If you are a business owner that stands to have a significant estate after your business sells, you might be concerned about the impacts of this potential windfall on your next generations. This concern is only natural. But it doesn't have to be this way. Let’s look at 3 applications of Empirical Creativity from Jim Collins and Morten T. Hansen’s classic book, Great By Choice and find out why.
Context: Empirical Creativity in Theory
Collins and Hansen build their case on three legs of the stool for Great Companies: fanatical discipline, productive paranoia, and empirical creativity. It is on this last leg of the stool that we are going to focus today. For those of you who have read this excellent business book, you know that the chapter begins with the advice to “Fire bullets, then fire cannonballs.” The theory is that since you are going to make mistakes and miscalibrated along the way, do so at low cost, low impact, and low distraction to the larger enterprise. Then once you have correctly assessed the situation, once you know what strategies will be successful, you can go big, you can “fire cannonballs”, so to speak.
Application I - Empirical Creativity in Practical Wealth Transfer
It is not only in business that owners must deploy empirical creativity. Many wealthy business owners are rightly concerned that the impact of their wealth as it hits the raising generations will be like a meteor, altering the course of their descendants’ lives. But there's no rule that says you have to give everything all at once. We'd encourage you to adopt the “fire bullets, then fire cannonballs” philosophy when it comes to wealth transfer. Here’s how it might look.
With cash, consider giving a small amount, and agreeing with the recipient on a rhythm of periodic updates on what they are doing with the money. If they blow through it, you have an opportunity to coach them. Let’s face it, few of the rest of us just walked into adult life with the wisdom of Solomon and the frugality of Mother Teresa. Your rising generation(s) are apt to make some mistakes. Let these miscalibrations serve as your tuition to improve and build a better strategy for future wealth, both built and inherited.
Application II - Empirical Creativity in Mentorship
If you’re thinking to pass on leadership in the business someday, engage the rising generation in business development discussions today, even if these conversations are not about your business. Encourage them to find entrepreneurial mentors. Chances are some of your colleagues in the industry would be honored to invest in your kids and grandkids, and might like you to do the same for theirs. Coach your rising generations as they develop their own businesses, or as they grow inside another organization. Be open about your failures and learning experiences when you were in similar situations or stages of life. We always say it’s great to learn from your mistakes, but it’s far cheaper to learn from the mistakes of others. Invite them to build on your learning experiences as well as their own.
Application III - Empirical Creativity with Patience
Finally, be patient. Set manageable expectations, both of what knowledge you can transfer to them as well as how fast they will pick up on it. Start early, keep the conversation going, and don’t panic when they mess up. The mistakes are part of the process. If you’ve structured your estate plan responsibly, you and your heirs will look back on these mistakes as cheap tuition in the school of life.
We hope this has been helpful to you, and if you know of others that would benefit from reading this or other articles relating to Exit Planning, we invite you to share these with them.
With that, we thank you, and we will see you for the next installment in the series!
Any opinions are those of Timothy Weddle and not necessarily those of Raymond James. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.
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