MAU 35 | The Psychology Of Business

 

The Psychology of Business is slowly but steadily being recognized as a distinct branch of study by larger bodies in Psychology, so the practice has been developing throughout the years. This field of study puts practices in businesses in focus, and studies what brings about these practices. Domenic Rinaldi is joined by Dr. Mark Sirkin, the Founder and CEO of Sirkin Advisors, who dives into this unique and interesting field to explore the best practices that lead to business success. Perhaps this can lead you to a new discovery about the path you’re meant to take for your business.

Listen to the podcast here:

The Psychology Of Business: Getting To The Core Of Business With Dr. Mark Sirkin

I had the pleasure of speaking with Wendi Ewalt and Lesli Chenelle about their experience being left to manage their father’s business after his passing. We helped Wendi and Lesli sell their father’s business, but it was not an easy process as their father had failed to build a succession plan and his daughters were left to deal with the aftermath, not having the skills or roadmap necessary to run the business. The research suggests that over 70% of business owners fail to properly plan for an exit or succession, but this interview hit home for me. Afterwards, I started to research this topic further to understand the psychology behind this major oversight by business owners, especially given that an owner’s business is typically their largest asset. Luckily, I came across the bio of our guest, Dr. Mark Sirkin.

Mark has a PhD in Psychology and advanced training as a consultant. He specializes in consulting with family and closely help businesses about their human capital and succession planning. He has built an impressive career for over 30 years helping countless companies. In February of 2020, he will become the President of the Society of Consulting Psychology, a division of the American Psychology Association. As if Mark’s background isn’t impressive enough, add to this his firsthand experience dealing with the fallout of his own father’s lack of a succession plan for the family business and the impact that had on him, his family and probably influenced some of his career decisions. I am very excited to unpack this issue with Dr. Sirkin and get educated on how to help people prevent this common pitfall. Mark, it’s such a pleasure to have you here.

Thanks, Domenic. It’s a pleasure to join you.

Mark, let’s start with a quick background around yourself. Give us a little bit more information about you and your training and your background and then we’ll dive into not just your family’s stuff, but maybe you can give some color on the previous interview that I did.

I am a psychologist who has specialized in working with businesses and families. That’s a relatively new area of psychology we call Applied Psychology. The American Psychological Association is in the process of recognizing that as the third branch of psychology and helps me and my colleagues in the society of consulting psychologists feel that we’re doing real psychology. It’s not mental health, although sometimes mental health comes into play. It’s business psychology with a real understanding of the personal dynamics and personalities involved in what makes businesses successful. In terms of family businesses, most people get it. Family businesses are a combination of personal stuff, family history, as well as business acumen. Especially when it comes to family businesses, that ability to understand both the passions and the frustrations of being in a family and the needs and exigencies that a business requires can be a balancing act that many people need help with.

A business is a living, breathing organism. It needs to be taken care of.

Many clinicians work with family businesses, but they approach them from a mental health perspective. Click To Tweet

It’s funny you say that. A lot of people think of that as an expression, but I’ve rewritten my book for a second edition, The Secret Life of Corporations. I believe that quite literally, those organizations are living, breathing organisms and my consulting approach reflects that.

The American Psychology Association is in the process of creating this. It seems like here we are in 2020, this would have happened much sooner. Businesses are now coming into the fore as far as that’s concerned.

That wouldn’t be a fair characterization. What we have was a limited number of tools, especially theories to approach businesses. Many clinicians work with family businesses, but they approach them from a mental health perspective. There’s a whole branch of IO Psychology, which is different from my division, where people have been getting in the weeds with companies for a long time now in terms of designing instrument panels, for example. Psychologists get involved in that. Organizational leadership is an area as well, but it’s never fully been given credit as a third force. That’s what’s happening and what’s new and exciting in my field from my point of view is that finally, the field itself is recognizing this is a unique combination of skill sets. Especially in the application of these consultants, they do have a set of tools and theories that they can use developed by psychologists and other professionals. We should be clearer about what those tools are, what our approach is and how it differentiates us from other types of consultants out there.

It sounds like a fascinating time to be in your field.

I like to think so. That’s certainly what I tell people.

I’m curious, how much of what happened when you were younger with your father’s business shaped your career?

MAU 35 | The Psychology Of Business

The Psychology Of Business: The American Psychological Association is in the process of recognizing business as the third branch of psychology.

 

As you mentioned briefly, my dad was a classic small business owner in Jersey. We had several offices. The business started out in lending and finance and morphed over into collections. We were the largest collection business in New Jersey at the time. He got sick suddenly and died soon after without any real opportunity to make transition plans. My brother was called down from Boston to run the business. He had no desire to do that. We were lost and with very few people to turn to. At the end of the day, I stepped in after my brother stepped out. We closed the business down, we sold some offices and sold them.

I had always wished that I had a consultant who had been working with us. The irony is I had recommended to my dad, even as a teenager, “Why don’t you get a consultant in there? Maybe they can help you straighten out some of these things.” Because he had been having personnel problems, and like most business owners, he never thought about the transition because he never thought about his mortality. There were no plans in place and we had to scramble and find advisers, sign people in the form of accountants and lawyers that could help us. We finally did okay. We could have been, in retrospect, done a lot better if he had planned a little differently.

You mentioned mortality. It’s probably very hard to sum up why over 70% of business owners don’t prepare for an exit. Is it around this issue of mortality? Is that a central theme for folks who failed to properly plan?

I think it is. If you want to get philosophical, there’s this existential fear that most of us have, but it’s complicated in the case of business owners. Because for many men, the business is their child. They almost think of it that way. It’s not about dealing with your own death. It’s about dealing with the fact that you’ve spent your life nurturing and growing this child. Number one, how do you transfer that information to someone else? Number two, how do you train that person or people to take over where you left off and grow the business, perhaps even in a way that you didn’t think of? You have a couple of things going on here. Number one is the whole business about dying. It’s a hard thing to talk about.

Number two, how do you do some data dump what’s in someone’s head, 30 years of experience? It gets put into a child or even a manager in a way that they’re going to run the business as well as you. The simple answer to that is that they won’t, but it doesn’t mean you shouldn’t try. They’ll do some things as well, some things worse, then maybe if you’re lucky, some things are better. That’s how the business grows. The fear is not so much of dying as it is of being out of control. Most family business owners I know are control freaks. I mean that in a good way. You have to be a control freak to run a business. They’re very complicated, some more complicated than others. There are lots of moving parts. If you’ve talked to a family business owner, if it’s a successful business, many of those guys are working from the minute they open their eyes in the morning to the minute they go to sleep at night, which is usually pretty late. They’re completely dedicated. They’re thinking about the business 24/7. Even in their dreams, they’re dreaming about the business.

I know that you read episode 25 because I had asked you when I first reached out because I thought that you could shed some light on this. We’re having a hard time connecting the dots. All that makes perfect sense to me is when Wendi and Lesli described for me the process that their father went through. He was diagnosed with terminal brain cancer five years before he passed away. In their words, he was meticulous about his personal affairs. He got everything pulled together personally. All the documents, all the account, everything that need to happen, he took care of. He did nothing as it related to his business. I was struggling with how could someone do such a meticulous job on their personal affairs? It means to me they must have reconciled on some level that they were going to pass away. Can you help think through what might have been going on there?

There are some insecure leaders who are tied to the image of themselves as successful business people. Click To Tweet

I can try. It’s a bit of a mind-reading question, but Wendi and Lesli’s dad attended to the easy things, as difficult as I realized they were. The insurance, the bank accounts, all of that concrete stuff. What do you seem to have trouble coming to terms with, and I find this in a lot of business leaders, is the importance of the human piece, the human connection, the management side of things. At the end of the day, you can have all the processes and all the resources, but if you don’t have the managerial talent to make things happen, you’re not going to be successful. With all due respect for Wendi and Lesli’s father, it seemed to me that he was not focused on the managerial talents required to run his business. Maybe he thought that it was simple, anybody could do it. Maybe on some level, he believed that Wendi and Lesli were not capable of doing it.

I do find a lot of hidden misogyny in old school fathers who are ambivalently passing on the business to women. Although I’m glad to say that’s changing, there might’ve been a bias, I’m suggesting, on the father’s part that he either didn’t want to give or didn’t think they could handle running the business. We can speculate, but those are the first things that come to mind. If I had been brought in or some of my colleagues had been brought in to help, the first thing we would have done was help him to identify his important people, see who was capable of running things and who wasn’t. If he stopped at one of the girls or both of them were able and willing to run the business, he should have started training them as soon as he got that diagnosis.

Let me give you an example. In family businesses and law firms, for some reason I find that it’s almost as if they woke up and realized on their deathbed or the doors were closing that they needed a succession plan. If you go to some of the big corporations in America, they start succession planning 10 to 15 years out. That’s how long it takes to transition leadership from one generation to the next. Family businesses very rarely do that. They think that people are going to absorb stuff by osmosis, but they never sit down and teach the successors what they need to know. That’s what was missing from Wendi and Lesli’s situation. That’s what I would have recommended or anybody would have recommended to this dad had he asked.

We were intimately familiar with that transaction because we did the deal. We helped them sell that business. There were people in that company who’d have been trained in certain aspects. Upon his passing, they could have taken over those responsibilities. There probably wasn’t one person who could step up to run it, but there was a collection of people that probably, if given enough time and training, collectively could have all stepped up and been able to run that business and take it forward. Not to say it wouldn’t have gotten sold anyway, but it would have gotten sold at us as a much stronger entity, one that could sustain itself rather than being a distressing situation, which is what it was.

Imagine the benefit of having put that team together early, letting them come together, letting them learn what they need to learn with the father there to ask questions of. I would have recommended that he take a little bit of a back seat and let people step up. Typically, in those situations, the natural leader will emerge that’s the best fit for the time. There are a lot of things that could have been done had there been a little more time spent planning and preparing people for the inevitable. I’m a psychologist, so I need to throw in one more thing because I think I see it more than I’d like to admit.

Going back to this notion that the family business or the business that the parent creates is something they’re extremely proud of and may be considered, in many respects, their greatest life’s work. I do believe there are some insecure leaders who are very tied into that image of themselves as successful businesspeople. Not everyone, but for some people, what better evidence of how great a business person you are if whoever tries to take it over fails miserably. While this is not a pleasant thing for folks to think about, I do think it’s part of the somewhat hidden or even unconscious motivation that goes into owners not preparing their children or other people to successfully run the business after they leave. In other words, secretly, unconsciously, they want others to fail, so their success looks even greater than it already was.

MAU 35 | The Psychology Of Business

The Psychology Of Business: At the end of the day, you can have all the processes and resources, but if you don’t have the managerial talent, you’re not going to be successful.

 

It sounds a little narcissistic, but I get what you’re saying. Their legacy, that’s it. Let me ask you this, Mark. In a lot of the businesses that we come across, there isn’t the next generation. We deal with privately held companies and more and more we’re finding that the next generation doesn’t want to take over. There isn’t that next group of managers. When we come across these companies, whether they’re in early formation, midstream or latter stage, we tell them that they should be building a plan. It doesn’t have to be a formal exit plan but some plan so that if something happens to them, the business can continue to operate. I would say probably 99% of the time, that advice goes ignored. People can’t wrap their heads around, “Why should I plan now? I have no plans to sell my business.” What we tell them is even though we’re an M&A firm, it has nothing to do with selling your business. It has everything to do with the preservation of your business should some life event happen. What advice would you offer to business owners out there who can’t seem to get off the starting block and do any of this type of planning? When do you think they should start doing it?

In Corporate America, best practices are 10 to 15 years out, so that’s the timeframe you should be ideally giving yourself, recognizing that very few folks do that. That’s the reality. It does take a lot of time. I understand it’s a challenge because you’re asking someone to put everything in their head, everything they do all day long and put it on paper and make a plan that does not involve them or their memory. It becomes a very daunting task. If I said to you or any professional, “What do you do all day? I want to understand your life,” you might take a deep breath before you could answer that question and it would take you hours, if not days, to put it all out there. I do think this is a great example of where consultants can be very helpful. Because a consultant or it can even be your attorney or your accountant here because they understand some of these parameters well too. You can start the process with a third party, a person who knows what questions to ask.

Going back to the psychological piece, it creates anxiety. Everybody knows they’re going to die. That’s a rational thing, but how many people rush out there and get insurance in their twenties when it’s cheapest? Most of us don’t. Even though we know not one person would say, “Yes, I’m going to live forever. I’m not going to worry about it.” Even though they know they’re going to need insurance, they don’t rush to get it because it’s an unpleasant thing to think about. It’s an expense. It’s an effort of time. In this case, where somebody is going to have to do a data dump on what they have in their head. If you can get someone who’s used to doing this who knows the right questions to ask, who needs to be able to focus on the financials, then focus on the business processes.

What do you do that brings money into the firm to understand that, understand the people, their strengths and weaknesses? Do you have a successor already on board or do you need to go out to get someone? Hiring a successor is not a bad solution but you can’t do it and then leave in a week. You have to do it and give them years to acclimate and accommodate and learn at the shoulder or at the elbow of someone who’s been doing it for a long time. It’s all fixable with planning. It’s just that people need to recognize that plans need to be made and not be intimidated by the unknowns that might come up. In a family business, it’s even more complicated because you have sibling rivalry at play. Fathers often feel they’re being asked to choose between children.

This is where it gets complicated and political because typically, mothers will join in. They have an opinion as to which child is more competent. Sometimes they will be more invested in taking care of the less competent child. They’ll want to make sure that there’s a place for someone who’s not performing. That’s a certain unique problem we see in family businesses. You can’t fire your son when your other son or daughter is performing very well, but yet you need to be able to have difficult conversations like that. The siblings themselves might have different agendas, not to mention the fact that their spouses and their kids might have certain agendas. Sometimes people get involved in family business because they want their children or the grandchildren of the founder to be involved. All of these things need to come out in the discussion. Otherwise, you have people making assumptions that may not be true.

That assumes people are willing to speak and when they speak, willing to be honest about their feelings and what they want. My experience has been a very complicated situation. Everybody’s coming at it with their own agendas and where the truth lies. We know it’s somewhere in the middle, but we don’t know exactly where.

You can't approach solutions if you're not willing to have difficult conversations. Click To Tweet

There’s truth and there’s truth. The truths that are facts are the truth that people can hear. Sometimes there were truths about other people that we need to tell them, but they’re difficult conversations. For example, let’s say your son has been in the business and you honestly don’t feel he’s capable of running it. He’s been there for ten years. He might even have ownership. Yet you feel strongly that this person is not up to the task. That’s a hard conversation for any dad to have. There are ways to do it, and again, professionals can be helpful here. Maybe you want to hire a coach, not the parent him or herself, but an outside coach to get the child up to speed.

There are a lot of different potential solutions, but you can’t even approach the solutions until you can have difficult conversations. That’s where the third party comes in because we can raise issues and force topics that might be uncomfortable and give people a chance and a space to speak to talk about what’s going on and to talk about whether they think they’re up to it or they’re not or they could do it. They’ve never been so good with numbers, so we need somebody a little more skilled in finance to help that person. The nice thing about companies or corporations is that they’re complex. We can fulfill certain functions by getting the right people on board. In other words, one person doesn’t have to do all of it. That’s sometimes where family business founders get stuck. Frankly, when they grew the business, they were the person that’s in all of it. Now that the business is bigger and more successful, there are rooms for multiple roles. The question becomes, “How do we figure out who does what job?” That’s an important discussion in and of itself, but it takes a little groundwork to get there.

When business owners come to you, what’s your starting point with them? What does the process look like when you first meet with them?

I think everybody has a slightly different approach. I’ve been learning about mediation lately because so much of what I do is mediation. There were some mediators who insist on getting everyone in the room immediately and won’t even have side conversations. There are other mediators who spend a lot of time speaking to people individually before they get everybody together in a room. There are many ways to do this. My approach is more of the former. I believe that everyone who’s a stakeholder should be in the room for an initial meeting to lay the groundwork, so we’re all on the same page as to what the consultant in this case is doing.

At that point, I then will break off and have individual, as well as team and group meetings with various people. The owner or the person who hires me is the person who sets the tone and I want to reinforce that even at the start of my engagement. Typically, as any consultant, you’re working for the people that pay you. What I like to conceptualize and get agreement about is that in this case, my clients are the firm. Not the dad, not the kid, not the mother, not the daughter. I’m there to help and represent the firm and I will do that by giving the best advice I possibly can. Individuals may not agree with what I have to say, but my goal is the health of the business. That’s how I remain an honest broker in these engagements.

That’s probably critical because if you can maintain that, then you can gain the trust of probably everybody in the room. They may not like it, but at least they know you’re acting from an impartial position.

MAU 35 | The Psychology Of Business

The Psychology Of Business: The nice thing about companies or corporations is that they’re complex. We can fulfill certain functions by getting the right people on board.

 

I’ll give you a good example of something that happened to me. I had been engaged in early discussions by the daughter of the man who had inherited the business from his father who is now in his 80s and was in the process of trying to unwind things. His daughter had been helping him and she was the one that contacted me because she believed strongly they needed family business help. There were five other siblings involved and they owned a good bit of property, but they hadn’t had a family meeting in 40 years because the older brother had taken care of everything and he sent everybody checks. As long as the checks were coming, everybody was fine. Suddenly, there were some issues and the family started fighting. They realized they had to have a family meeting. The daughter and the father kept calling me. I said to them early on, “The more I talk to you, the less I will be seen as an honest broker by everyone else.”

Unfortunately, that’s exactly what happened. We finally did get the entire family in the room. Things had gotten to the point where several family members brought their own lawyers. The business had their lawyers. We had family members, spouses, children, as well as attorneys in the room. There was a certain sense of, “You’re obviously working for X and his daughter. I don’t even want to talk to you.” I had failed, despite my best efforts, to represent myself as an honest broker to everyone, partly because they needed so much help planning the meeting that I wound up being close more closely aligned and seen as more closely aligned with one part of the family and the other. For me, my greatest tool, which is my objectivity, was compromised early on. That made it difficult to have a successful consultation. Although frankly, the family is coming together. They’ve reconstituted the board and they’re going to be very successful at unwinding this thing, distributing funds and moving on. It’s been a difficult year for everyone because of that.

This is such a complex and meaty issue. I had mentioned to you, we are about to launch a new business called K2 Adviser. It’s going to be all about helping business owners prepare for succession and an exit. This is one big piece of it. I would imagine people even taking that first step are going to need to talk to folks like you to reconcile that they understand what’s ahead of them and that this is an important step. There’s so much more to talk to you about. We didn’t even get to the human capital part of your business, which I know is a big piece of your business. I’d love to invite you back to maybe talk about that. If there were 3, 4 or 5 nuggets that you would leave our audience around succession planning, exit, the psychology of it and how to grapple with those issues, what would you tell the owners of businesses out there?

I think there are a lot of things. Number one to say that they are successful and they haven’t become successful by putting off difficult decisions. This is a difficult decision. You’ve started down the path, you’re not quite sure how and where it’s going to end. I would say the first steps on that path are critical. The first idea I want to put in people’s heads is to think about what unwinding the business might look like and find someone that you can talk to about that. It could be a trusted attorney, it could be a trusted accountant. Those are typically the professionals who are closest to the founder from outside the family or a business psychologist like myself, who at least has had experience and knows how to ask the right question. Starting the conversation, beginning to talk to people, how did you do this? What did you do? Who did you use? What did they tell you? That’s a great story.

The second story is do something. You’ve got to get some thinking about it to tell people about your concerns that you want to start putting plans together. I don’t think you should expect to have a one-size-fits-all solution and you’re not going to get family succession in a box, but it’s in the discussions that the solution that’s right for your business will come out. It’s essential to have those discussions. An outside party, whether it’s a consultant or an attorney or an accountant, could be instrumental because a third party hears things that people may not want to tell the owner. The owner has to realize by virtue of who they are and the position they’re in, they don’t know everything. People are not going to tell them everything. They may not be willing to be honest with them. That’s where you need a third party to suss out the concerns that people have, the strengths that individuals have as you’re planning what this organization is going to look like without you. You need to start implementing some of those things. Maybe it would require an assessment to see who’s got which strengths. Maybe it requires a conversation with the customers to prepare them for something like that. Again, it can go a lot of different directions, but nothing will happen until you start.

Mark, you mentioned earlier you’ve got a second version of a book coming out.

It’ll be the second edition of The Secret Life of Corporations. I added some chapters because this notion of businesses as organic is important. It leads to a lot of interesting insights and conclusions that I try to spell out. In addition to that, this whole issue of corporate ethics or corporate mission, what’s a business for. Family businesses might be one set of answers, but you still have to think about things like the people, the processes, perhaps the environment, all the considerations that people are now saying go into a business besides maximizing profit. Maximizing profit is great. It’s been an organizing principle, but it doesn’t create a fulfilling lifestyle. It doesn’t create fulfilling careers. Ultimately, owners have to think about that, whether it’s for their employees, their children or themselves. That’s the message that I wanted to get across. Human capital is a very important part of that because by attending to human capital, which brief definition are those are the assets of your company that go up and down the elevator every day. By dealing with the people what they know, their attitudes about the business, you can get a handle on what’s most important.

Maximizing profit is great. It's an organizing principle, but it doesn't create a fulfilling lifestyle or career. Click To Tweet

That’s The Secret Life of Corporations. Can people get that on Amazon?

I believe so, yes.

Mark, it’s been a pleasure to visit with you. I hope that we can visit again because there’s so much more I want to unpack. Congratulations on taking over as President of the Society of Consulting Psychology.

I appreciate that and it’s been a pleasure speaking to you. I look forward to our next conversation.

Mark, if anybody in the audience wanted to get in touch with you, how could they best reach you?

Through my website and my email, which would be Mark@SirkinAdvisors.com.

What a pleasure to have Mark here. I hope you got as much out of that as I did. This is a fascinating topic. The thing that I’m going to take away from this is that it’s hard as a business owner to think of the term succession or exit. There’s a finality to that. It brings up the issues of mortality and could in fact be the roadblock, the mental block to get you from doing the things to preserve your business. Just because we call it succession and exit doesn’t mean that that’s what you’re going to do. Having the plan in place though in case something comes up, a life event, so that the business can continue to operate is so important because chances are you care about all the people in your business. You may have family in the business and it’s the right thing to do for all of them, even though it’s a hard thing to grapple with. Hopefully, we’ll bring you more content on this topic as I learn more and we unpack what the psychology is behind this. If you would like to learn more about the process of acquiring or selling a business, please visit our website at SunAcquisitions.com or feel free to reach out to me at DRinaldi@SunAcquisitions.com. I look forward to seeing you again next time. Until then, please remember that’s scaling, acquiring or selling a business takes time, preparation and the proper knowledge.

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About Mark Sirkin

MAU 35 | The Psychology Of BusinessMark Sirkin is the Founder & CEO of Sirkin Advisors. He has been helping companies develop their people for over 30 years. He has worked with family businesses, start-ups, law firms, foundations, and public corporations to improve performance and results.

As both a business psychologist and formerly Founder and CEO of an information services company, he has experience both as a founding executive as well as being a consultant. He is known as a builder and leader of high-performance teams delivering consultation and training to executives, managers, supervisors, and professional staffs. He is an expert in the assessment, selection, and coaching of C-level executives to improve performance and teamwork.

Mark has a PhD in psychology and advanced training as a consultant. He is not only an experienced family therapist but has been a consulting psychologist specializing in family, and closely held businesses such as law firms, for over 30 years. His career has been spent helping people, and companies, develop their human capital. In February, he will become the President of the Society of Consulting Psychology, a division of the American Psychological Association.

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