Pouring $5 or $10 million into children kills their motivation to do something.

[22:30]

"You simply kill the motivation of children to do something when you pour $ 5 or $10 million into them , especially early in life or even in the middle of it, when, for example, at the age of 35 or 40 they inherit $10 million."

[22:12]

"Therefore, if they come to the family with a business idea, the senior family members, if approved, provide a loan, help purchase the business or sign a letter of credit, etc. To obtain credit for the business."

[01:16]

"But one thing that unites all of us here in this room is that all of the families we serve are first or second generation. By the third, fourth, fifth generation, you usually play a purely defensive game."

Full transcript

One thing I always remind people of is that most family offices are simply wealth creators. They are founders, just like you. Most family offices and most super-rich people don’t walk in and say, “Oh, my name is Richard. I am the investment director at my own Wilson family office, etc.” They might say, "Oh, yeah, we run a couple of businesses or have a few gas stations."

It might be modest, but maybe they have 180 gas stations, right? So, if John is sitting next to someone on a flight and they ask him what he does, he might not say, "Oh, I manage a billion- dollar loan fund." He might say, "Oh, I work in lending or I run a real estate platform." Truth? He may not want to show off, but say, "Oh, I manage 180 dry cleaners."

Truth? Many extremely successful people don't need to beat their chests and show off a big gold Rolex. No problem if that's your style. But many families are quite reserved. It may not be obvious that they are the richest people in the room. On Tuesday, we had a $200 million family in the room who are setting up their own family office.

You would never know it by looking at the audience, right? They didn't make a big deal out of it. They don't need it. So, it's just something to keep in mind. But one thing that unites all of us here in this room is that all of the families we serve are first or second generation. By the third, fourth, fifth generation, you usually play a purely defensive game.

In my experience, various trusts are involved in management. Wealth is divided among many family members. It's not so entrepreneurial anymore. This is more of a club of entrepreneurs, founders and wealth creators. So here you see people who run an investment platform, a real estate firm or a development company, CEOs of companies or people who have built these things to the point where they are now passive investors, private investors, family offices, etc.

So I think this unites us all, and the ideas we share today should be useful for any wealth creator, whether you're an investor or someone who raises capital. Out of 75 slides today, maybe only two slides are aimed at helping those who want to raise a little more capital. There may be a few slides geared towards those looking to invest more. We hope that anyone here raising capital or looking to expand their company will reach the level of success where you need your own family office.

Now you are a passive investor. You have passive income to invest. So these are ideas that will help not only accelerate the development of your platforms, but also invest over time. I believe that it is important to outline such a context today. So for those of you who are on the other side of the fence, looking for investors, or are a full-time investor, don't worry that some of the slides may not apply to you.

They should apply to almost everyone. Most of you are already familiar with who we are, unless you are invited as guests today. My name is Richard Wilson, as Audrey said. I founded Family Office Club 17 years ago. I've written 13 books, and a few years ago we acquired billionaires.com. We are in the process of interviewing 100 billionaires and reading all 240 books written by billionaires.

You can read these interviews on billionaires.com. A little about me personally. This is a photo of my wife here at the Grand Canyon. These are some of my daughters, we love to travel and seek adventures in nature. This is me on a mountaintop last summer. Some of my friends from school and college.

This is a place I moved to about 7 weeks ago. I live on Oahu, in Kaua'i, which is about 25 minutes from Honolulu. This is us enjoying the water a couple of weeks ago. And this is us last weekend at the beach with my daughter. So, this will all eventually come together into a single picture. At the end of the day, on this slide, we're going to show you some specific ways to focus on what should probably be the number one investment for everyone in this room.

This is not an advertisement for anything that I or any of the speakers want to sell, but at the end of the day we will clearly show how to focus on this type of investment. I'll start with the basics, which I see no one else in the family office space talking about: the smartest families I know organize their capital around these three areas. Highly diversified asset management. Almost all families seek to have some share in the public markets, diversified public investments.

They usually tell their financial advisor, "Don't invest in tobacco and guns," or "We don't like those industries." Maybe they lean towards income or like Tesla, Amazon, Costco, and then let the advisor do their thing and diversify the portfolio as much as possible. This is how most of the people I work with act. The second basket is very conservative cash-flow real estate or private equity investments.

Most families I work with invest between 5 and 20% in real estate development, which can be a little riskier but potentially more profitable. But this basket is usually considered moderately risky. Although it is considered quite reliable. You have different expert groups managing different assets. And most of the families I work with have, on average, about 20-40% debt on real estate.

LTV, maybe 50%. Most families I work with do not burden their property with 70-80% debt. I just finished reading a 730- page book. These are Warren Buffett's letters to shareholders over 50 years . It's not on Audible, it's a big fat yellow book. I'll show her photo later.

And in this book, he said that his formula for success is to invest in what he can understand. Invest in something that brings in a lot of free cash flow. Invest in something that doesn't require suddenly large amounts of cash. And don't use excessive debt. They want to have a cash reserve in case of a disaster, as they say , "once in a thousand years ."

And they want to sell life jackets during floods . And not be the ones running around looking for them in the bank. So they keep a very low level of debt, a very low level of lending. So that they can use it if necessary. They try to keep it very low key . And that was their formula for success.

And many of the families I work with are quite conservative. They don't need to take a big risk to try to hit the jackpot. They have usually already achieved their success. So they are looking for reliable options, people they trust. Maybe something grand happens sometimes, but they don't risk everything for it. If you made money in technology, venture capital, Silicon Valley, or crypto assets.

So sometimes this worldview is very different. And if a person who is extremely wealthy is younger than 30-35, then this worldview is sometimes very different. Of course, none of this is true for every investor. It's just what I see most often. But importantly, a diversified wealth management basket requires minimal intervention for most investors . They are not very involved and it is a very defensive approach.

The real estate basket occupies an intermediate position. You usually choose the sectors and states in which you work. For example, I like Florida, New York, Arizona, or any other states you like. You choose the managers, but you usually don't manage the assets yourself. And the third basket is where you play offense. Here's a quote from Warren: Diversification makes little sense to someone who really knows what they're doing.

It's a defense against ignorance, you know, why invest a little in everything at once? This is because you don't have deep expertise in one specific area. Therefore, I would never advise anyone to concentrate all their wealth in just one narrow niche. But Warren's point is that when you look at the field you know best, you don't need to diversify.

If you made money in dry cleaning, you don't need to invest in every dry cleaning business to access this niche, right? You know how to operate in this space and you don't need to diversify as much in this niche. That's where you play offense and that's where you build your balance. You may only be investing 5 or 10% of your free cash flow back into the niche where you made your fortune, but that's where your capital grows the fastest.

This is where you play the real aggressive game. To other people, it looks like you're taking more risks, but you could become the chairman of the board or the CEO. You know how to hire people. You know how to play defense and offense with these assets. This is very different from a real estate basket, unless you made money in real estate.

And this is different from diversified access to the stock market. This is important to understand because when working with families, you need to be aware of these dynamics and that no team or experts will be able to help you in all three areas, and most wealth managers are unwilling to help with these two areas. They don't want to help you with the public markets. If you come to them and say you want to invest directly in real estate, they will say, “No, no, no.

You should invest in this public market fund (REIT). You want to stay liquid.” They are usually not truly independent because they only receive payments when your assets remain on their platform. They want all your assets on their platform, and they are usually not willing to do direct investments and help you grow capital in the business, which goes against who we are as founders and entrepreneurs, and that is why the family office space exists. So it's important to set a certain tone for the day, you know, which is why I've been convinced time and time again that this is true.

If you inherit a lot of money, you know, being essentially a kid between the ages of 18 and 22 , if you're a professional athlete, or you win the lottery at any age, or if you sell your business and go from making, say, $300,000 a year in profit from your business, and suddenly you get $20 million or $100 million in windfall profits from the sale, a lot of times those people lose money just as quickly. And many professional athletes and lottery winners find themselves in a worse position 7 years later or 7 years after their professional careers end. I was at A-Rod's house about a proposal to buy a sports team, and he was creating a TV show that literally taught athletes how to run a business, how to be conservative, how to not lose all their money . Even if you get a $ 40 million contract , many athletes lose all that money.

One athlete signed Mercedes-Benz lease agreements for 17 of his friends and family members, just to be a good guy, apparently. So the bottom line is that if your financial IQ is not growing faster than your net worth, then a painful equilibrium will occur and your net worth will revert to the level of your financial IQ and you will lose money. You need to learn a thousand lessons that you must learn along the way to save money. You know, I will say that keeping them is harder than earning them.

This is a different game you have to play. And I think one of the insights here is that it's not about diversifying everything around. It's also not about taking a huge risk and putting all your capital on the line, right? You can do both at the same time , as this graphic explains. Another thing about the family office space that I always like to mention is that for you, the main goal of a family office is to be a unique solution that fits who you are and what game you want to play.

If your goal is to play golf, you do a little networking while you play, you make deals and you only work for an hour or two, and the rest of the time you network through golf, and that's your form of work, then that's great. If you want to sit on the beach your whole life, that's great too. But, as Curley says in the movie "City Dudes," you know, a secret is one thing. And then Billy Crystal asks, “Well, what is this one thing?

Tell me. He replies, "Well, you'll have to figure that out for yourself." You see, the point of a family office is that you need to determine for yourself which path you want to take. And often families don't have time to figure this out in time and let other people determine the path they take. So if you don't design your own game board, if you don't decide how you're going to keep score, someone else will take $200 every time you go through the "start".

And they will create a game in which they win, not you . And if you were smart enough as a founder to become very successful and wealthy, know what you are trying to achieve and what strategic goals are important to you. Perhaps attracting institutional capital or acquiring a strategic resource or asset is more important than increasing your revenue or profits in the short term. So just to figure out what we have on the first page of this assignment, you know, what kind of strategy game are you trying to play?

What is your goal? Because you need to understand what to focus your time on, what to focus your capital on. We talk a lot about strategic “ bottlenecks” at our events. What resources are worth getting ... it all depends on the game you're playing. By understanding the unique game that other family offices play, you will be better able to understand how they think and operate, especially if you are in the capital raising business and want to work with investors more often.

Understanding how the family works and what agreements they have made before goes a long way in reaching an agreement with them. Some families might say, "Would you like to become an investor in my fund?" And they answer: “Oh, no, sorry. We don't work with foundations." We like to make direct investments. Or they might say, "Oh no, sorry, we're a pass."

And not give any feedback or even reply to your letter, right? They are too busy to respond to everyone who contacts them. But if you come to them looking for a strategic way to collaborate and see how they typically structure deals and contract, you can propose a joint venture , a COGP deal, a direct investment deal, a few direct investments, and then they will go into your fund, etc. So, this is very important to remember.

I have noticed that people who are not open-minded do not succeed in the family office space. And also those who come and try to convince someone, saying, "Hey, we have great profits." This is the best deal they have ever seen. Here are your profits. Do you want to invest? Here is our IRR.

Do you want to invest? It doesn't matter whether an investor is willing to invest money in something. If there is no context around it , it doesn't matter what is written on your piece of paper. Anyone can write any IRR on a piece of paper. There's actually zero context there. They would rather invest with someone who has a lower return, a significantly lower return, but they know that this person is doing something unique, and they have a lot of confidence that they can trust this person and the value that they add ... they would rather give their money to this person.

So the analog story I always tell is this: if you want to buy something ... a vacuum cleaner, a car, a watch ... and you're walking through an airport looking for your gate, and someone says, "Hey, do you want to buy this Rolex?" You reply, "I'm going on my way out." "I don't know who you are." Even if you want to buy a Rolex, you say so, and that's what a situation looks like when you come in and try to offer someone a deal without any context.

This is why thought leadership is important. That's why events like this are important. And that's why understanding how families think is also very important. So, this is one of the tools that you, if you are not an investor, can offer to investors as a useful resource. This is one of the many tools contained in the guide for private investors that you have here.

Um , that's about 60 different fields; if you can fill them out, you'll have a one-page cheat sheet for managing your investments as an individual or family office, regardless of your net worth. So if you don't have that, it's pretty hard to get along with your spouse, or the CEO, or the successor you're trying to train, because they don't know your values, your goals, the deals you're looking at, and who your service providers are ... God forbid, something happens to you. Um, it can help people understand where they're going and why , at a fairly high level. And it simply doesn't get any easier.

It may look complicated, but it really couldn't be easier . But if half the page is blank, then you probably have to work hard to develop your action plan for these areas. This is one of the many tools we offer for family offices and investors here in the room. Um, I'll stop for a second. Do you have any questions about this three-part chart I showed you, or about the dashboard ?

If you...next section...this is one of the others... If we recommend, and I've noticed that often there 's a certain offer from certain service providers, and that offer is mostly the same for everyone they interact with. The reality is that as an investor, if you don't ask yourself these 50 questions or have someone else ask them for you, you won't know where you're going and why you want to go there. And often when family members fill it out or when spouses fill it out independently, they give very different answers about where they want to get to and what's important.

Is this income? Is this risk management? Is this free time? Is it stress? Um, is this the confidence that they will give money to the children? Or is it the confidence that they won't give the kids too much money?

Yes? Two people can completely disagree on this. Um, so it's very important to have these points and work on them. Um, that will come up later as another argument for why this is so important. But essentially, when you listen to someone and make a recommendation based on your deep knowledge of that person, you can truly build a relationship in a way that respects their path and is as helpful as possible.

So that's one of the reasons why we provide this tool to investors. How many people here have formalized values ​​ for their company? Oh, quite a lot. Um, these are the core values ​​ we have at Family Office Club. We found that they work in our industry and have become the foundation of our success. Um, I was in the Boy Scouts when I was a kid.

I'm an Eagle Scout, and I was talking to Dan Sullivan, one of my mentors, who started quoting the Scout Oath. And I was able to burn the rest of it from memory, even though I hadn't said it in 25 or 30 years. But the Boy Scouts make you repeat it all the time, put you on a log, explain what it means to be kind, thrifty, etc. And I realized that my daughters weren't getting it.

So we came up with our own family values. Um, these are family values that we developed. Ahem. And we punish and encourage our children based on these values. What if we are not sure whether we should move to Hawaii or not? Hey, should we do this as a family or not?

Um, then we look at these values, and the decision becomes much clearer. But if it's so obvious that values ​​ help with decisions, hiring and firing, and where companies should go, then why don't almost all families have family values? You can be a startup, and values will help you build your company's balance sheet. It costs absolutely nothing.

So why wouldn't it work the same way for a family ... protecting it from bad decisions , uniting it, raising the next generation, etc.? But how many people here have family values ​​ on the wall at home and have formalized them? If there are eight or nine people here who have it, I would advise you to do it. Even if you do almost nothing .

And if you work with investors as clients, understanding their values, how to work with them , and how to find more investors with similar views is a big part of success and raising capital faster. Um, and if you work with other families with the same values, it makes things a lot easier . So, I would advise you to formalize them. This allows you to make confident decisions about where to move next.

With whom to go towards the goal and with whom to cooperate, etc. And this can be crucial. Here is a photo of my three daughters. This was probably five or six years ago. They wanted to buy a small Tesla electric car. So we had them make money selling lemonade, and we had them raise money, encourage people to buy lemonade, and do all that.

And so we earned between $50 and $250 a day, and it taught them lessons related to our values. They wanted to do it in front of our house, but there weren't enough passersby there. So we went here, about a block from Starbucks, where the heaviest flow of people passes by. So, we taught them this lesson. And recently we recorded my 9-year-old daughter saying, " Would you like some ice-cold fresh strawberry lemonade?"

We had a Bluetooth speaker, I recorded it on my iPhone, and we set it up across the street at the traffic lights. And as people walked by, I would press " play" on my phone, this voice would come from the bushes, they would look around, and it would convince a fairly large percentage of people. So we teach them how to use technology and so on. It's a lot of fun and allows us to not spoil them by just giving them money.

Now that they are getting older, I know many of you have children who are even a little older than mine. We are thinking about buying them a vending machine. How about spending $200 to $5,000 and buying them some kind of small business where they set their own prices? They need to replenish supplies. They have to follow basic finances to get used to how it works, because I know from experience: watching my father run his business when I was growing up, I started five businesses before I even graduated from high school.

I made a lot of mistakes before I started a business that was scalable and made sense. And when you run a business that brings suffering and you know that no one wants what you're selling, you learn what it's like to work hard when no one cares and you have none of it. And it's important to know when you feel the pull of demand really growing and people are eager to get what you have. It's an intuitive feeling.

There was an article in the Harvard Business Review that asked: should you trust your intuition? And the conclusion of all these scientists, in essence, comes down to the fact that it all depends on what your inner sense is made of. So don't trust your intuition if you don't have experience in this area. You should guard against ignorance and diversify your assets, as Warren Buffett says, right?

So the point is to train the next generation in advance so that their sense is built on something , and hopefully on the values ​​ that helped you succeed and be here in this room. And I think that's really important. When it comes to planning for the next generation, there's a saying: you should give your kids enough money so they can do nothing, but at the same time enough so they can do almost anything. For many families, this means providing money only for emergencies, such as medical expenses, perhaps tuition, and help with a down payment on a house.

And in some entrepreneurial families, they don't inherit any other money at all. Therefore, if they come to the family with a business idea, the senior family members, if approved, provide a loan, help purchase the business or sign a letter of credit, etc. To obtain credit for the business. You help them create value in the world, because without struggle there is no self-realization, and without challenges there is no development.

You simply kill the motivation of children to do something when you pour $ 5 or $10 million into them , especially early in life or even in the middle of it, when, for example, at the age of 35 or 40 they inherit $10 million. So what difference does it make what to do with college, right? Let's go to Miami, buy an apartment and live happily ever after , okay? And this happens in many families.

So I wanted to emphasize that. And I also wanted to give the opportunity to chat a little. But before we start networking, if you have any notes you want to make for yourself about wealth management , real estate, and where you'll be playing for the lead. And again , in an attack, families usually focus on only one or two niches.

It may happen that you have made money at car dealerships and are so burned out that you never want to step foot on a car lot again in your life. This is normal. You can say that in the future we will focus on stem cells , cryptocurrency, cannabis or any other niche, such as manufacturing. And if you consider 100 deals only in the manufacturing sector, attend industry conferences, read books, etc., then after 100 deals you will start to see where the good options are and where the bad ones are.

And that's okay. You can actively develop in a new niche, but it's usually one or two niches, even for families with billion-dollar fortunes . I don't see them successfully operating in more than two, maybe three niches, even if their fortunes reach many billions of dollars. Um, and have an idea about it. Maybe this is something worth working on.

Your family values ... If you know what they are , if you understand that they just need to be formalized, and you're like, "Oh , yeah." I'm sure everyone knows their family values. "Well, if you actually ask family members, I guarantee they'll say something different than you think, or they'll say, 'I'm not sure about this, this, or that.'"

Um, and then figure out what game you're playing. Do you know how you know you're winning? Um, is your goal to have as much money as possible at any cost, have no personal life, spend no time with your children, have seven wives, and sacrifice your health? Probably not, right? This is probably not the game you want to play.

Um, so be very clear about how you want to win and what your version of winning is, and hopefully, in your business niche, you'll define a game that's so unique that no one else is playing the same game. It's much easier to win when no one else is playing the same game. Um, another quote from Dan Sullivan that I found interesting. I think he's about 78 now.

He says that at his level and in his circle of friends, it's easy to win because most of the competitors are already retired or in nursing homes. He is very focused on being mentally and physically active and tries to burn a thousand calories before breakfast every day. And he plays a different game than other people because he's been a coach for high-profile CEOs for 40 years. So find out what kind of game it is and what a unique game you are playing.

We'll give you a few minutes to fill this out. Um, when you 're done filling this out as much as you want, maybe circle or star one or two things you want to share and tell that to the person you didn't come to the event with. So that you don't just talk to your business partner. So, introduce yourself in one sentence: who you are, why you're here, and what you're focused on this year.

Um, don't spend all 5 minutes just presenting your business. You'll probably want to share some thoughts, and then we'll come back here and continue the content, just don't spend the entire 15 minutes until 10:50. Maybe take a few minutes to fill in what you have n't had time to do yet, and then take 5 minutes, pair up and share ideas, and for those who are online, we'll set up session rooms now. We'll group three or four participants together, because sometimes someone gets distracted , even if they're on Zoom, or they've gone to get coffee or something like that.

So we'll add a few more people to the Zoom virtual rooms, create groups, and give you a few minutes to discuss. So, get into groups as soon as you're ready, and we'll be back here in a little less than 15 minutes. All the speakers on stage today ... Like you, Justin, you're Justin, right? ... Are just like you.

They play their own unique game. For example, when Dean talks about his webinars, I guarantee that no one else in the room is doing what Dean is doing , which is how he makes $50 million a month. Daniel Peter was on stage a few days ago talking about how he grew from nothing to 11 private schools and opened a school with Mike Tyson. He plays a different game than anyone else in this industry in the entire world.

I don't think anyone plays this game anymore. And when Michael takes the stage later, he'll talk about how he achieved nine-figure revenue by playing differently than others, and how the industry is changing. So I think that's critical to success. If you were at the "Scaling Strategies for Billionaires" event in this room last month, you know that this was one of the three main themes: If you follow the crowd, you'll be mediocre at best.

The goal is to do what everyone else does, then at best you will be average. This is the path to defeat. You've already lost if you 're trying to play the same game as everyone else. So this is really very important. Well, and everything we've mentioned today, some of it may seem pretty basic, fundamental, but the things we'll talk about later are impossible to talk about without this discussion and this terminology.

Join the family office club at familyoffices.com. We look forward to meeting you at our next live event.