Imagine this scenario: there’s a new startup in a very competitive field. It’s off to a shaky debut but has real promise. The CEO is tall, aristocratic, smart, taciturn – the perfect qualities, he is indispensable. Above him is a board of directors that is divisive in the best of times. They spend most of the time arguing among themselves, in the two years the company has been in existence only two directors have bothered to visit the physical plant.
The CEO
Below the CEO are two highly capable, much needed for completely different reasons, officers. They have the same title, diametrically opposed personalities, and are untied only in the written-in-stone belief they are both more qualified than the CEO and the CEO needs to go. The CEO suspects this, but has no proof, even if he decided to act on his hunch and save himself much grief down the road, he can’t fire either of them without board approval.
Just below the two bickering officers is an upper management type who’s brilliant, improvisational, but high strung. He is devoted to the CEO.
With the company on the verge of bankruptcy the manager pulls off a miraculous product launch that succeeds far beyond all expectations. It is one of the greatest success stories in history. The company rejoices, the markets respond accordingly.
The Manager
But, there’s a problem. One of the officers takes all the credit, doesn’t even mention the manager in his emails or press releases. The manager, as anyone who ever met him in any capacity would guess, takes it poorly and snaps – he issues his own emails and press releases and appeals directly to the CEO for relief.
The officer that took the credit is a political animal, he immediately goes to the board over the head of the CEO and moves to have the manager fired – for cause. The board runs with it, the CEO is buried in day to day operations and, regardless, shuns politics, so he leaves it to them to work it out.
The Officer
The manager gets wind of the complaint to the directors, that’s soon followed up by notice of a hearing in some indeterminable ‘near future.’ Meanwhile, six other managers are promoted over him.
This is a good place to note the following: this startup spun off from a long established company that had settled into the doldrums. The spin-off happened in a flash, virtually overnight, what few documents the founders drew up before launching were knock offs from the original company. No one had had the time – or inclination – to do more than hastily incorporate. Operating agreements, much less employment agreements and guidelines, do not competes and non-disclosures were never enacted.
With the hearing continuously postponed and daily leaks to the media about the manager’s ‘malfeasances’, the manager breaks – he’s had it – but he doesn’t resign, he becomes uncharacteristically quiet.
He arranges to sell one of the company’s most sensitive properties to the competition – the original parent company. It will ruin the start-up, virtually insure its demise. At that point, the best it could hope for would to be bought out by the jilted parent, though heads would roll.
The manager is stopped only by sheer, good luck moments before the handoff. By the end of it all, the manager is
The Board of Directors
hired by the parent company; the two officers subsequently disgrace themselves – one is fired, the other allowed to retire; the company gets its act together and gets to all the documents and agreements it should have had from day one, several lawyers pitch in to plan it all out; the CEO becomes chairman of board.
Without even looking at the images, you probably knew early on that the start-up is the United States circa the Fall of 1777. The CEO is, of course, George Washington; the board is the Continental Congress; the officers: Horatio Gates & Charles Lee; the manager Benedict Arnold; the miraculous occurrence – Saratoga. By the way, one of the two members of Congress to ever travel to the ‘front’ was also the oldest member, Benjamin Franklin.
It just goes to show that there’s nothing really new – the United States went into business virtually overnight – few could have anticipated the Battle of Lexington and Concord; no one could have foreseen the carnage of Bunker Hill (really, Breed’s Hill but …) cementing the deal.
The United States was a vast undertaking and it was done on the fly and under intense pressure – the kind you can only get ticking off the most powerful nation on the planet.
In other words, it was hardly planned and in its early days that lack of planning was almost fatal. Several times.
In the long run – except for the citizens of New London, Connecticut, the British Brigadier General Arnold burned it to the ground in 1781 – the lack of planning and the Arnold affair did not have any real long term effects.
But it could have – Arnold warned General Cornwallis not to base his army out of Yorktown, he was, thankfully, ignored.
History – a lot of lessons for a lot of businesses.
They are an iconic image from childhood for anyone who ever has as much as leafed through a DC or Marvel comic book. Sea Monkeys. Always on the back page, right next to the ad for X-Ray Spex glasses.
How iconic? Both The Simpsons and South Park have had entire episodes that revolved around Sea-Monkeys. Sea-Monkeys – brine shrimp in a package that magically come to life when dropped in water. Then, well, using magnifying glasses built into the plastic containers, you could, theoretically, watch them do brine shrimp things for hours.
You had to be eight or nine to buy into it but generations of kids did. And do, Sea-Monkeys are a $3.5 million a year business.
The story behind the ‘invention’ of Sea-Monkeys is bizarre, flamboyant, and fascinating – a kind of early ‘50s film noir meets The Addams Family kitsch. They were developed by Harold von Braunhut, a motorcycle racer/TV producer/magician/agent for carnival acts/inventor/salesman.
Novelty items like those on the back pages of comic books were apparently a pretty big business in the early ‘60s. It was dominated by Wham-O – the guys who sold the Hula Hoop, Frisbee, Slip n’ Slide, and a lot more.
In 1960, Wham-O sold something called ‘Instant Fish’ – a package of freeze-dried African killifish that were supposed to come to life when water was added. Sales dried up like the fish when buyers found out that no power on earth could revive ‘Instant Fish’.
Von Braunhut, however, took the idea and worked with a marine biologist in Montauk to selectively breed a species
of brine shrimp that could lie dormant for long periods. It was, actually, something of a scientific breakthrough. The biologist created a hybrid form of brine shrimp, von Braunhut named them Amazing Live Sea-Monkeys and they took off. The rest is history.
Von Braunhut died in 2003. His widow, Yolanda – whose background could fill a Netflix series – inherited the company, the secret formula, and the immense estate on the Maryland side of the Potomac River that the Sea-Monkeys had built.
Von Braunhut, however, had been a strictly hands-on manager and his loss was keenly felt. Yolanda needed help and wasn’t all that interested in continuing the Amazing Live Sea Monkey business. She turned to Big Time Toys out of Lexington, Kentucky, name-wise a fitting successor to Wham-O.
She gave Big Time Toys the license to package and sell Sea-Monkeys while her company supplied the packets with the desiccated shrimp. She also agreed to sell the entire company to Big Time Toys in the future. Big Time was to pay $5 million for the licensing agreement and another $5 million later, over a period of years, for her company. Yolanda was looking at a Sea-Monkey free future.
It’s probably not much of a surprise that a company with such a fictional sounding name defaulted on the agreement(s), but Big Time Toys did. Basically, they went to China and got their own source of brine shrimp and announced they now owned the Sea Monkey kingdom.
The gate of the house that Amazing Live Sea-Monkeys built.
Lawsuits have been winding their way through federal courts for some years now, all the cases revolve around some fairly knotty contract law issues, trademark infringement, as well as the catchall issue of – ‘if Sea-Monkeys aren’t really real, then how real is the company that sells them?’
The case is in court and will be for years to come, Yolanda has the house and little else. She cannot afford the heat and electricity of such a mammoth home and lives in two rooms closed off from the rest.
Meanwhile, Sea-Monkeys still sell, Big Time Toys has them in Walmart and Toys r’Us as well as the ubiquitous comics.
The point is, this is just another example – albeit a most entertaining one – of the botched sale of a company. An operating, profitable company, the death of the owner, a ‘quick’ sale by the heir, then years of litigation. All of it was avoidable with proper planning.
The Wild Bunch is an iconic movie of the ‘60’s. A western when westerns were fading away to irreverence, it brought a modern sensibility to the genre. It’s bloody, sarcastic, cutting, and has a scene that should be mandatory viewing for anyone dealing with a family business … or estate . . . or …
It happens fairly early in the film. William Holden, Ernest Borgnine and their gang rob a railroad office in a small, dusty (everything in the movie’s dusty, I’m sure when it was shown in movie theaters sales of soft drinks reached record highs) Texas border town.
Mayhem follows, choreographed as only Sam Peckinpah could, eventually, most of the gang gets away with its haul – bags of coins. Except, it’s not, the bags are filled with steel washers. Thousands of worthless washers. The whole thing was a set-up, they have nothing.
Holden tells his men not to worry, he’ll come up with a new business plan. He wanders off into the desert to be inspired. When he returns, he reveals the new plan – they will start running guns to Mexico; either to the bandits, Poncho Villa, Zapata, whoever will pay.
The gang’s Mexican member immediately asks if there’s a chance they’ll end up selling guns to the men who razed his village and killed his family.
Holden takes a very short moment before answering, “Angel, ten thousand dollars cuts a lot of family ties.”
“Ten thousand dollars cuts a lot of family ties.” That’s pretty cynical but that doesn’t take anything away from its basic truth. As many attorneys, CPAs, family therapists and more will attest.
In my experience, however, things go deeper than that. Sure, money is, well, money, but usually, for me, it represents something else. Or rather, it’s part of something else – a business. The money that severs family ties is usually the result of poor or no planning.
A promise here, an off-the-cuff remark there, over a period of years, across generations, and expectations are built. “Someday this will all be yours,” is a cliché, but that doesn’t mean it’s not said or certainly implied a hundred times a year across all manner of family owned businesses.
The bigger the family, the more successful the company, the more this is taken to heart. Problems start when planning isn’t done – real planning, taking into account death, disability, the estate, family not actively involved in the business, mergers, offers to buy, selling out, any of a dozen exit strategies.
In the absence of a plan, and the uncertainty that follows, it’s inevitable that the people involved will begin focusing on the lowest common denominator. When that happens, it takes a lot less than ten thousand dollars to cut family ties.
