Family Businesses Aren’t Dysfunctional. They’re Disastrous

Introduction:

This week, Jay Goltz and special guest Cathy Caroll and talk about family businesses, with Jay asserting that they are even more combustible than most people realize and with Cathy offering some smart coping strategies. We start with Cathy explaining how her own experiences in a family business propelled her to write a book, Hug of War, and to become a family business coach. Why are family businesses so difficult? Well, says Cathy, it’s because you’re trying to combine a family mindset with a business mindset, which she says, is a little like “living in socialism and capitalism simultaneously.” Of course, she says, it also has to do with mixing love and money—“You’re just gonna get sparks”—and with the brutal challenge of transitioning from one generation to the next, when every decision can feel like a repudiation or rejection. Still, it was that stew of anxiety, resentment, and trauma that helped Cathy find her calling, which is to help others do in their family businesses what she could not in hers.

— Loren Feldman

Guests:

Cathy Carroll is a family business coach and author of Hug of War.

Jay Goltz is CEO of The Goltz Group.

Producer:

Jess Thoubboron is founder of Blank Word.

Full Episode Transcript:

Loren Feldman:
Welcome, Cathy and Jay. It’s great to have you here. Maybe we could start, Cathy, with you telling us a little about your own experience in a family business.

Cathy Carroll:
I’d be happy to. I actually grew up in a family business. My grandfather was the original entrepreneur in our family. And, to be honest, there was a lot of drama in my father’s generation. So when I graduated from school, I went corporate for 20 years. I started as an actuary, got an MBA, spent 12 years in the travel industry.

Loren Feldman:
Wait, I’m sorry, I’ve gotta stop you. Was that a deliberate decision to get as far away from the family business as possible? Is that what you’re telling us?

Cathy Carroll:
Yes, Loren, that is exactly what I’m telling you.

Loren Feldman:
I wanted to make sure.

Cathy Carroll:
Yes, you are dang right. So anyway, in 2009, I was a mid-level executive at United Airlines. And sort of like The Godfather, my father sucked me back into our family business. And I was really reticent about doing it. I had some concerns at a professional level. I had some concerns at a personal level. But net-net, I decided to give it a shot. My siblings and my mother were supportive. And it was a really interesting experience, to say the least. That’s how I got in.

Loren Feldman:
Tell us a little bit of how it went.

Cathy Carroll:
So my father and I are opposites at almost every level. If he’s about privacy, I’m about transparency. If he’s about disruption, I’m about calming. If he’s about raising your voice, I’m about whispering. We are sort of on the opposite ends of everything.

So as you can imagine, the tension that we experienced when we worked together was pretty real. And of course, at the time, I thought I was absolutely right, and he was absolutely wrong. And I was bringing in the countervailing energy that was needed in order to make the business function very, very well. My father is really strong at marketing. I was really strong at finance and operations. And so we just butted heads throughout the entire three years that we worked together.

Loren Feldman:
Cathy, can I stop you for one second? Could you tell us: He brought you in because he felt he really needed your help, right? And he pretty much gave you the keys to the business. And you kind of turned it around, if I’m remembering your book correctly. Am I right?

Cathy Carroll:
You are right. Yeah, he needed some professional leadership in the business. So a little bit of background about the business: It’s a rodeo-equipment manufacturing business. We make ropes and saddles and training equipment for team ropers, which is one of the eight competitive rodeo sports. And my father got into it shortly after my parents divorced and everyone in our hometown sided with my mom. So my father kind of reinvented himself as not the gentleman country club golfer, but really more the cowboy.

And fast forward a few years, his new close cowboy friends were running the businesses and super-talented, very bright people, but didn’t have formal business training and the businesses weren’t thriving. So he looked around and said, “I need to bring in a professional manager,” and decided to bring me in. Sort of a side story that I don’t mention in the book is that he hired a recruiter to find a professional leader. The recruiter ended up hiring me, and my father paid the recruiter $75,000 to hire his daughter. [Laughter]

Jay Goltz:
God bless those recruiters. How old is your father, at this point during the story, when he brought you in?

Cathy Carroll:
I would put him in his mid-70s at that time.

Jay Goltz:
Okay, so there was clearly also a succession thing that he had a problem with. It wasn’t just he needed professional help. Also, he’s in his mid-70s. He knew that he needed to do something for succession.

Cathy Carroll:
He did. Yeah, he did. It’s a good point. So that’s how I joined the business. And then, Loren, remind me of the question that you asked, because I think I got off track.

Loren Feldman:
Well, I was asking you about why you were brought in, and the business was struggling a little bit. You straightened things out, and it started performing much better. But then you ran into a problem with your father after that.

Cathy Carroll:
Yeah, I mean, there had always been tension in the relationship. But what really started to get south is when we had done a series of strategic planning sessions, and he was involved in every strategic plan and bought into what we were doing. We were executing on the plan. And suddenly, the general manager, who reported to me, called me and said, “You know, your father just told me to do the 180-degree opposite of what we= decided in the strategic plan.” And I said, “Wait, what?” And so I tried to sort it out.

And then another couple of weeks would go by, and the same thing. A different general manager would say, “You know, your father’s telling me to do the opposite of what we had all agreed to do.” And this kept happening, week after week. So after a few months, I said, “I think it’s time to talk to my father.” I got on his calendar. We actually met, and I said, “Hey, you’ve been talking about wanting to spend more time golfing, more time with your wife”—my parents had divorced, obviously, and he’d remarried—“and I’d like to help make that happen. Let’s talk about what success looks like. And then you can hold me accountable to results.”

And he said, “Are you asking to be the CEO?” My title was president and chief operating officer—and I said, “No, no, my title doesn’t matter. I just think we’re confusing the team, because we’re speaking out of two leadership mouths. And we need to really align with one strategy to support the execution.” And he said, “Absolutely not. I am the leader of this business, and everybody needs to know it.”

And that’s when I realized there was no room for me anymore. And I stepped out of the business, which was soul-crushing, to be honest, because I had really built an identity around being the family hero. You know, my siblings were really keen on me leading the business—most of them, at least—because they saw their inheritance slipping away. And they felt confident I had the skills to help support a more productive outcome in the family business. And it turns out the turnaround that we put in place was successful, but not from my father’s perspective. My father, I think, what was far more important to him than profits was having a relationship with his friends.

And I think what happened was two things. First, his friends started to call me a lot more than they called him. They were getting the leadership and the support that they needed, so they really didn’t contact him. And that challenged his relevance and his identity. And I think it triggered the memory of when he got divorced, and everyone in our hometown sided with my mom in the divorce. And this time, all of his friends were siding with his daughter. And that was too much for him to bear. Now, whether that’s actually true or not, I don’t know. It might have been a sense that he felt. I don’t think it was true. I think he still has great relationships with those folks.

But then the other thing that took place was related to me. Because when I was leading the business, my mindset was: I need to lead this despite my father to make it successful, even though he’s going to do everything to mess it up. So every time the phone rang, or an email came in, my mindset was: What does he need this time? Which is really not a very good partnership mindset with the CEO and the full owner of the business. So my ego was out front. I was in my own way. And it actually took me many years after I left the business to get to be able to see that.

Loren Feldman:
How did the business do after you left?

Cathy Carroll:
Well, Loren, that’s a good question. My father terminated every single person who I hired. And the business kind of slipped back to where it was before, sort of bumbling along. Some better years, some worse years, but really not thriving the way it had the potential to thrive.

Jay Goltz:
Does it still exist?

Cathy Carrol
It does. It does, and I’ll be honest. I don’t know much about it these days for one important reason: My father is actually suffering from dementia, and so he doesn’t have the cognitive skills to lead the business. He doesn’t have the cognitive skills to communicate that about business. It’s advanced enough that I don’t think he even remembers that he owns them. I mean, occasionally he’ll remember me when his wife says, “Well, look who’s here. It’s your daughter, Catherine.” And then he’ll say, “Hello, Catherine.” And then he’ll encourage me to talk to his wife. It’s a pretty advanced stage of dementia, so he doesn’t provide us any information.

Loren Feldman:
So, I guess, two questions: One, what did you take from this experience? What do you think the lessons are? And two, how did you make the leap from that to being a coach for family businesses?

Cathy Carroll:
So first question, gosh, I learned so much that it’s even hard to say in a simple podcast [episode]. At its root, I think I learned that family business leadership is double-black-diamond hard compared to leadership in a corporation without family members. And it’s hard because all of my childhood nonsense was in the way. You know, I was in my mid-40s at the time when I was leading the business, and all my childhood injuries were just as alive then as they were when I felt them in the first place when I was a kid. So I think it creates an incredibly emotionally complex dynamic.

And when you think about family business, you’re really crossing two of the most emotional things on the planet: love and money. And when you cross love and money, you’re just gonna get sparks, you’re gonna get a ton of emotion. And neuroscience shows that when we’re flooded with emotion, our executive skills really diminish. We don’t have the same capacities to think, in creative, innovative ways when our brains are flooding with cortisol and adrenaline. And I think that happens quite often in a family business.

Now, there are some family businesses that don’t suffer all those challenges, but I want to meet who those people are. Most of the ones that I’m familiar with really face a lot of the challenges. I think another thing that I learned was how I lived in a story of being innocent and pure-hearted and well-intentioned. And I still think that I am, but the reality is, my behavior didn’t line up with my self-image. And it’s so common for us to live in these innocent-lamb stories about ourselves when our behavior doesn’t actually demonstrate that. And that took me a long time and a lot of humility and soul-searching to acknowledge and recognize. So those are probably two of the biggest reasons. And probably the perfect segue into why I got into this work.

When I left my father’s business, I had this newfound confidence that I could lead. And that was really exciting. I had always envisioned myself as a good number two, but not as a leader. But in effect, even though my father was CEO, I was really running the show. And I had this really genuine self-confidence that I could lead that I didn’t have before. So at first, I looked for a business to buy, but it was shortly after the financial crisis, and there was nothing really good out there. And eventually, all those paths kind of dried up. And I said, “What do I want to be when I grow up?” And I said, “I think I want to be an executive coach,” but I didn’t really know what that was.

So I applied to Georgetown University, to their leadership coaching training program, and I’m so grateful to have been accepted, because it completely changed my world. And I learned that coaching is not at all what I thought it was. I thought I’d get to tell people how to lead: “Just do it the way I did it.” That is not coaching. Coaches don’t have all the right answers. Coaches have all the right questions, which is a very different way to support the development of leaders.

Loren Feldman:
That’s true of podcast hosts, too.

Cathy Carroll:
Is it? That’s a great point, Loren, yeah. Great podcast hosts have great questions. I also learned that I needed a coach when I was working for my father. And I think my life could have been different if I’d had a coach. I think if my father had had a coach—honestly, I’m not sure he’s coachable. But even if my grandfather, two generations ago, had had a coach before the coaching profession even existed, we could have had a really different life outcome for our family. So I started to see the value of coaching, the impact it could have over generations. And I looked at my life, and I said, “Oh my gosh, this is my calling. This is what I meant to do.” And so I opened up my practice on July 1 of 2013. That was 11 years and two days ago, and I’ve never looked back.

Loren Feldman:
Jay, have you ever thought about hiring a coach?

Jay Goltz:
No. Well, yes and no. The reason that Cathy’s on the podcast is I had reached out to someone I knew who was involved with the university in the neighborhood and said, “You know what, I wouldn’t mind talking to somebody who gets involved with family business.” And they sent me to her. So I did, in fact, talk to her about the whole family business, succession-planning thing, which is the crux of what we’re going to talk about today. She’s giving you the perspective of being the kid and walking into the family business. And I have the opposite perspective of being the business owner and having the benefit—if that’s the right word—of looking at, I’d say, 10 other people I’ve known in business over the years and how did that whole family transition thing work out? And it ain’t pretty.

I only have one story, honest to God. I only know one person who took over the family business. It wasn’t from his father. It was from his grandfather, and it’s worked out beautifully. He did have some issues with his brother, but they worked it out. But I have six other examples of people who I’ve known well who—family disaster, nothing less than family disaster. Not talking to the brother. Not talking to the father. In one case, suing the parents, suing the father and the brother. So, it’s fraught with danger. And that’s what I want to talk about today, because Cathy obviously has more perspective than I have, because she’s dealt with a lot of businesses. So, I want to just see what the options are out there.

Loren Feldman:
Well, in fact, one of the things that I really liked about your book, Cathy, is that you do have a lot of great examples—sadly, as Jay suggested—of family-business dysfunction. As a coach, you’ve obviously seen inside a ton of family businesses. Can you connect the dots for us a little bit? Is there one main typical problem that you see over and over again? Are there lots of different problems? How do you think about that?

Cathy Carroll:
In my experience, there are a lot of different problems. But there are some themes that emerge. One of the most common themes—and this isn’t going to surprise anyone who’s listening—is how hard it is to actually step out of the leadership role. It’s a real challenge to transition a business that has become a part of who you are to your children, or your nieces and nephews, or to anyone else. Because you’re giving up your identity.

And anytime someone makes a decision that’s different from how you would have done it, it feels like a rejection and a repudiation of your leadership, which can be really hard on the leader and the founder—particularly the founder. But regardless of the generation, anytime you have a really strong identity attachment to the business, that letting go is brutal. Think about it from a trapeze. You’re swinging on a trapeze. You’re having a lot of fun. And then somebody’s asking you to let go and grab the next trapeze. But there’s no bar in front of you. There’s no trapeze bar to grab onto. So you’re like grabbing at air, going, “Wait a minute. What’s going on?” And you feel like you’re falling. And hopefully, you fall into a net that’s gonna help you.

But it can be a really fraught time. Because quite often, the leading generation has a beautiful image of transferring the business to their children, and it’s really this romantic ideal. But when it comes to the rubber hitting the road, that transition is really hard. And so instead of thinking about it as passing a baton from one generation to the next, which is an event that’s like a one-time moment, it can be helpful to think about it as a transition over time, which creates the conditions for the rising generation to grow into and build the capacity to take on the responsibilities of leadership, and for the leading generation to find their purpose beyond their role as leader of the business.

Jay Goltz:
Okay, now, that’s a perfect segue. I’m gonna give you the complete other perspective of being a business owner. I have concluded, after looking at lots of businesses and being in business groups with businesses, that there’s three problems that are very common, which is why I think you’d agree with this number. You’ve heard 80 percent of businesses don’t get to the second generation. That seems to be true, right?

Cathy Carroll:
That data has been debunked, but let’s go with it anyway.

Jay Goltz:
Okay, more or less. It’s not 50 percent. It’s a large percentage of businesses. If it’s not 80, it’s certainly not 50. So whatever it is, here’s my observation. There’s three problems here: Number one, the kid is not necessarily wired to take over the business. Maybe they’d be a wonderful musician, a wonderful school teacher, a wonderful lawyer, doctor, stockbroker. They just don’t have the innate skills or mindset or stomach to run the business. And it’s just the way it is. A large part of entrepreneurship, I believe, is genetics. And some people simply don’t have the stomach for it. So that’s the first problem.

The second problem is, Loren, you said dysfunctional. That’s not even close. It’s not dysfunctional. It’s disastrous. I never understood, and now I do. The damage that can be done by bringing your kid in with long-term employees who have given their heart and soul to your company is far more than eye-rolling and nonsense. It could be super serious. Key people could leave. It could be throwing a monkey wrench into the engine. And then lastly, I don’t know that you’re doing your kid a favor. Maybe you should find something, maybe help them ease into another profession or something. But like, you think you’re doing them a favor, and maybe you’re not.

So this is very tricky. And you spend your entire career doing business, and let’s say it’s like playing basketball. You’ve got your team. And then all of a sudden, you’re playing basketball, except you’re wearing rollerblades now. So now while you’re playing basketball, you have to worry about falling and cracking your head open. That’s kind of what it’s like. You’re gonna go from all business to now, all of a sudden, you’re not bringing one person in—there’s a fallacy. You’re bringing in a lot of people. Now, you’re bringing in the kid, the kid’s mother or father—meaning your spouse, or your ex-spouse—maybe the spouse of your kid.

Loren Feldman:
Jay, you don’t mean bringing them in literally, in terms of giving them jobs.

Jay Goltz:
No, but they’re involved. Yeah, no, I’m talking about—

Loren Feldman:
They’re involved indirectly because their opinions matter. And they talk—

Jay Goltz:
Absolutely. My lawyer just told me a story that he has a client where his daughter worked for him. And she got into a big fight with his secretary of 20 years, and he sided with his secretary. And now she left, and the wife is divorcing him. Her book’s filled with stories like this. This isn’t dysfunctional. This is disastrous, trying to get a square peg in a round hole. So I think my question to you, Cathy, is: How often does this work?

Cathy Carroll:
Well, I agree with everything you said, Jay. You’ve summarized some of the really intense complexity so beautifully, and I’ll put a slightly different language on it. It’s when you transition to that next generation. You’re wearing a parent hat and a boss hat at the same time, and those two hats are in constant conflict. And that’s what makes it so hard. The rules of the game of the family are different from the rules of the game of the business. And so you create this incredible strain in the leaders and in all of the family members. Because you’ve got these two competing right answers. You’ve got the competing right answer of business, which is about profits and competition and meritocracy. And then you’ve got these family right answers, which are all about fairness and sharing and unconditional belonging. If you think you can run a family business just like a business, I think it’s a fallacy, especially in the early years.

Maybe when you’re professionally run, like Ford, for example, is considered a family business, the motor company, and that’s run like a business. And I don’t know anyone at Ford, so I’m guessing—but I think for the most part, the family dynamics are at bay there. But for most family businesses that are not at that level of professionalism, you’ve got these really complex competing dynamics that are in play. Now, what the Ford family probably deals with is those dynamics at the family-office level, which is a whole other level of complexity. Because when you’re talking about a family business, you’ve got some of the same tensions as you have when you’re talking about a family office. Because, again, you’ve got the rules of the business and the rules of the family, and they are in competition.

So with all of that said, what does it take for it to be successful? It takes a lot of really hard work, I think. A lot of patience, a lot of tolerance for duality, for paradox. I talk about it in the book, and I call it polarities. It’s two opposing truths that coexist at the same time when you want to pick an either-or. Your brain wants to choose one or the other. And the reality is, in a family business, you have to hold two opposing truths together at the same time. And it takes a lot of, I would say, not just brain capacity, but heart capacity to do it well.

Jay Goltz:
But I want to hear you say: It doesn’t always work. Does it always work?

Cathy Carrol
It does not always work. It does not always—

Jay Goltz:
Okay, that’s all I wanted to hear, because I believe that to be true. And I’m going to tell you what really bothers me about books I read. They’ll say, “Oh, if you have family members who aren’t doing the job, you need to fire them.” That’s the entire analysis. Instead of: They’re your kid, for God’s sake. I think that maybe deserves another couple of sentences. It’s not that simple, for God’s sake. It’s your kid, and your kid paid the price in a lot of cases for you having a successful business. You weren’t home Saturdays and Sundays. You were constantly under pressure. So it’s not that simple at all to just go and dismiss: “Oh, if you’ve got family members who aren’t working out, you need to fire them.” Oh, great. It might be that simple, but it certainly doesn’t reflect the pain and angst of that whole thing.

Cathy Carroll:
Jay, I couldn’t agree more. I think you hit the nail on the head. And one of my hopes and wishes with this book is that the professionals who serve family businesses will get out of this simplistic thinking: “Just fire him, if he’s not performing. Get rid of them.” It’s way more simplistic than the reality is. It’s a complex dynamic, and too many of the professionals who serve family businesses oversimplify that complexity and make it, “Well, just run it like a business.” And that’s naive, in my opinion.

Jay Goltz:
Wouldn’t it be nice if these professionals who say, “Well, you just have to run it…”—if they said, “Listen, Bob, I know this is difficult, but I just want you to think about this. Are you sure this is best for your son or daughter? And on top of that, let’s just try to be objective here. Is there any reason to believe you’re going to be able to fix it?” Help them work through this in their head. Just don’t go throw out, “Well, you know, Bob, if this wasn’t your son, would you have fired him? Well, that’s the answer.” Okay, it’s just not that simple. This is extremely difficult and tricky, and requires both a business sense and a people sense. And I believe some of the quote-unquote professionals out there could be doing better with this subject. That’s all.

Loren Feldman:
Cathy, I really liked the line you had in the book about how working in a family business is like living in socialism and capitalism simultaneously, because you’ve got the business interests and the family interests. I don’t remember if it’s chapter one, but very early, you deal with the issue of compensation and how family members are paid. Are they paid at a market rate, or are they paid a family rate? I’m curious, do you see that as kind of a key dividing line that separates one family business from another? And is there a right answer or wrong answer to how family members should be paid?

Cathy Carroll:
Oh, I love this question. And this is chapter one, actually. So, let’s talk about it. From the business mindset, how do you pay your children? You pay them a market wage, duh! From a family mindset, how do you pay your children? “Well, you know, I don’t want them to think I love one more than the other. And I don’t want to create competition amongst my children. And you know, they’re all raising my grandchildren. I want them all to go to good schools. So I’m just gonna pay them all the same. Let’s just pay them all the same. It’ll be fine. And everyone will get paid the same.” Well, that works for maybe one or two generations, but by the third generation, it tends to fall apart.

And is there a right answer? There isn’t a right answer, because every family has to figure it out for themselves. And the way I describe it in the book, I say, “Well, let’s get really clear about what are the benefits of market pay? Talk about it.” Then each family identifies what those benefits are. And then, all right, what are the benefits of equal pay if you paid everyone the same? And you get everyone in the family agreeing to what those benefits of equal pay are.

And then you change the question from: Should I pay equal or pay market? And you change it to: How do I get the best of equal pay and the best of market pay at the same time? And it creates a completely different set of creative-problem solving, innovative thinking, that says, “You know, maybe I’ll pay them all the same base, but then we’ll bonus differently.” Or, “Maybe we’ll pay bonus the same, and we’ll give different bases, based on the market wage.” And there’s an infinity of different ways you can construct compensation that gets the best of equal pay and the best of market pay.

Jay Goltz:
Or, the fact of the matter is, many of these business owners are older. The fact of the matter is, they might have enough money, and it might simply be a case of: Okay, here’s what your salary is going to be. But the profit we’re going to split up is the inheritance. Your sister is going to get a portion. She doesn’t work in the business. Your brother doesn’t work on the business. And so, you get this, but then as far as, “Well, I want my grandchildren…” Okay, well, they can get the same percentage of the business as profit-sharing or inheritance, so it takes care of that problem.

And it is two different things. The fact of the matter is, I’ve got to think most business owners, if they’re successful, when they get into their 60s and 70s, they don’t have to pull as much money out. And for estate tax purposes of not paying estate tax, they’d be better off paying it out to their kids, but they can simply pay it out as the percentage of the family ownership. That’s all. And that takes care of some of the cash problems of it.

Cathy Carroll:
Yeah, I think, Jay, that’s a really common way to think about it. And what’s interesting is that family businesses have a system, and it’s a dynamic system that changes over time. So now fast forward to another generation. And you have a son who is an employee of the business and an owner. And you have a daughter who is not an employee, but she’s an owner. So if there aren’t regular distributions, what relationship does she have to this business? She may be a multimillionaire on paper, but she’s got nothing. She’s got no connection to the business other than distributions.

And so, what when you get into the conversation about, “All right, we’ve generated X million in profits. Are we going to reinvest it in the business? Or are we going to harvest it for the family?” Wrong question! You set it up as a polarity. You say, “Well, what’s the best part of investing back in the business? What’s the best part of harvesting? And how do we get the best of both?” I love that example, because in the short run, it may address one issue, but then it sets up the conditions for a different polarity that needs to get managed. And these tensions are constantly getting managed in different ways over time, based on the needs of the family and the needs of the business.

Jay Goltz:
In summary, it’s very tricky. [Laughter]

Loren Feldman:
Let me ask you about another situation, Cathy. I know someone who has a construction business. When this happened, he was probably mid-60s, three sons. He kind of decided to have a bake-off to see who would take over running the business with the three sons. But he decided to stipulate that the first thing you need to do, if you want to compete in this bake-off, is you have to promise that when you get married, you will have your spouse sign a prenup. The only problem with that was that his oldest son was already married. So in that case, it had to be a postnup, which proved to be extremely difficult. I’m curious if you have any reaction to that situation?

Cathy Carroll:
Yeah, that actually happens quite a lot. And it’s really challenging. It’s another polarity, big surprise. It’s doing what’s right for me and doing what’s right for us. There’s a tension between me and we or me and us. And what’s right for us, the family concludes, is to do this prenuptial or postnuptial agreement. And it makes all kinds of sense. There’s tons of justification for it. But that might not be what’s right for me, if I’m the older son and I’ve already been married, and creating the conditions for a postnup is massively disruptive to my marriage.

Again, it’s really, really hard because you’ve got two truths. It’s right to do what’s right for me, and it’s right to do what’s right for us. You see how that’s this incredibly complex tension that’s constantly being managed? It’s another example of a polarity that needs to get addressed. So how do you do it? What are the upsides of doing right by me? What are the upsides of doing right by us? And how do you get the best of both?

Jay Goltz:
And the problem, as a business owner, if you give equity away to your kids and they now part-own the business, and one of your kids gets divorced, you’re in the middle of the divorce. They’re going to want to appraise the business, and all of a sudden, you have your future ex-daughter-in-law or ex-son-in-law, their lawyer now has rights to go look through your books.

So that’s a whole other issue: Do you actually give your kids stock in the company? And how does that all work? And then, what about the ones who don’t work in the company? And then you’ve got one kid who wants to grow, grow, grow, and to your point, the other one would like to take some cash out so they could move or put their kids in a better school or whatever. And my whole point is: Is it worth it all?

Loren Feldman:
Wait, Jay, when you say, “Is it worth it all?” Do you mean starting and building a business? Is that worth it all?

Jay Goltz:
No. Is it worth it all to bring your kids, to go ahead and attempt to get your business to get to the second generation?

Loren Feldman:
If they want to come in, can you imagine telling them, “No, you can’t come in?”

Jay Goltz:
I think that happens. Absolutely.

Loren Feldman:
Does that happen, Cathy?

Cathy Caroll
Absolutely, yeah, 100 percent.

Loren Feldman:
Wow.

Jay Goltz:
And then there’s the whole thing about, you know, being in business requires you to be devoted to take care of customers. Some kids don’t get that. You’ve got to support and respect your employees. Some kids don’t get that. And you have to have the stomach for it. Business goes up and down. And here’s an interesting genetic piece of it: You know the old expression, “opposites attract?” Well, opposites get married. So the entrepreneur, whether it’s the wife or the husband, probably is independent and takes risks and has a strong stomach. And the spouse perhaps is the opposite of that.

Well, when you have kids, which one’s coming out of the womb? The one who doesn’t like risk or the one who thrives on risk? So like, there’s a genetic problem here. It’s not like you’re breeding horses, where you take the two fastest horses and put them together. I mean, if you have three kids, it is unlikely that all three of them—maybe none of them—are going to have the same stomach for business that the mother or the father has. That’s just simple genetics. And that’s partially why this whole thing is so fraught with potential problems.

Cathy Carroll:
Here’s the family hat thing. I’ve got three kids. And you know what, I’m a little worried that one of them’s going to really struggle in the world. So I’m going to create a really successful family business to create a safe place for all three of my children to thrive, especially the one who I’m the most worried about. And that can be really, really problematic, because you are undermining their ability to build their own self-confidence. If they know that the business has been created to create safety for them, then they live in a story of “not good enough.” I was never good enough. My parents had to give me this business in order for me to live. And it’s not uncommon for these businesses to go through it.

There was one I wrote about in the book where the business got massively disrupted by technology, and the son was in his 40s, raising his own children. And he was just so disappointed in his life, disappointed in the choice that he made to join the family business, disappointed that he was letting his kids down, letting his parents down, letting himself down, letting his wife down. He was miserable because he felt so much of an obligation to step into the business that the parents created for him.

There’s another client that I know. They have three kids. One is really not thriving. And he’s miserable, because he feels like his two siblings can’t stand him, because he’s not performing and delivering the same way his siblings are delivering. And he doesn’t know how to. It’s an industry he doesn’t really like. He doesn’t know much about it. He just wants to be a part of the family. He wants to belong. And he doesn’t feel like he belongs, and so he’s in absolute misery. And the rest of the siblings are miserable, too, because they’re sick of carrying his dead weight.

Jay Goltz:
Which is why I say: This isn’t about dysfunctional. This is about disaster. It’s way beyond dysfunctional. This is about ruining people’s lives. And I know, off the top of my head, six families that have been destroyed where they don’t talk to each other. One of them is a cousin of mine. When his brother just died a few months ago, his brother didn’t list him in the obituary. Like he didn’t exist. It’s lawsuits, never talking to him. The father dies. They have to have two separate funerals, because the brothers won’t be in the same room together. I mean, this is not an uncommon story. And I don’t know, I doubt that there’s as much out there in the world that could rip apart a family as badly as a family business.

Loren Feldman:
Cathy, you give a great example in the book—correct me if I get any of this wrong—but I think it’s a successful serial entrepreneur who sells his businesses, decides he wants to start one more, specifically because he wants to start a business for his daughter to take over. She brings in her husband, the father’s son-in-law, and it just goes all wrong. And the founder wants to fire everybody, especially his son-in-law, but he knows he can’t do it because he’s the father of his grandkids and everybody’s angry. Was there a resolution to that situation?

Cathy Carroll:
Hmm, it’s a good question. I actually caught up with him about a year ago. Yes, I think there was a resolution. The husband left the business and the daughter left the business, so I guess Jay’s right. [Laughter] Yeah, and they are going to sell the business. They’re going to sell it into a roll-up, a strategic buyer. So yeah, they’re not going to go down the family business route.

Jay Goltz:
So here’s the interesting part, which is right into the sweet spot of 21 Hats. An extremely accomplished, successful entrepreneur might not be equipped to deal with this. It’s like they’re a great golfer. They’re used to getting in the water and the sand, except now there’s a hurricane. They’re not used to playing golf in a hurricane. This is not something that the typical entrepreneur is equipped to deal with.

Because, to Cathy’s point, now it’s your family. It has nothing to do with the business, on some level. This is not something that most people have the skill-set, the mindset—and then you got your husband or wife going, “You can’t do that. They need a new house.” You might even hear from the in-laws of your daughter-in-law or your son-in-law. I mean, like I said, you’re bringing your whole family into the business, which is why I contend sometimes, yeah, find a different path.

Loren Feldman:
So Cathy, for somebody listening to this podcast who’s thinking, “Oh my God, this is all about me. I’m living that life right now.” What hope can we offer? I guess, to start, is there some sort of thought process that you suggest people go to to assess what their next step might be, if they sense they’re headed in this unhappy direction?

Cathy Carroll:
Yeah, fortunately, the consulting space in family businesses has actually matured quite a bit in 30 years. So there are some really wonderful family business consultants out there who can support families that are dealing with these complex challenges. Because as Jay said, it’s really hard. And when you bring in a third party who has not just experienced, but has some wisdom to access, it can be really supportive to facilitating a successful transition—if everyone decides that that’s what they want to do. And what’s beautiful about the consulting world is that they will support the family to not pursue the family business, if that’s what the family wants to do, as well. So I think, yeah, if you Google “family business consultants,” there are a bunch of them that come up. Do your homework and find the right people. I don’t do consulting. I’m a coach. So I’m really in the head and the heart and the soul of the leader.

Loren Feldman:
Well, what’s the distinction you’re drawing there, Cathy? What’s the difference between a consultant and a coach?

Cathy Carroll:
Yeah, good question. So consultants are professionals who are giving people a path forward. They’re giving people the right answer. They may do it in the form of asking some really good questions. But the end game is for the consultant to guide the family toward a solution. The coach is in the space of development. It’s development of the leader’s capacities to lead in the way that they want to lead. And it might be, for the leading generation, expanding their leadership toolkit. For the rising generation, preparing for greater leadership responsibilities.

I actually love working with non-family executives in a family business, because they are witnessing this complex dynamic. And it’s incredibly challenging. And there are often super talented people who have specific industry expertise that the family wants to leverage, but they might be derailing as a leader in the business. Those are some of my favorite clients to work with.

Jay Goltz:
So I would say in doing coaching versus strategy. These other people help more with the strategy, as to what are the different ways you can solve this, which makes perfect sense. The people that you’re dealing with, I presume, have made the decision: We’re going to pursue this particular strategy and help this person do that. And the other people are trying to figure out: What should our strategy be? And maybe it’s: Get the kids out of the family business.

Cathy Carroll:
I mean, at the oversimplified level, coaches have all the right questions; consultants have all the right answers. That’s an oversimplification. That’s a way to think about it.

Loren Feldman:
Actually, let me ask you a further question about that, Cathy. When I asked you about what somebody should be thinking about if they’re struggling with this, your first response was, “There are a lot of great family business consultants out there.” Why did you start by recommending a consultant, as opposed to someone who does what you do?

Cathy Carroll:
Well, because I’m shy and humble, [Laughter] and I don’t want to make it about me. No, I mean, that’s a good question, Loren. And I’d say, if a leader is really struggling with a decision, then a coach can be a brilliant place to go sit in the question and determine what is holding that person back from making it a choice. Coaches slow the conversation down. They poke around on the emotions. They try to help clients get clear on the definition of terms, and they’re really holding a container for the client to do the hard work. I know it sounds like goofy, coachie mumbo-jumbo, but that’s kind of how I see it.

Loren Feldman:
Jay, I think I know the answer to this question, but can you tell us what’s your general reaction when someone suggests to you that you hire a consultant to help you with a particular issue?

Jay Goltz:
[Sigh] I have PTSD from the half a dozen consultants I’ve hired over the years for whatever. And I’m sure there’s some wonderful ones out there. But I’m also sure there are some not wonderful ones out there who will start sending you $8,000 invoices every month. And I’m sure there’s some great people out there who have changed people’s lives who are great. But I cringe a little bit.

Loren Feldman:
Cathy, do you have any advice for how to hire a good consultant?

Cathy Carroll:
To me, the best consultants keep the decision authority in the hands of the client. They can make recommendations, and they can make observations and ask good questions, kind of like coaches. Coaches ask different questions, but consultants are asking more, I don’t know, maybe it’s more Socratic questions. Maybe it’s more, I don’t know… The coaching questions are more about the person, more about the leader, more about what’s making it hard, more about the internal dialogue. The consultant’s questions are more about the situation, the circumstances, what do they want, what are their choices, that kind of thing? What advice do I have? I’d say, interview a bunch and trust your intuition that you’ll find the right person.

Jay Goltz:
You made me think of what bothers me with this whole subject. And it goes with lawyers, accountants, everyone else, any professional you hire. It depends on your personality. I want the kind of person who’s gonna spend some good time looking at the situation. I want the person who’s gonna look me in the eye and go, “Jay, I think you’re kidding yourself. If you do this, this isn’t gonna work.”

Versus what I’ve learned, like, I’ve talked to accountants about this. They don’t want to lose the account. And they know that if they tell you the truth, you might get mad and blow the account. So they just don’t tell you. They just play along. And that’s a real problem for me. I want someone who’s gonna say, “You’re being an idiot. You’d better put some controls in for your inventory, or you’re gonna have a problem.”

Cathy Carroll:
I think it’s a good point, Jay. I agree that there are a lot of consultants who are scared to speak the truth for fear of losing the job. But the ones who I hire are the ones that don’t need the money, so they can speak the truth.

Jay Goltz:
Great. And I think this could help interviewing people to ask them, “Do you ever tell the client that, ‘I don’t think this is going to work,’ and see what they say?” I mean, if nothing else, don’t be naive. As in everything else, to your point, interview three or four of them and ask them tough questions. Ask them, “Tell me about a time where you told the owner of the business that you’re wasting the time, and they fired you. Has that ever happened?” And see what their reaction is. They might be dumb enough to go, “Oh, no, I would never tell a client that.” Okay, that’s all I need to know.

Loren Feldman:
Cathy, to kind of wrap up a little bit, do you have a success story that you could share with us, an example of somebody who struggled a little bit but figured it out and got it right?

Jay Goltz:
[Laughter] Let’s finish on the positive, yeah.

Cathy Carroll:
Yeah, I do. One of my very first clients, she’s just fierce. She’s just phenomenal. She was 27 when I met her, and she was locking horns with both her father and her father’s wife, which was not her mother. And I worked with her for about 18 months. Oh, she’s just a spectacular human being. She is now the president of the organization. She’s got four kids of her own. She’s rocking and rolling. She is taking the world by storm. And I just adore this person. She’s extraordinary in so many ways. And man, it did not look good for her when we first met.

Loren Feldman:
What did she do right?

Cathy Carroll:
She looked inside. She looked inside herself, and she got really clear on her priorities. And she found some humility. And she thought about the long game. She’s definitely playing the long game, and is very clear on what it’s going to take to get the success that she wants. She’s got Jay’s hunger, her passion for entrepreneurship, and she’s smart enough to make it happen. And she’s doing exactly that.

Jay Goltz:
Did you help at all in getting—because this is really interesting to me. So you obviously helped her, but did you help the father and the stepmother figure out how to work better together? Or was it all just from working with her?

Cathy Carroll:
It was mostly working with her. At one point, they asked me to facilitate a family conversation. And I said, “That feels a lot like therapy, and I’m not a therapist. So, I’m sorry, I’m not going to be able to do that.” And the father said, “Well, Cathy, I appreciate your honesty there, but we really only can use you because you’re the only person who my daughter trusts.” I said, “Okay, well, there’s another reason I can’t work with you guys as a family. And that is, I have a real problem with your wife.” And he said, “Well, now I know you’re the right person for us.” [Laughter]

Jay Goltz:
I like this guy. Yeah, good for you and good for him. That’s what I’m talking about. Good for you for saying that to him. God bless you. That’s the person I want to work with.

Cathy Carroll:
I ended up doing that work, supporting the family in that way. And it was actually, I think, a really critical piece of the puzzle. So, in retrospect, I’m glad I did it. And I did not offer therapy. I was just a facilitator.

Loren Feldman:
On that note, my thanks to Cathy Carroll and Jay Goltz—and to our sponsor, the Great Game of Business, which helps businesses use an open-book management system to build healthier companies. You can learn more at greatgame.com. Thanks, everybody.