Family Business Audiocast | Episode 43 | Richard Wolkowitz
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R. Adam Smith: Welcome to the Family Business AudioCast on LinkedIn. I'm R. Adam Smith, creator of this AudioCast series and a warm welcome to our live audience on LinkedIn today and for those listening also in the future. Today I'm pleased to host Richard Wolkowitz, founder of Xylogenesis and a global family enterprise corporate advisor, mentor and consigliere and former guest on this show. It's great to have you today.
Richard Wolkowitz: Thanks Adam. It's great to be here with you.
R. Adam Smith: Rich is a trusted family officer leader and advisor, as I落 mentioned, known for helping enterprising families and their enterprise organizations sustain continuity and wealth and growth across their current generation and multiple generations. He has decades of this experience embedded in founder led companies primarily, and he brings a sharp lens to the relevant entrepreneurial mindset that drives the family offices and their owners. And of course, the friction that can sometimes emerge as that mindset does evolve over the generations, as we discussed extensively on this podcast.
As founder of Xylogenesis, He acts as a trusted advisor and operator as an advisor or even a part-time operator to these families, navigating some of the complexities in their wealth creation and protection and also the legacy related to that wealth, both the soft and hard elements of that legacy, preserving the original spirit while also building those structures that support continuity going all the way down to next gen. And then going back, Rich actually began his career in the legal area of the White House and then joined a AM 100 law firm where he was a partner and chair of the hiring committee and moved on to various M&A and business and legal transactions, serving as outside general counsel and also a consignor to various enterprises, later joining his own family's third generation enterprise. And then he went on to manage different single family offices as a non-family leader. He also managed one of the larger global family consulting firms in the country. Earlier, he graduated from Georgetown University Law Center and goes on to University School of Law as well as University of Illinois, Champaign-Urbana and is a resident of St. Louis where I'm also from. So big shout out to St. Louis today. Today we're going to talk about how his background and passions and interests over intersect with his own clients needs in the management of their legacy and NextGen and also the specifically the founder mentality within these family enterprises. So Rich, we're happy to have you on Family Business Audiocast today. Thank you so much for joining.
Richard Wolkowitz: It's great to be here and participate with you again and see how your platform is absolutely lights out educational for all of us, families and advisors. Thank you.
R. Adam Smith: Yeah, it has to be holistic, right? Cover all the bases. So it's great to have you on our 43rd episode. Let's get started today. Let's talk about the mentality around this foundation of the founder. As we know, many family offices are founded by a founder, built by a founder. Some are not. Sometimes the wealth is created by a company that has gone through to be 2G, 3G, 4G and is not really involving the founder anymore. But for those large families that have a founder in charge, let's focus on them today and give some wisdom around this mentality. So, you know, why should families and advisors be paying closer attention to this founder's mentality in the context of the family office? Let's start there.
Richard Wolkowitz: Sure. It's such a great topic, Adam. So glad you defined it so well. And you're absolutely right, whether it's a family business, family enterprise, family office. This concept applies universally across the board because the common theme is we have family and we're trying to have generational continuity. And what I always like to say is that's our main goal. Generational continuity is our goal, but there's a modifier before that and that's healthy generational continuity. Having continuity for the sake of continuity without alignment purpose, everyone being together and join each other isn't the point. And this founder's mentality is a huge barrier that I don't think most people actually think about in order to achieve healthy generational continuity.
R. Adam Smith: Yeah, the healthy and continuity, they ideally go together. Let's walk through some of the key differences on how founders think and act relative to non-founders, you know, without a judgmental lens, but more of a practical, literal lens of how these mindsets show up in the leadership and management and direction, oversight, building, monetizing, culture within large family enterprises, especially if the decision-making, what it relates to, to navigating risk and growth, will cover legacy later in the call.
Richard Wolkowitz: You hit it on the head when we first opened up and said that the legacies we're trying to achieve are the result of founders and other people in the system working on both hard skill sets and soft skill sets. I like to call that the hard skill sets, the left brain work and the soft skills, the right brain work. It's the battle between the rational versus the emotional. It's the give and take between the objective and the subjective. And a founder's mindset really plays in the whole system because they're battling something as well as we're trying to toggle back and forth between making decisions on the objective, the hard skills, whether it's tax, legal, accounting, business, investments, wealth, insurance, banking, investment banking, and then all the things on the right side, which are family dynamics, communication, conflict resolution, philanthropy, and deep, deep succession planning. And so a founder's mindset looks at things in many different ways. And if we're not paying attention to it, it'll come into conflict with those who are not founders within the family. And we'll just call them family. So how, how does a founder think and act versus a family think and act? And I've identified nine different things that I work with families to understand those differences.
R. Adam Smith: All right. So let's go over the nine things, but don't give too much away because we want people to also call you and go deeper from the headline.
Richard Wolkowitz: That's great. And, and anyone can feel free to call, but my, my goal here is to help educate people so that they can try and self facilitate, but, just be aware of these things as you're, the founders and family are working with each other. And if you're a founder, stop and think like, is this me? And am I working with my family and how do I need to maybe adjust? And if I'm a family member working with a founder, you know, is this me? And how do I need to adjust? if we're very, just aware of the issue. We might just stop and think and place each other in the other's head and in the other's heart. And we'll really come to understand and work together. And this is, know, founder versus family is also analogy, analogous to leading gen versus next gen. And so let's just dive in.
The first is, you know, how, how do founders act versus family members? Founders as, as the very title is, is, you know, They act on their own many times. We're looking at the beginning of the process and we call it today startup and grandma, grandpa, great grandma, great grandpa actually had a startup. They were a founder and they did things by themselves. If you go at generation two, three, four, how do families act then? They work as a team. So right here, you've got a big difference between acting as yourself, making decisions autonomously, versus on the other hand today as a family, we're working together as a team, just in and of itself, how you make decisions come into great conflict with each other.
R. Adam Smith: You want to run through the nine high level and then we can sprinkle them in and maybe we can even do another podcast on the whole thing in the next couple of months.
Richard Wolkowitz: Sure. I'll run through the other eight real carefully. So the other is, the second one is how do founders think versus how do families think. Founders, because again, they're in startup mode and they're fighting, fighting their way through. They're fighting for credit for their first time. They're fighting competition. They're trying to get market share. They're just trying to survive. And so they're often very suspicious. Families on the other hand, once you get down the generations, they work as a team and they believe in trust. So you have again, suspicion versus trust in the way they think.
The third element is how are they exercising their entrepreneurial gene in a founder? They're very opportunistic in a family. It's very strategic.
The fourth point is how do they communicate? So founders, if they're very suspicious, right, they're going to be closed secretive, right? They're not going to be open book. But if you look at a family, how do they want to act? They communicate very transparently. They want open book all the time.
How do founders, number [five], look at their family? And founders will look at their family and ownership as very passive heirs. Again, they started up something and they're go, go, go. And they did it themselves. But once you get to successive generations, how do they look at ownership? Well, the family looks at it as they need engagement in ownership. So one, have passive heirs, now versus engaged and active owners.
The sixth point is, what is their mindset? And the mindset of a founder is that they improvise. They're very spontaneous. Again, they're entrepreneurs. And so they're acting as they go, as they feel, oftentimes with their gut. How does a family make business decisions? They want explicit rules and governance. And oftentimes they will over index. And this is where the battle begins on governance because they're trying to put controls in place because one person can make a decision. But as a group, the family has to have some sort of organized system for making decisions. Who's in the room to help make decisions and how does it flow from there?
The seventh point is, are you all in? Like what is your innermost being when you're thinking about your business, your family enterprise? or your family office. Founders are all in. They're enmeshed in their business, fully. They're thinking about it, dreaming about it, when they're eating and sleeping, it's all that they're thinking about. And again, it's a general stereotype, but that's, founder's mindset is all in, versus a family mindset, it's all differentiated, right? It may be that this is important to them, but they also have outside interests. because this isn't what they did all the time, all day, every day. And so again, you're going to have a very intense founder and you're going to have family members who look at it with that less intensity and that can drive conflict.
The eighth point is looking at the long term. Founders focus on wealth transfer, whereas families focus on values transfer. Again, We're battling two different things. If founders are thinking about wealth transfer and families thinking about values transfer, they both can run in conflict with each other without really talking about it.
And the last point to consider is how are decisions and management being made? Founders are very top down. Families are bottom up. So again, if you're sitting in a room with a founder in the family and we're trying to figure out how to go forward, you're often going to find a very strong founder who's going to say, this is what we're doing. And the family might wanna say, well, we need to get consensus.
R. Adam Smith: Well, that's a lot there. I mean, it covered many of the core pillars of our topics on the family business audio cast over the years for the hotspots for family enterprises and family offices. So I appreciate that, that, that hot list. And clearly you use those in your, in your consulting with clients on the operational and culture and human capital governance side. And inevitably they, they also impact the transactional side, which is where I focus over the years and advise some lead families on the transactional side, either preparing for them and all the soft power and these emotional organizational matters to prepare for major transaction. I actually spoke about that with your friend, Stacey, yesterday. So there's that transition from the hard power into the transaction. but it's based on the soft power and the subtleties of preparation, which gives back to communication, which gets back to trust, which gets back to the sort of the way the founders interact with the family ecosystem. And this mentality can cause real tension. It seems like a very complicated formula, but I think in the end, most of time it works out, but it can be messy. How does mentality evolve sometimes? talk about maybe how you've seen a shift over time and why does it shift?
Richard Wolkowitz: Sure. in a family, if you think about what a founder is, there could actually be more than one founder in the same family in multiple generations. And so what do I mean by that? And how does that happen in the evolution? So let's just say generation one, G1 starts out and builds a really nice business of $20 million revenue company. And then there's a transition occurs. And let's say G2 takes the business over and turns it into that $20 million revenue company into a $200 million company. And then generation three comes along and takes that $200 million company. And let's say it turns it into just for simplicity purposes, a $2 billion revenue company, which it happens within families. Right? So the $20 million company of G1 looks nothing like the G2 $200 million company. And the G3 has taken the same thing and turned it into a $2 billion company. So actually the evolution is, is that everybody in that system, in this particular example, could think that they're a founder. Technically, it's not meeting the definition of a founder, person who started it up. But when you look at the transformational differences between the 20 million, 200 million, $2 billion enterprise, well, you could say that they're really founders because they've had to reinvent the corpus and foundation of the system. And therefore, many of the characteristics that we talked about in the beginning, the nine different points, could actually apply to successive family members if they're not viewing that in the right perspective.
R. Adam Smith: Right. Communication is the key in the end. And effective communication takes into account many variables, of course, sociologically, psychologically, and the mechanism for that conversation to be happening with the founder slash owner and the non-founder family members. We'll talk briefly about that. We've talked a lot on the podcast about governance and like how the interplay between effective communication and the courage and the obligation to have communication and how that relates to the governance. Of course, governance can be different things. It can be actual fiduciary board of directors governance, or it could just be, you know, a committee board charter governance. Why don't you talk a bit about those layers of governance in terms of investment committees and advisory boards. These structures are really important, very useful. They're not necessarily essential, but how do you think about empowering this interplay between the founder and the family and creating useful mechanisms and constructs for communication?
Richard Wolkowitz: You hit it on the head. As you, as you know, me, I believe all roads lead to governance. Governance is the heartbeat of the family. And with respect to founders mentality and even founders mentality in successive generations, as we just talked about governance really is the key to kind of be the barometer, the regulator to make things even out so that once you're aware of how founder mentality is, how you act, how you think, how you make decisions, how you're all in. Governance really then can help, again, regulate those things. So setting up committees and a committee structure and having a board to have oversight and play a role in those committees is absolutely essential. And so many times when families have no governance at all, the question is like, where do you start? How do you begin? And really trying to understand what governance is as you talk through it with families. When you're up in a plane 40,000 feet in the air, and you look down at a family's governance, whether it's the family business, family enterprise, family office, really what governance is, is a reflection of the family's culture. So who should be in the room? Who should be making decisions? Who should be observing and learning and not yet making decisions? And who should be developing relevant skill sets in different committee structures so that eventually they can serve as a board member?
R. Adam Smith: Do you feel the boards slash governance are getting into technology, embracing technology and actually including AI and Zoom call recordings and transcripts like using Otter and Fireflies, et cetera, and actually getting into a embracing technology for their conversations. And then also do you feel like a lot of them are storing this information properly? I did see a stat which was kind of disturbing. I think it was something like 3% of family offices are comfortable or satisfied with their use of technology overall, something like that. wasn't a cyber, it was more technology utilization. So just a couple minutes on that.
Richard Wolkowitz: Yeah, so the tech stack within family offices is a whole labyrinth of choices, right? I mean, you're first looking at how do I operate and what's my operational tech stack? family offices that have the investments in wealth are looking for their general ledger, looking for entity monitoring, looking for reporting, looking for how all their cash flow is going to go, what their investment requirements are going to be, their co-investment requirements. And so just there is a whole nother to manage their wealth, their accounting, their investments, their trust, their entities. And then you move over to the cyber. And by the time you get down to it, you say, let's look at technology for the family to have a better communication capability. What we're talking about here. And by the time you get there, the families are almost burned out, to be honest. And in my experience, like, can we just take care of our business? We have to get our ERP system right for our business. Now we have to get our wealth and investments taken care of so we can have a single source of truth to understand really what is our net worth and what are our requirements to move forward. And then we have to protect it through cyber. And so by the time you get to the communication side, unless you have a point person within the family who's really gonna be the champion of it, which is really a requirement, the communication tech stack is the last to be thought of.
R. Adam Smith: I see massive potential for new AI enabled tech stacks to gather the disparate amount of information around the family office in a way that is useful internally, but also externally as you prepare for a governance change or transaction or merger or transition planning into the next generation. I think it's just starting second or third inning, both by independent platforms like the trusted family genre. But then there's new tech stacks that are more AI scraping based than I think the private banks, because they're larger, they're a bit slower in terms of compliance and tech building. But I think that the private banks are probably going to be putting a lot more money into the tech stack for the funds. Back to the founders drive, what are some of the strategies that you've seen work to instill the entrepreneurial thinking in the next gen in a way that is embraceable and not forcing the role play? the next gen. Let's talk about the next gen that actually wants to stay in the business. are some of those entrepreneurial themes or success cases you've seen for the next gen that wants to stay in the business with the founder? Let's exclude the next gens that don't stay in the business.
Richard Wolkowitz: In order to have that healthy generational continuity with the next gen, the first thing is that the founder needs to understand that their children or grandchildren are not copy paste of themselves, right? They're all different. They're all unique. And so that's why early on as early as possible. And so many families say, well, how early is it appropriate to start bringing and introducing my children into the business, into looking at the financials, understanding how many commas are there in the family wealth. And my approach is it's never too early. You have to do it appropriately and we have to sequence it in, but recognizing that each of the children or grandchildren, nieces, nephews, cousins, however the family structure is, it's not a copy paste. And one of the problems that families will make the mistake in is really not trying to tailor and customize the engagement of the family members, the next gen into the business. So one, starting early, as early as that can be. That's not an AI issue. That's not new tech issue. That's just common sense that goes way back in ages of including your children, including your family members into the business, not just coffee table or dinner table conversation, which can then be unhealthy because it monopolizes things, but find appropriate time and place. Have one-on-ones with the children, have them come in, do something on the weekend at breaks when appropriate, customize because not everyone is going to be the CEO. So begin to think what is the native genius of your next gen and how can they play a role that gets them excited and wants to have them want to engage, right? Facilitating that space where you're not saying come in, but they're saying, I want to be there. Let me in. so finding what makes them excited towards engagement is important. And then lastly, I think empowerment. Right? Just coming in and observing all the time and being told, this is what you're going to do. This is how we do it. This is how we've always done it is not going to have the next gen want to engage. So begin to think about ways. And this is again, governance about including them in decision-making in process to be part of the conversation and get their input. Because sometimes they can really offer a great deal, even if they're just beginning their, their career path. So again, don't look as a copy paste, customize it, engage and empower.
R. Adam Smith: The empowerment is tricky, I think, as well, because the expectations of entrepreneurial empowerment range, because have a wide range, especially when you're thinking about empowering to get ready to sell a company installing the son or the daughter and the professional expectations and also the psychological expectations of the Gen X generation versus the millennial generation, I find there's a big gap of expectations management and sort of role play between the two generations. You want to comment on that briefly?
Richard Wolkowitz: So creating individual development plans for every member in the family really will help them to begin to drive them towards a certain level of performance and confidence. And confidence is the key because when you grow up in these prolific families, prolific structures, they're growing up in the shadow of a giant many times. And you're right, if you empower them, that could have several different variations when you're growing up in this environment could make you want to be overly aggressive. I have something to prove. So I'm going to go take very high risk decisions, but I'm going to try and hit the home run all the time to sort of break out from the shadow of either my other family members or the principal. On the other end of the spectrum, you could have, when it comes to decision making, someone who's afraid to make a decision because they don't want to make a mistake. They don't want to take a risk because they don't want to do something wrong and hurt the enterprise or hurt the reputation of the family or undermine their future success. So you could have these two different spectrums, someone's overly aggressive and making poor decisions and someone who's not making any decisions for fear of making a poor decision. So that's where governance comes in and also having these individual development plans and surrounding them with advisors who can help them understand, here are the expectations. Like just start, you have to just start and set them up for hitting singles rather than a home run to begin with.
R. Adam Smith: Yeah, I think the fear of starting is challenging for all of us, particularly when there's multilayered complexities around the family enterprise and the strong egos and personalities and expertise. So I like that idea. I've seen the extensive work that you do. So I encourage some of our family office owners and their advisors, lawyers and accounts in particular to reach out to Rich at Xylogenesis and talk about what he provides. I'm big fan. Let's wrap up soon. So first of all, tell me what the favorite part of your job is at your, in your firm.
Richard Wolkowitz: Favorite part of the job is I'll tell you, there's nothing greater than seeing families become just better versions of themselves. I mean, that might sound corny, but so many families when I'm first with them, there's two types. There's the proactive family who's high performing and they want to stay that way. And when you see that performance go on generationally, that's incredible to me. But the real, real mark is for some of the reactive families who are somewhat dysfunctional, who have no communication, who are on the cusp of losing that healthy generational continuity, or they don't even have healthy generational continuity. And when, when clients say to me, Rich, we've had a breakthrough. And that's happened several times where they use that word breakthrough. That's when I know that the job I'm doing is really meaningful to me and meaningful to the families. It inspires me to keep going because the families don't rest after eight o'clock at night or on Saturdays or Sundays. And so I'm there for them whenever they are because families don't stop. So how can I stop?
R. Adam Smith: That's nice. That's very magnanimous and the beginning of you also very commercially practical. I admire that part of your business and enjoy working with you on some projects and ideas. Last item, let's make a shout out to the hometown for our listeners. St. Louis is one of those mid-sized towns, but it has a lot of legacy and very robust entrepreneurship and founder mentality. And that's actually one of the top 20 in the country in terms of 4,500 companies and I are both from there. Just maybe some last words on the spirit of St. Louis, heartening back to Charles Lindbergh. And we were talking about a founder today, you and I, just kind of give a shout out to that company, why it's in terms of fundamentality.
Richard Wolkowitz: Well, St. Louis is an understated community for understanding entrepreneurism, entrepreneurial [drive], and generational success. I'm a fifth generation St. Louisan. And as of now, two of my three adult children have moved back. So we've got generation six here and I'm sure my, my third will eventually and, um, the entrepreneurial spirit here, the creativity, the innovation, um, in St. Louis is absolutely amazing. The Midwest I find clients, uh, really like, uh, from both coasts, the thinking, the values, the culture, the drive, um, the pureness of, of how we approach things in the Midwest. And, uh, couldn't be more proud to have that. And I think one of the things that's lacking, and so for all your listeners out here, we need capital. And I think a lot of the businesses start here, they're founded here, they grow to a certain level, and then they get acquired by larger firms on the coast. And I think if the capital sources were here, I think there's a great opportunity to elevate the businesses and keep the Midwest founded family enterprises Midwestern. So I'm really proud of that.
R. Adam Smith: Last comment to you, Rich, been a great call. You feel like we covered some good points and it's great to have you back on the show today.
Richard Wolkowitz: Thanks, I thought it was a great conversation as well. I hope families and listeners really just pay attention to some of these key points. It's really going to help the family harmony and help drive better both left brain, the hard skill set decisions and the right brain decisions that need to be made. Just breaking down the barriers recognizing who you are and recognizing who else in the family and where they're coming from will really go a long way towards achieving healthy generational continuity.
R. Adam Smith: Thank you for that. That's a wrap. I would like to thank our Family Business AudioCast attendees today and our esteemed guest, Richard Wolkowitz. This is [R. Adam] Smith signing off. Stay tuned for the next episode of the Family Business AudioCast on LinkedIn.
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