Thomas Deans Interview
Thomas Deans Interview
Family Business Experts editors sat down with best selling author Thomas Deans Ph.D., to learn more about his ground breaking and what some would describe as a controversial book Every Family’s Business.
FBE You have caused quite a stir among family business consultants with your new book Every Family’s Business. What’s all the fuss about?
Thomas Deans When I was president of our own family business I was a voracious reader of books on family business. All of the books had a natural bias towards perpetuating the family firm –leading readers to believe that a second generation business is more successful than a first generation business, that a third more successful than a second. This obsession with pursuing the longevity of a business seemed so contrary to my family’s experience -- four generations who founded, operated and then sold their businesses. Generation after generation of our family has passed wealth and the knowledge of how to create wealth – never have we considered gifting an operating businesses to family.
FBE What is your major concern with gifting a business?
Thomas Deans I think the act of “gifting” an operating business is the main reason why so much family wealth is destroyed –why so many families destroy their relationships. When a founder gifts their business to his/her children, the children often join, and work in the business for all the wrong reasons. More importantly, they stop looking for the threats to the business and usually take the option of selling the business off the table – it’s always hard to sell a gift—equally hard to change a gift. Businesses that have been gifted are usually run like museums and more often than not fail to drive the massive change and innovation that is required for sustainable growth.
FBE So if gifting is a problem what is the solution to protecting family business wealth?
Thomas Deans I am convinced that the succeeding generation needs to risk their own capital in order to authenticate their ownership of the family business. I offer 12 questions in my book and many of these questions center around the subject of future ownership—the who, when and how ownership will change hands. When parents ask their children if they are interested in buying their business, the answer will give them a glimpse into the future of how the business will be treated after they have died. We know that only 3% of family businesses make it to the 3rd generation. I think gifting is the major culprit. When children risk their capital and purchase the business, they are freed from the past and can drive their vision of the business with authentic passion.
FBE That sounds like a pretty tough approach? Where will family come up with the money to buy the parent’s stock?
Thomas Deans There are a host of sources – one source, interesting enough, is the parents themselves. I have advised business owners to gift a small amount of cash to their children and at the same time let them know that stock in the business is for sale. It is remarkable how few children will elect to purchase stock. What often happens is children look at the business in a different way – they ask where that business is in its lifecycle? The question is also prompting children to assess their own ability to grow the business and their investment. I can’t stress how important it is, for founders especially, to never deny their children the experience of risking their own capital. It’s the foundation of business and the key to protecting family business wealth.
FBE It sounds like you are suggesting that every business must be for sale – always.
Thomas Deans You bet. Of the 100 largest firms in America in the year 1900 only 16 were in business 100 years later. One hundred years is four generations. Now this is the track record of the best managed, best funded, best branded companies in America – the chances of an average sized firm lasting 100 years is less than 1%. The smartest most successful family business dynasties have understood that businesses come and go, that the key to business is always probing the market for the peak of a firm’s enterprise value. The great business families like the Rothschilds never define themselves by a single business or brand –in fact, like a good investment portfolio the Rothschilds have pursued a wide range of business opportunities. Selling a business for the Rothschilds is never failure – even if the business carries their name – it’s their primary “goal”.
Operating businesses never offer themselves as sustainable legacies – but the wealth made and preserved by a family in a collaborative way is timeless. My book Every Family's Businessposes 12 questions for business families that will enable them to better understand to whom and when they should sell their business – if not to family to whom? So you see the subtle difference in my message is that I’m saying pass wealth never an operating business. I think you can see why so many family business consultants are in a flap. Instead of trying to fix family businesses, my book is trying to sort out who will buy it. When the future ownership intentions of a business are clarified, I believe virtually all of the potential dysfunction swirling around in a family business disappear and fast.
FBE How so?
The best example I can give is sibling rivalry. When parents ask all of their children if they want to buy the business – including children who aren’t working in the business, the parents are setting the family up for success.
Let’s say one child buys the business. The child that has taken a pass on ownership understands that if their sibling controls the business they will have risked their capital to do so –perhaps borrowed from the bank. The money moves from the bank to the shareholder child and on to the parents. On the death of both parents, the money from the sale of the business will usually flow in equal amounts back to the two children. Do you see what just happened? The child that has borrowed from the bank receives their inheritance and retires half of their bank debt, but owns the business. The child outside the business receives an inheritance to pursue their own business or passion – an inheritance from the risked capital of the legitimate new owner of the family business. The parents have lined up the economic interests of all family members — there is no sibling rivalry, in fact quite the opposite — a sibling team is born.
FBE Fascinating! I think you have given our family business readers a flavor of your book. It’s an easy read and full of practical advice. Thank you and congratulations on your new best-seller.
Thomas Deans Writing Every Family’s Business was fun but not nearly as much fun as taking phone calls and receiving emails from business families who have used the 12 questions in the book to bring peace and prosperity to their family and their business.
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