As many of you know, I do a fair amount of consulting with family owned businesses. One of the common issues I help business owners and their families work through is the sale of their business (either preparing to do so, or dealing with the results afterward). Recently, a friend who meets with a number of business owners starting to think about selling their businesses asked me to outline some of the key issues that I help families think through. Here is what I came up with:

Integrating Business Ownership Succession, Business Management Succession, and Personal Estate Planning. Most people don’t distinguish between ownership succession planning and management succession. This creates significant problems — especially when the owner wants to sell but the company doesn’t have the management ready to take over the company. Often we have to work to develop a “bridge plan” for getting an interim management team, so the sale can occur.

A second common problem is when the owners’ personal financial estate planning isn’t integrated with business succession planning. Business owners want to get their financial investment out of the company when they sell it, but if not done correctly, they can pay excessive capital gains taxes.

How will the sale of the business affect your family? The sale of a family business significantly impacts the whole family. This includes family members who work in the business and those who do not work in the business. There can be issues of “fairness” within the family — those who work in the business may lose their jobs (or the perks previously associated with ownership). But if they own some of the business, they can reap a large financial benefit while non-owning family members get nothing.

A secondary, but significant issue, can be the impact of the sale on the career development for succeeding generations. If the family has a large influx of money from the sale, this can create challenges (and disincentives) for career development for younger family members. How the sale is structured — and how things are communicated to the family — can help avoid these issues.

How do you decide how much money to give to family members? Key questions we work to answer are: How much is enough? How much is too much? In reality, we have learned these are not the most important questions. Rather, we have identified the key factors that avoid destroying family members with money.

What plans do you have to keep the family together in the coming years? Often families in business communicate primarily about the business when they get together. When the business goes away, many families struggle to stay together — they have no history or tradition for family gatherings outside of the business. So they need to answer questions like: What will be the basis for family interactions and gatherings? What type of communication process will be in place? How will you keep the extended family connected?

The most common “big impact” mistakes owners make when selling their business:
-Not involving their spouse in the process.
-Not preparing their children for managing the wealth they will be receiving.
-Not involving children’s spouses in the process.
-Not integrating the sale of the business with their personal / family estate planning, and paying unnecessary taxes.
-Not developing an adequate plan to finance buy-sell agreements
(between family members, or in the case of death).

The reality is: Most business owners and families need help both “thinking through” and “working out” a business succession plan. My advice to business owners: Don’t risk losing two of your most valuable assets you have spent years building (your business and your family) by making un-informed decisions. A little “pre-work” with a family coach can go a long way to saving a lot of heartache later on.

There is a relatively new field of social science (i.e. the study of social behavior) called behavioral economics. It has been around for about 10 years formally. And two of the leaders in the field (Daniel Kahneman and Amos Tversky) received a Nobel prize a few years back. As a psychologist, initially I had a bit of a cynical view of the field — largely because the idea of economists telling us about behavior patterns struck me as rather ludicrous (economists aren’t known for being very accurate predictors of anything.) But, ta-da!!, it turns out that most of the leaders in the behavioral economics field are actually trained as psychologists (Kahneman, Tversky, and Ariely).

In the past, I have written on the psychology of investing and also the kinds of errors investors make (for example, pulling out your money after the stock market has dropped, and putting it back in after the stock market has already rebounded significantly — sounds like the fall of 2008 and spring of 2010).

Recently, Dan Ariely, a psychologist and behavioral economist at Duke University has been in the news. He has written a new book, The Upside of Irrationality and it was recently previewed in Forbes.

I have his previous book, Predictably Irrational, and thought I’d share a few of his observations and conclusions which I think are quite applicable in our daily lives.

Just to whet your appetite, here are some of the chapter titles:

The Fallacy of Supply and Demand
The Power of a Free Cookie
The Power of Price
The Cost of Social Norms.

The premise of the book is that people do not make rational decisions — especially with regards to money (spending, buying, saving, investing). And further, that we are predictably irrational — there are patterns that we follow.

Let me share from the section entitled, The Truth about Relativity. The main point is that “humans rarely choose things in absolute terms. . . Rather, we focus on the relative advantage of one thing over another. . . We are always looking at the things around us in relation to others. We can’t help it. . . (w)e not only tend to compare things with one another but also tend to focus on comparing things that are easily comparable — and avoid comparing things that cannot be compared easily. . . We like to make decisions based on comparisons.”

Ariel then cites a series of experiments that show a number of principles:

1. People like to make decisions by means of comparing choices (what clothes washing machine to buy, what job offer to take, who to date).

2. If a person does not have an alternative to compare to, they very likely will “pass” and decide “no”.

3. When there are multiple alternatives, people usually (not always, there are some other factors that can intervene) choose the “middle” option. They don’t want the most expensive and they don’t want the cheapest (items on a restaurant menu, clothing, professional services).

4. The downside to comparing, is that we often feel unsatisfied with what we have when comparing to those around us (feeling others have a better job than we do, a better car, took a better vacation, etc.) So comparing usually leads to dissatisfaction.

So here are some of my observations and applications.

a) Although it is good to differentiate yourself in the marketplace from your competitors, if you are too different, potential customers can’t compare you to the competition and they will not choose to use you.

b) When marketing goods or services, know who your competition is and what their price points are. Try to fall in the middle price range (but offer more value).

c) If you are offering a new or unique product or service, provide at least two options (a more expensive one and the one you really want to sell) so customers have a “choice”. [Ariely actually cited a study that demonstrated this application.]

d) If you want to limit your spending, surround yourself with individuals whose lifestyle is lower than yours — not higher. When you compare yourself to what car they drive, where they buy their clothes, and where they go on vacation, you will feel less pull to “trade up” and spend more.

e) When you are shopping, be aware that marketing departments of stores know about the tendency of people to choose the middle price option — often the lower price is actually a better deal.

Have a great week — and watch that irrational behavior!

I have been “holding off” on writing this blog, partly for fear of sounding like Chicken Little (”The sky is falling”, “TV rots your brains”, “Video games are evil”) and partly for fear of sounding like an old fogie (”Things were better when we played dominoes by candlelight”).

But I cannot hold my tongue any longer. Just today I received notice about a major study that came out this spring - a meta-analysis of 130 research studies with over 130,000 youth studied. The finding?

Violent video games make youth (both male and female) more likely to engage in personal aggression themselves. Surprise, surprise. Do you mean to tell me that watching and participating in repeated fantasy action of shooting, stabbing, hitting, and murdering others — done for hours and hours, over days, weeks, months and years — actually impacts a person’s behavior? I’m shocked.

Let’s look at some of the other negative characteristics typical of most video game playing:

Video games are primarily self-focused.
I know you can play games with others (either in person or on-line), but who really plays video games for the purpose of serving others? (Except the occasional parent who dislikes them.) It’s true, they can be a form of entertainment — used for relaxing and leisure time, for chilling. But how many of you have noticed that your children (or husband) become more self-focused, agitated, irritable and less willing to do their responsibilities after they have played for two or three hours? It is about them and what they are doing — how dare you interrupt their game and ask them to study, mow the lawn or clear the table?

Video games and the skills they build have virtually no transferability to real life. How many jobs are there that require superfast hand/eye coordination and decision-making? I used to say there were no careers for which video games prepared you for. I was corrected during a lecture — these skills are useful in the military for those who pilot drones and bombs to their destinations. I stand corrected. Now how many of those jobs are there? And how many people grow up with that career dream? That leaves about 75+ million American youth and young adults under 30.

Video games steal time and mental energy from tasks that could be truly productive and/or skill building. In business, this is known as “opportunity cost” — you only have so much time and energy. And if you spend that time and energy on Halo or World of Warcraft, then that time and energy can’t be spent on physical exercise, studying, learning to play an instrument, or working a part-time job. We are literally wasting hundreds of millions of hours of potentially productive time with our youth and young adults.

Video games create a false sense of competency. I am convinced that one of the draws of video games — especially for those students who struggle in school — is that it gives them a sense of competency. They are able to beat an adversary, win at a certain level of difficulty, or obtain virtual rewards and treasures. The problem is — the competency isn’t real; what good does it do them away from the virtual world? One time I had a significantly overweight 10 year old boy tell me he was really good at tennis. After further inquiry, I found out he was good at tennis on the Wii, but he actually believed he was good at playing tennis. We need to help our children build self-confidence but through tasks which they will use in real life.

Video games can become highly addictive, especially to individuals with ADD/ADHD. It is well-known among those who work on college campuses that many young men (primarily) spend 3 or more hours a day playing videogames. And it is documented that at least 10% demonstrated addictive behaviors — not being able to quit even if they want to, losing weight because they do not stop to eat, and probably the most common — disruptions of sleep due to playing patterns. [I recently had parents report that their 12 year old was getting up in the middle of the night after his parents had gone to sleep and was gaming for hours — they finally realized why he was always so tired.] Neuroscientists are now finding associations between the adrenaline-rush and addictive behaviors that are associated with high-stimulation video games.

(I am aware that there are exceptions to each of the above-raised points, but these are common characteristics of those children, teens, young adults and adults who play a lot of video games.)

So that I don’t just criticize and run, let me give parents some practical suggestions for dealing with the challenges associated with the video game craze in our culture.

1. Don’t accept the “everybody does it” excuse. Oh, yea. That’s a good one — right up there with smoking, under-age drinking, casual sex, smoking pot and every other generational foolish decision young people have argued with their parents about. But the problem is: almost everyone else is doing it. So parents, show some backbone. Set rules and guidelines. Fight the battle. Be “mean”. And stick to what you know is right.

2. Set limits. Take the power cords. Lock up the controls. Set on-line limits. Require that schoolwork and/or chores are done prior to any time playing games. And limit the time — 30-60 minutes on weekdays (preferably none, if you can get away with it), and 1-2 hours per day on weekends. More than that, and you can’t really monitor the limits.

3. Use the “real life” rule. Ask yourself, your husband (husbands are often part of the problem), and your children: “Would we encourage this behavior in real life?” Do I want my kids to steal cars, mug people, shoot and murder others? “Oh, it is just a game”, it is argued. Ok, then why don’t we encourage games that have your teenager rape others and burn houses down with people still in them? Give me a break — why do we need research to show us that repetitive thoughts and fantasy actions increase the probability of those actions actually occurring in real life?

4. If your children are still young, delay getting games as long as possible. The battle is harder to fight when the games are in the house. Don’t worry. They won’t be deprived — they will still play at their friends’ houses. Wait. Wait. Wait. If you want to, get them a Wii. Do the educational games. But lay off all the Gameboys, X-boxes, Playstations, Internet-based games — you and they will be better off. (I could tell you a personal story about my four kids — now ages 19 to 27, but you wouldn’t believe me.)

I know this entry has a bit of an edge and angry tone. Sorry (sort of). I wish I could communicate what I want without the irritability, but sometimes there are things worth getting angry about.

For those of you with students in school, think about how you are going to manage this summer — they are off school, have lots of free time, and you will be at work. Do you want your kids playing 3, 4, 6, 8, 10, 12 hours of video games a day? (Ten to twelve hours isn’t unrealistic.) If not, what are you going to do about it now?