the jewelry will be divided” and another relative answers, “What jewelry?”   3. All lawyers are loaded – they make a fortune writing Wills. The rumor that they make more money representing families who battle in court when there’s no Will is simply hearsay.   4. When you write a Will and then share it with your intended beneficiaries, expectations may be set high. It’s much better to keep everyone in the dark, especially the one child who’s providing the bulk of your late-in-life care. Strong, dynastic families are built on secrets and pitting children against each other after you have died intestate. Fighting toughens children up and prepares them for the real world.   5. If you write a Will and share your dreams and aspirations with your intended beneficiaries, they will likely never work another day in their lives. People usually don’t work because they want to. Even billionaires who continue to work and start new businesses are usually faking it.   6. Some say a Will is important when you have young children because the issue of guardianship is addressed – you know, naming the person who will actually be entrusted with raising and caring for your children when you can’t. This is a tough decision – maybe the toughest decision of all, which is why you’ll want to avoid it at all costs. Let Lady Luck – and the courts – work their magic. Your kids will understand.   7. When you write a Will you appoint an executor who is responsible for carrying out your last wishes. But this denies your family the opportunity to debate the merits of burial versus cremation. This can be a lively debate, especially when everyone is grieving. Great families thrive on chaos, anger and regret; clearly communicated Wills and last wishes undermine this principle.   8. Wills often include Advanced Health-Care Directives and clearly outline the kinds of medical interventions you’d like when you can’t communicate. But here again a Will denies your family the opportunity to play one of the most satisfying guessing games ever invented. It’s called Resuscitate – Do Not Resuscitate. This game is best played at the hospital in front of the doctors, who will be fascinated to see who wins.   9. If you die (I say “if” because you may be the first to live forever) the grieving process is enriched when family hunts through your personal […]

     
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  • My Top 10 Tips to Shorten the Life of Your Family Business by Tom Deans, Ph.D.

    My Top 10 Tips to Shorten the Life of Your Family Business by Tom Deans, Ph.D.   I’ve certainly enjoyed more than my fair share of quality time on airplanes to contemplate some of the fascinating family business stories I’ve collected on the speaking circuit.   It’s pretty common for professional speakers to spend a little time with audience members who confess their stories and share details about their family firm fiascos after an event – typically during the book signing.   Sadly, most of these stories are stranger than fiction. Some people who share their tales are looking for a kind of absolution for their family business sins. But dispensing penitence is a task I’ve never done particularly well; it’s always my cue to send someone in the direction of the advisor who hired me so that they can receive the proper professional care they deserve and require.   Underlying these tales of family business woe is always personal tragedy on a scale that for me is unfathomable: estrangement between children and parents and between siblings, and physical violence that’s been known to include murder – and I’m not kidding.   On a lighter note, as I vacation in Spain recharging my battery before another busy fall speaking season, I’ve prepared a lighthearted list of the Top 10 Tips to Shorten the Life of Your Family Business. Read ’em and weep. Top 10 Tips to Shorten the Life of a Family Business   Tip #1 Invite all your children into your business as soon as they’re able to walk so that you can enjoy as much of their free labor as possible. Remember to promise them that “one day all this will be yours” and look closely for the excitement in their eyes. Those are tears of joy.   Tip #2 Always give the most important jobs to your eldest child (but only a male) and pay him (if you must) vastly more than your other children – this is how great family dynasties are built. It may seem unfair, but it’ll toughen some of them up and really set the stage for great Thanksgiving dinners for years to come.   Tip #3 Talk about your family business history often with your children and remind them that “we have always been (fill in the blank – shoemakers, dry cleaners, widget makers…)” and that this is all they will ever be. This will instill great pride and confidence that life is about tradition and not about pursuing their own dreams and definitely not about reaching their full potential. Talk about how Henry Ford should have followed in his father’s footsteps as a farmer and Steve Jobs in his father’s footsteps as a restaurateur.   Tip #4 Tell your children that the only reason you work so hard is so they will have a guaranteed job waiting for them when they graduate from school. Definitely do not let them work outside the family firm, for that will only build their self-confidence and […]

     
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