Cheap Billionaires
Many times while speaking to service providers, hedge fund managers, and industry-insiders there is talk about how the ultra-wealthy are thrifty or cheap. Typically this talk comes from those trying to get money or fees from these families, but the topic has come up enough that I wanted to address it directly here from what I have found to be true.Top 6 reasons Billionaires are seen as Cheap:
- Bigger Target: As families reach a billion dollars in net worth it is harder for them to hide because of their number of employees, and accomplishments in selling a business or owning a large operating entity. Also, the very fact that they are worth around $1B or more and not just $20M or $100M makes every person who hears of the family likely to tell others about them, further making it harder to "fly under the radar" and avoid a constantly line of sales pitches. As a bigger target billionaire families get pitched many times a day for by service providers, consultants, fund managers, politicians, non-profits, impact investment groups, and their own friends and family for money. This forces them to build walls around them, a thicker skin, and most times thinner patience for such activity.
- Control: As you may have read about in my recent book "The Single Family Office," many of the world's wealthiest families became so through controlling a large stake in an operating business. This level of influence on where a company is going and being able to manage the details becomes part of who they are. I have seen that this carries over to service providers as well, the families may want to work with someone local, or not hire anyone at all as they may feel more comfortable and in control of costs and delivery by hiring some of the best talent and having them work internally on their IT, Accounting, or Investment Management work rather than outsourcing.
- Budget Perception: One reason I believe many see billionaire families as overly thrifty is a misconception on their budgets internally. Just about every family I speak with talks about being resource constrained, as even if they are worth $20B as one middle east family I know relatively well, they are not a $150B asset manager or sovereign wealth fund, and they have real team and due diligence constraints. An IT service provider for example may see that a customer service business is owned by a $1B+ net worth family and may think they want the best of the best, top of the line solution for their cloud security...yet that customer service business may only be doing $10M a year in revenue, so the billionaire family may only sign off on spending $10,000 a year on a cloud solution and not $150,000 a year as the IT consultant "knows" they should as a best practice. The problem is IT person believes the family is going to throw money at something based on the family's net worth and not the business unit's budget.
- Leverage: Many investment funds and service providers would like to brag about having a billionaire families as a client, and these families know that. For example at in our Family Office Executive Search subsidiary we landed a billionaire family and their foundations as a client last month, and we were open to charging a slightly lower fee simply because it was a great family to be serving, well-known globally, and most importantly we wanted to grow that relationship long-term for other ways to work together such as speaking at one of our Wilson Conferences or exploring our $400M AUM Platinum & Gold Storage & Investment Partnership (precious metals).
- Necessity: Many families have weathered depressions and down turns in their business to get to where they are, so they know when things get tough that they need to either already be lean or know how to get down to what is critical and needed for core operations. This breeds a mindset of wasting less, and when something is not critical to raising revenue or profits, to carefully allocate resources to it. There is also a lack of blind trust in all but the top-tier most trusted service providers such as a world class attorney or CPA in believing what is being recommended to the family. The trouble with outsourcing or relying upon outside counsel in many areas such as IT, insurance, staffing, etc. is often times the more informed person in the room, recommending how the family spends their money is also the person profiting from that spend (IT consultant, insurance broker, executive search firm, etc).
- Stewardship: Finally, those who have reached $100M or a $1B in wealth are in some cases superior stewards of their wealth, mostly in terms of building it, but also defending it against those who would want to take some of it from them whether it be competitors, litigators, etc. They have learned over time that everything is negotiable and many families have built their wealth by buying distressed assets, not overpaying staff, and slashing expenses after taking a company over. These families pride themselves on running operations lean to maximize their bottom line on a business.
