Money Troubles, Part I

By Chuck Violand

September 12, 2016

“I worked for my former employer from when they were a small company with a family atmosphere until they grew to be a big company and got themselves in trouble. When they started making a lot of money they started making some bad decisions, and even worse choices, and it caught up with them.” This was what the business owner I was talking with said as he was explaining why he left that company to start his own. He also made it clear that he wanted to avoid making the same mistakes.

For years I’ve written about the struggles many owners face regarding pricing and profitability in their businesses and how many of those struggles can be traced back to personal beliefs they hold about money. To paraphrase Dr. Morris Shechtman in his book Working Without a Net, businesses do not have money problems. Business owners have money beliefs they work out through their businesses.

As advisors to small business owners, we see this principle play itself out in real time every day. The surprising thing is that it applies whether owners have a scarcity attitude toward money or they have more money than they know how to handle. As crazy as it may sound, it’s not uncommon that the behavioral issues faced when someone has an abundance of money outweigh those faced when they don’t have enough.

Small businesses are typically started on shoestring budgets by those who are passionate about pursuing an idea or creating financial security for themselves and their families. Not by those who grew up with a silver spoon in their mouths. Many are unfamiliar with the world of affluence, so when their businesses become successful and they find themselves in that world, they turn to their new peers for social and behavioral cues. Picking the wrong peers and modeling the wrong behaviors can get them in trouble and compromise their businesses. Many let their newfound affluence go to their heads.

In her book The Golden Ghetto: The Psychology of Affluence, author and psychotherapist Jesse O’Neill explores the roots and consequences of the relationship between wealth and perceived power in our culture. According to O’Neill, “Inherited or sudden wealth (windfalls, rapidly achieved wealth in a business) can create a false sense of entitlement, a loss of future motivation, and the inability to delay gratification and tolerate frustration.” Whether it’s undisciplined purchases through the business or a sense of entitlement, these behaviors have measurable impacts on a company’s performance.

The behaviors become even more troublesome when they’re passed along to the next generation of owners; successors who may not be aware of their behavior or the impact it has on the company’s employees and customers. Frequently, these successors are the owner’s children, who don’t have the perspective gained by having worked side-by-side with frontline workers. Blessed are those who reject the “silver spoon” handed to them and choose instead to work their way up through the business. These are the leaders who earn the respect and loyalty of others in the company. They are also the ones not as likely to be drawn into the destructive behaviors of sudden affluence.

In Part II of this series, I’ll discuss some of these behaviors in greater detail and offer alternative and much more rewarding behaviors instead.