Family Business Audiocast | Episode 72 | Peter Moustakerski
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R. Adam Smith: Welcome to the Family Business Audiocast on LinkedIn. I am R. Adam Smith, creator of this audiocast series. As an entrepreneur, investor, founder, investment banker, and board leader the last 25 years, I'm fortunate for my many experiences within the family firm industry. A brief comment on why I created this broadcast: private companies are a passion of mine. Having grown up in a family of entrepreneurs and having engaged for two decades in deals, strategic transformations, investments, and boards with an array of fascinating family enterprises, family firms, and family offices, I founded this series to offer a useful platform for listeners to hear from veterans, academics, and leaders in the vast family firm ecosystem.
Whether you're a family business owner, building, running, or advising a family office, or just expanding your family office activities, I hope these conversations are useful and enlightening. Now it's time to turn our attention to our accomplished guest on today's episode. Welcome to the Family Business Audiocast on LinkedIn. I am R. Adam Smith, creator of this audiocast series, and a warm thank you to our live audience on LinkedIn today and for those listening in the future. I'm pleased today to welcome Peter Moustakerski, Chief Executive Officer of Family Office Exchange, or FOX, as we all know it.
For more than three decades, FOX has served as one of the leading peer learning and advisory organizations for families of significant wealth, family offices, and family enterprises. Peter, it's really lovely to have you here today, finally, on the podcast.
Peter Moustakerski: Thank you, Adam. It's a pleasure to be on your podcast. Thank you.
R. Adam Smith: Admire your work and the legacy of FOX a great deal. So Peter is widely recognized for his work in helping families understand the deeper challenges that accompany success, not just managing the wealth, but all the complexity, continuity, governance and leadership, and of course the flourishing of the long-term family enterprise, which FOX is known for as a very unique organization bringing families together. Peter's leadership in the thought and research communities focuses on many critical questions facing family offices worldwide. In particular, today we'll talk about how families become more successful across multiple generations as their wealth, enterprises, and the complexity continue to grow.
We cover this complexity extensively on the podcast, so today we'll explore this journey of the enterprise families and also the role of values and purpose in sustaining the continuity, and what distinguishes some of these families that thrive for generations from those that may struggle a bit under the weight of this complexity. So Peter, welcome again. We'll jump in here to talk a bit about you and your involvement in the family enterprise world. You have written extensively about this journey and also running FOX as well.
It's a very prestigious role. Maybe just talk a bit about your background and tell us a bit about FOX as well.
Peter Moustakerski: Yeah, thank you, thank you, Adam. Really an honor to be here and to be speaking to you and your audience. As you said, I've been involved in this space for over 20 years. I come from a mixed background of being an entrepreneur, being a corporate executive, being a management consultant, being a wealth manager, and of course being an executive in a single family office, which collectively have given me a lot of perspectives that are very valuable when I work with families, because all of these perspectives and these hats often have to blend or have to be exchanged on a daily basis as you deal with, as you said, complexities and realities that families and their enterprises face. I've been in the FOX community for nearly 20 years.
About 15, 17 years ago, I was leading a prominent single family office, and we became members of the FOX community. As I was a COO of that office and in that community, I found the kind of knowledge, the kind of peer base that I can approach without any other agenda, commercial, personal, political, or otherwise. The kind of resources and practical solutions that I struggled with on a daily basis as I was trying to meet the needs of my principal and their family. FOX has been, as you said, a trailblazer in that space, creating for 37 years this kind of community for families, their family offices, and the people working for the families, including the executives and the staff of the family office, to be able to speak to each other, learn from each other, and implement practical solutions.
R. Adam Smith: I'm familiar with FOX back to, I think, initially 25 or so, went to the first meetings. It's really wonderful to see the continuity of it as well. So let's talk about some of these stages that the families go through and the needs of the first generation, let's say entrepreneurial family, how it differs from the G3, 4, 5 enterprise. Can you just talk about that evolution in general, and what are some of the, let's say, the successful factors in that journey these days?
Peter Moustakerski: Yeah, we actually developed this thinking, or crystallized this thinking, in the last two years at FOX, primarily because we were, for the longest time, and I think as the whole industry has been, struggling to find the right segmentation. How do we think about families in segments? What are the right ways to group families to learn in buckets, like you would in any other industry or field in the past? People would look at it, grouping people by investable assets and size of wealth. That's not a very satisfying way to organize things, because the family's needs and behaviors go way beyond how much money they have. Sometimes we have looked at what generation is currently in control of the family enterprise, compared to when it was first founded. G1, G2, G5, et cetera.
Also a dissatisfying approach because a G5 generation can become de facto a G1 founder and start behaving that way. So we developed this thinking of essentially saying that families, just like people, go through a life cycle.
It's not the same for everyone. There's an adage which is useful, although misleading, in a family office space, that you've seen one family, you've seen one family, you've seen one family office using one family office. That is true, that the reality of every family is very unique. But that's also true when you would describe people. I am a very different person from you. But when we think about how to classify, learn, and examine, think about how a doctor is thinking about you and me.
They have frameworks of comparison that are based on established empirical observations, and often it has to do with our life cycle. So families go through a life cycle, and we've observed that there are roughly six stages, if we simplify life, that families go through, and we call them cohorts.
The first two stages have to do with the phase of the life cycle where the family is still very much a business family. The business is at the center of the identity and the collective activities of the family. We have an early stage, or founder-led business families, which is cohort one. And then you have the multigenerational businesses that have transitioned, transitioned at least once to the next generation, which then creates a whole set of different needs, being the second cohort, multigenerational business family.
The next phase of evolution often ends up being a family essentially growing beyond the business or selling the business and becoming a financial family. So the thing that binds them is the common assets, the common financial structure, money that basically they all either made or created or inherited. And those families, there's two stages there as well. The earlier stage, which we call newly liquid, is where the family is still just basically entering that phase, and it's an identity-changing phase where you're going from a business owner-operator to an investor, custodian, steward of assets.
And then there's the advanced stage of that, where you become essentially almost like an institutional financial entity that manages collectively shared assets and structures. And then there's a third branch, which can happen in parallel or after either one of those two branches, which is we call the enterprise, where a family consciously decides that their collective wealth is going to power many different activities. Not just business, not just financial. It could be philanthropic, could be community development, could be sports and entertainment, could be art, could be all sorts of other.
We call them enterprise activities, that different members of the family or different branches of the family are passionate about or want to invest their capital into. And then essentially the family office has to then support this enterprise phase, which also has an early stage and then a developed stage.
R. Adam Smith: Enterprise is the core of the podcast, and my perspective on the industry is that it's important and interesting to cover the entire enterprise. Just to pause there, if you could just share your views and just educate on the importance of the single core operational company for the family, and that often the wealth comes from a single asset, then it diversifies from there. If you could just opine on that and then keep going.
Peter Moustakerski: Yeah, I mean, again, we have articles and visuals that describe this thought leadership, but this journey, almost all of the time, happens. We have someone, Jay Hughes, who is very famous in our space, who describes the founder as the person who made matter out of energy. It happens with that founder, that business creator, who took their energy, creativity, and made material wealth and an enterprise out of it.
And often for many families, and for many families throughout their entire lifespan, they are bound together by that business. When they talk about their enterprise, they really mean the business. Often the family needs and the diverging pathways of family members that move beyond the business are treated as activities outside of the enterprise. The family office or the enterprise does not get involved. If someone decides to do movie production or decides to be an artist, that's their own kind of thing.
And they may support them a little bit financially, but the common enterprise is bound by the business. I think as the family matures, usually across generations, there's usually an inflection point. It usually happens when a founder passes away or formally passes control and responsibility to another generation. Sometimes it happens a couple of generations into it, because the second and third generation might be so entrenched in the business, so influenced by their grandfather or grandmother who started the business, that it takes a while for that identity to develop. But inevitably there's an identity shift between, okay, there's more to us than just the business.
That's a time where families collectively can decide, or just naturally evolve to either become just managers of money or have a more complex, multidimensional enterprise.
R. Adam Smith: Okay, we'll talk about complexity now. The irony is that success creates wealth, but it also creates complexity, because there's more money and more ego and more children and more things to buy and spend money on. It often creates the family office, as you said, as an administrative hub and economic animal, which then requires greater governance and so on. So talk about how the families manage this complexity, and also how they underestimate the complexity, of course, and maybe under-prepare for that complexity, and then some of the solutions around that complexity.
Peter Moustakerski: Yeah, I mean, I think the positive way to say it is that wealth creates resources and opportunities, ambitions, possibilities. And then when you act on those things, inevitably, regardless of whether you're doing it well or not well, even when you're doing it well, you're inevitably creating complexity. In the case of large, ultra-high-net-worth families with a lot of resources and possibilities, all the things that the family and the family branches and members can do together can create a lot of administrative, structural, financial, and other time-related cost and complexity. And another word for complexity is cost. If you're doing a lot of things, if you want to start buying private companies, if you want to do something in Africa, or if you want to do something with ocean exploration, or you want to be endowing medical schools around the world, those are complex activities across deep functional areas of expertise. And when you say to your family office that maybe was established to do your taxes and to create monthly reports, etc.,
to start helping with these things, the family office starts to burst at the seams. That happens quite often. It's not a bad thing, it's a good thing, especially if you think of these activities and the complexities they create as strategically important, that you're doing it with intention.
It's less of a good thing if you're just allowing yourself to do a lot of things in a disorganized way that then just creates cost and complexity, and then you become a bit of a slave of complexity. Then I think you want to manage that. I also think there's too much conversation and pontification around the exact size of the single family office that is rational or efficient, because it really depends on the activities of the single family office and leveraging of technology.
R. Adam Smith: But just in general, talk a bit about enhancing the complexity, if you will, with the importance of, of course, external vendors and advisors, and then also leveraging technology. Technology tools are really exploding right now across the accounting firms and Simple and Addepar and Trusted Family and so on, FamVault. So just talk a bit about mitigating that complexity for a couple of minutes, and the importance of technology as well.
Peter Moustakerski: Yeah, so the first thing was to acknowledge that complexity happens for good and bad reasons, and you have to be aware of it. The second thing is to then figure out if you can somehow measure and tame it, because otherwise you're just dealing with a kind of hard to define, hard to manage concept. We at FOX have been thinking about and practically developing tools to measure, benchmark, and eventually manage complexity for years. We now have over 230 families from our FOX membership who maintain what we call a complexity profile, a standardized complexity profile with us, which essentially measures a few, 43 to be exact, key factors that drive cost and complexity, and then allows them to compare themselves in a percentile fashion against other families and say, okay, the size of our family, how many generations, how many trusts, how many taxes do we do, how many jurisdictions we operate, and how many managers do we juggle, how many household employees, how big is the office, how much does it cost, et cetera, et cetera. We have 43 factors, and we have a quantitative view of complexity which can then be defined, can be measured, and again, it doesn't prescribe anything, it doesn't tell you you should do exactly that, but it does allow you to take a look and say, all right, it looks like on these factors that describe my family, I'm fairly simple.
I'm below the 50th percentile in terms of size, complexity of family, family structures. But if I look at my operational complexity or cost, I am at the 75th percentile. Why is that? Did I just allow myself to be inefficient and pile on things into my office and operations, or do I have a strategic reason why I've decided to overinvest in some of these things? I think that kind of intentional, strategic, and data-driven approach to understanding, measuring, benchmarking, and then managing complexity is critical, and it's something we encourage all of our families to be doing.
And then based on that, you can also look at, well, what does the world look like? You can start having some averages, some medians, some comparison between your peers. And again, not that, just because the average FOX family has 13 people in their family office, doesn't mean that you should have 13 people, and that with 35 people you're necessarily bloated, or with three people you're necessarily understaffed. But it does allow you a point of reference and other dimensions to look at, to say, why do I look like this?
Is that the right approach, and if not, what can I do to right-size?
R. Adam Smith: The next topic I like a lot, and I'm glad we're talking about it, is flourishing, and positive context of growing and enhancing and contributing, building a brand, building a legacy, and of course enjoying the wealth. Flourishing is a really interesting word. It's a good time to explain to people really what FOX is and how is it different than the other membership organizations in the world, as a longer-standing one. Just talk a bit about that and then jump into the mission around flourishing, allowing the families to flourish and supporting that journey.
Peter Moustakerski: Yeah, as I said, FOX is a community for families and their enterprises and employees to come together, to learn from each other, to compare notes, to find solutions to problems, sometimes just to find peer connection, and often collaboration. Commonly, some of these connections and some of these activities at least start around quantitative, expert topics, like, okay, what technology should I be implementing, at the par, should I be doing summit, like what should I be doing with my accounting systems, or where do I go hire a CFO?
So very operationally minded, technical in nature, needs which are things that families and family offices face on a daily basis. But over time and inevitably, the community and the members also tackle the bigger picture, more strategic, more qualitative topics around family purpose, unity, vision, governance, how we make decisions, how we educate the next generation. Are people happy and fulfilled? Are the structures empowering the family to move forward, or is the family struggling to live within structures?
Which is a question that, again, Jay Hughes has posed and continues to pose to the world we live in, and to the world that services families in general. And the word of flourishing, families, I have to give credit to Jay Hughes and his collaborators for putting it forth as potentially the ultimate objective here, because flourishing covers both the financial success, but also the personal fulfillment, happiness, and the kind of qualitative, hard-to-measure aspects of what it means to be successful and fulfilled as a family together, and for every member of the family. Families, as we all live in families, families don't measure themselves just on portfolios and assets and financial success.
Families are ultimately about shared values, happiness, the relationships between the members of the family, et cetera.
R. Adam Smith: What are some of the, let's say, the key characteristics of flourishing these days in larger families, the billionaire families, the big SFOs? How do you think they're defining themselves as flourishing beyond the size of the wealth?
Peter Moustakerski: Yeah, the first thing I would say is that the science of flourishing, so to speak, is still very, very early, maybe not even fully born. It's something that I think families and the most thoughtful advisors and experts who serve them and support them are starting to coalesce around being the ultimate objective, instead of optimizing your taxes or optimizing some other quantitative aspect of your wealth.
R. Adam Smith: Thank you, Peter, for that commentary on flourishing. It's, I think, at the core of the industry, of the explosion of wealth, and this great transition of wealth. Of course, I'm curious about your view on, like, what are these key characteristics of flourishing these days, outside the actual money itself? How do you think some of the bigger families are qualifying and feeling like they are flourishing in society and with their expansive wealth?
What are some of the things you hear?
Peter Moustakerski: Yeah, thank you, very thoughtful question. One of the most important things that I would want people to be paying attention to, as they think about everything they do, technical or not, in this field, and when I say people, I mean the families, the people who serve them inside the office, and the people who serve them as external advisors.
I would say, first, I would give credit where credit's due, that the flourishing term is something that Jay Hughes and his collaborators have put forth as one of the most important objectives for us to be focused on, beyond the financial objectives that the industry generally has been focused on for the past 30 years. Obviously there's been a lot of good work done in the qualitative field as well, but I would say that the so-called science, or practice, of flourishing is fairly young, and maybe even not fully born at this point. So I would say that we're very early in the stages of realizing that flourishing is the ultimate objective, and then starting to have common definitions of what it means to be flourishing as a family is also fairly young and early in the stages of evolution. But I would say that the most thoughtful families, the most thoughtful advisors and practitioners, generally refer to and consider flourishing to be a state of well-being that goes beyond the financial meaning of wealth, a state of general togetherness, happiness, purpose, fulfillment, that is manifested both at the enterprise, family-wide level, and by and large at the individual branches and people level.
And what we observe in these early stages of this evolution and knowledge of this part of our field is that families who first of all acknowledge that that is what they are focusing on, because often this is unspoken. Families are not commonly comfortable talking about some of these qualitative aspects of how we will be together, what it means to be happy, what's our shared purpose, what are the values of this generation versus the next generation. It sometimes feels fluffy, and they tend to focus a lot more time and energy on the quantitative topics of investments and taxes and things like that, and a lot less time on these other conversations. So the first thing is acknowledging that that is an important objective, and that it requires time, it requires conversations, it requires expertise, and it needs to be built into the objective functions of the enterprise. Jay Hughes and other experts would also argue that it needs to be built into the documents, legal documents.
Like when you say this trust is established for the purpose of the flourishing of the family, and what the family together decides is what will make them collectively happy and strong, should be reflected in the technical solutions.
R. Adam Smith: And just briefly on values, because values can drive the experience of flourishing. If the values are met, then people are happy and they're reflecting the mission of the wealth of the family office. But values also can become static or outdated, and also they need to take into account the evolution of next gen and children, different views on life and workflow. Just, can you just expand on that, the value system, and how that is important, but also evolves, and how does it evolve within the more complex families?
Peter Moustakerski: Yeah, I think what I observe as best approach, best mindset, best practice, is, well, first to know that we have to acknowledge that having shared values makes us stronger and binds us together.
It's easier to go forward that way than if we are not talking about or not doing anything on that. And then it's a combination of capturing the foundation of what got us here, which is usually the legacy emanating from the founders and the people who made the family and its enterprise great. The shared history, the shared heritage, the amazing creativity and energy that was poured into this enterprise, this shared activity. And then also at the same time, build a process to update, refresh, or to allow for these values to be adapted to new generations, or to add to these values. So you have to have the legacy and the future in the workings, in the workflows of the family.
There has to be conversations and activities that reinforce the legacy of the past and allow the members of the future to also shape their collective future values.
R. Adam Smith: And if the values are evolutionary, it seems, between the G1, G2, and the parents, the children, even the culture, if they're aligned and they evolve together, then there's more continuity. But I'm seeing, especially when there's a big sale and there's hundreds of millions of dollars at stake, I'm seeing there is friction, and there can be a difference in the generational values, in the sense that if the children don't feel heard essentially and incorporated, then they'll just leave. They'll just get a job somewhere or do venture capital, art, or hobbies, and they're not going to be part of the family office or the family company. Therefore, that brings a much bigger topic of next gen. As I say, often the next gen is not really about the children, it's really about the next gen within the company.
Peter Moustakerski: Yeah, absolutely. Next gen, whether you call them next gen, rising gen, or any other label, they're people just like the founders, and they have the same kind of needs and ambitions. Sometimes these labels are not helpful because they presume some kind of either baggage or responsibility or lack of something. But ultimately the healthiest thing to be doing is to make sure that, if there is enough obviously energy and propensity to stay together, because there's nothing wrong with people taking their separate paths.
It doesn't mean that every family, every family enterprise, has to stay together exactly as it was last generation or 20 years ago. But if they do decide to stay together, or they care about staying together, obviously empowering, preparing, and providing freedom and room for the rising generations to be themselves, to flourish, is the most important thing. When we survey rising gens in the FOX community, somewhat surprising, but shouldn't be surprising, topics bubble to the top of their agenda. One is, what's my role? They don't ask themselves, am I ready?
They're asking, what is my role, what should be my role, how should I fulfill myself in the family enterprise. And the second thing that's on their mind is, how can I contribute to the unity and happiness of the togetherness of the family? And interestingly, in more fractured families, we're more likely to see rising gens who want to see more unity than maybe their parents or grandparents experienced.
So that human experience is really important to think about, and even engineer, if you're a complex family.
R. Adam Smith: Okay, on next gen, let's keep on that for a bit. Like, what is really separating the success of next gen in general in terms of taking over the family business, or supporting family office, building the core operating companies? Let's put aside the fact that they're the children or not the kin or not. Just talk about what are some of the key factors of success of the next gen, let's say, transitioning the enterprise and the legacy of that enterprise.
What are some of those characteristics that stand out?
Peter Moustakerski: Yeah, I would say that there's two dimensions that are important, and that's true for anyone who's trying to take over and lead successfully, anything. There's a set of, let's call them quantitative, measurable skills and abilities that one needs to have and acquire over time. Unless you're a born natural manager or financial manager and investor, you need to acquire some of these skills. It's important for rising gens who want to, or are expected to, play a role, to acquire a broad and practical set. It's great to go to great business schools and a few executive management programs and things like this.
But being able to have worked, lived, and been successful in day-to-day environments that are going to be relevant to your work in your family enterprise or family office is one dimension. There's plenty of, although fairly fragmented, options out there for rising gens to choose from. The other dimension is the qualitative, and making sure that, and this is not just on the rising gen, this is on everybody involved, and it's as much on the current generation, the in-power generation, as it is on the incoming generation, to have an environment and a culture and a structure that supports that culture, that is focused on welcoming, empowering, and supporting the rising generation. That's not easy, because founders and charismatic, powerful business leaders have a hard time giving up control and passing that to the next generation. Parents have a hard time passing on responsibility to their kids.
It's just normal human behavior. There has to be a deliberate, intentional commitment, and then a structure that supports and holds everyone accountable to that commitment, including the people in power. I think that's really important. I think that intentionality, which we talk about and we hear at the Ultra High Net Worth Institute and other leaders in the industry, Martin Roll, Richard Wolkowitz, Christina Wing, yourself, Fred Damasis, all my guests on my show, that this intentionality is important, and to me it really links to the commitment to legacy, and really, which is part of, which is related to flourishing, is the commitment to legacy.
So it's just a very powerful true north, essentially, that is important to me, and I think to a lot of people, is to determine what that legacy is and pursue that with your passion and commitment.
R. Adam Smith: Intentionality you're talking about, and on that front, maybe talk about your optimism for the industry. What makes you optimistic and excited about the industry today? And that'll be our closing topic today.
Peter Moustakerski: Yeah, I mean, you had asked me kind of what worries me and what gives me hope. What worries me, that people will not pay enough attention to the qualitative, interpersonal relationship side of this complex industry, and focus too much on the quantitative, technical aspects, because that's the sure way of failing. We've seen people be very frustrated, and families being very frustrated.
What gives me hope, obviously, is families, just like everything in life, they rejuvenate with every generation. Every generation comes in and it's a new spring, and it figures out how to recover from the last winter. There's a lot of energy and a lot of strong values and capabilities that every new generation comes in with.
The best things families and their advisors can do is to surround them with the expertise, the resources, and supportive structures and cultures so that they can succeed. It's just like raising your kids, you can be paternalistic and top it down, but ultimately the wonderful thing that happens is that your kids become their own people, and they succeed outside of you, despite you, with your help, etc. So what gives me hope eternally in the world of family businesses and family enterprises, family offices, is that with every generation, there's a rebirth, and there is a new set of values, new set of opportunities and possibilities. And as long as you put in a structure that doesn't inhibit or alienate these new generations, you're set up for success.
R. Adam Smith: Yeah, I agree, that's great. Thank you for that closing reflection. Just finally, how should people reach you and FOX as well as an entity?
Peter Moustakerski: Well, thank you.
You can find us very easily at familyoffice.com, that's the website for FOX. Certainly connect with me on LinkedIn, I'm pretty prominent and active there. FOX usually comes up at the top of the Google searches if you're looking for family office stuff. So we are happy to connect with anyone who is looking for the kind of community and resources that we provide.
R. Adam Smith: Wonderful. Yeah, not only do you have the best URL, but you guys are the real deal for 30 years, so that's pretty cool to keep it going. Thank you for that.
Peter Moustakerski: Thank you.
R. Adam Smith: So I'd like to thank you today and our attendees. Thank you, Peter, for joining today. I think what stands out is this discussion of flourishing and its relationship to legacy, and that the success is really way beyond the wealth itself. Of course, it's this intentionality that he's talking about.
People, purpose, culture, leadership. We see that the larger families that are thriving are continuously aligned with this vision and structuring governance and values. I like some of the references to Jay Hughes' commentary as well, and thank you for discussing also the complexity factors and the optimism and tools to mitigate and enhance the complexity.
Peter Moustakerski: Yeah.
R. Adam Smith: Really great to have you here today. Thank you so much.
Peter Moustakerski: Thank you, Adam. I appreciate the opportunity to speak to your audience, and wish you and everyone who's listening a lot of success and a lot of prosperity and flourishing. Thank you so much.
R. Adam Smith: This is R. Adam Smith signing off. Stay tuned for the next episode of the Family Business Audiocast.
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