The founder of the Tiger 21 network talks to FWR about why he has written a recent book, the value of his organization, and lessons for the future.

A few weeks ago this publication interviewed Michael Sonnenfeld, founder of the TIGER 21 peer-to-peer network of wealth creators. He also has recently published a book looking at some of the insights he and his fellow members have arrived at. The book is called Think Bigger: And 39 Other Winning Strategies from the Careers of Successful Entrepreneurs. Joe Reilly, a family office consultant working in the US, has also interviewed Sonnenfeld and he goes into some new territory. 

Why did you write the book?

Sonnenfeldt:  For 19 years I have been watching people experience that moment when they sell a business and then transition, sometimes temporarily, from a wealth creator to a wealth preserver.  I felt I should know some things about these people that I’ve had the pleasure of learning from - things that they might not even know about themselves.  So, what have we learned over these years about very successful entrepreneurs? What are the things they are thinking about and reflecting on at that moment when they sell and are thinking about the next thing, and then what lessons, more broadly, have they learned looking back over the arc of their career.  

Did you learn anything you didn’t already know from writing this book?

Sonnenfeldt:  I learned a whole bunch of things, but one was the amount of attention deficit disorder, alcoholic parents, broken homes, and learning disabilities - the whole constellation of childhood challenges that many successful entrepreneurs have. In some cases, it was socio-economic or in some cases it was huge learning issues that propelled so many of the TIGER 21 members to success, but not in a corporate sense, because that particular set of issues would have them rail against the restraints of a normal, corporate setting. They wanted to have success, but on their own terms and the only way they could do that was by creating their own environment where they could create a custom setting to allow their strengths to shine and where they could hire and organize a team to compensate for their weaknesses or blind spots. Many people had deprivations in childhood said, ‘I’m going to prove I can do well,’ but not many do well, only the lucky few filtered up to become successful entrepreneurs, but that relationship between ADHD and all of the emotional - alcoholic parents, Holocaust parents, broken homes, single families, beaten up, abandoned - I hadn’t put that thread together.  I was sitting with these people, but it never was as clear to me.

Many wealth managers praise TIGER 21 and enjoy interacting with the group, but some also grumble that TIGER 21 is anti - wealth management.

Sonnenfeldt:  Just the opposite.  What we are is pro-member.  

Our experience is the following. There are some amazing wealth managers, and they might have a member who is invested with them. The member loves them, brings them in, and next thing you know you have dozens of members invested with him. And these managers are all published in our internal members’ favorites surveys. If you ask these managers they will say we are the greatest friend they ever had. On the other hand, what our process does is teach members to be the CEO of their own investment company. And it equips them to find out when a manager is selling them and when a manager is serving them. If in that process they come to a conclusion that the fees are out of sync, or the performance is sub-par, or there is some other aspect, such as a liquidity provision, or the nature of reporting, or the legal documentation that isn’t for them, well, then, we’ve done a good job educating them. 

Through that process managers realize we are the great managers best friend, and the worst managers worst friend because the process we have honed over these 19 years sheds a light on what is best and worst. We are totally agnostic as to whether a member delegates to a third party or self manages. Many of our members are 100 per cent invested with managers. But we hope that our process equips members to better rate and understand the risks that they are taking and the performance that they are getting. That is just good practice.

Do personal spending issues ever come up in the meetings?

Sonnenfeldt:  We don’t generally spend a lot of time on members’ individual expenditures, but we do look at total personal spending as a proportion of wealth and earnings. For example, we know that our members, on average, live on about 2 per cent of their assets per year, which is often a lot less than you might expect. Those members that live on less are generally living conservatively or even frugally in the context of their wealth. We note that generally, the higher a members expenses above 2 per cent the less sustainable their approach is, unless they have higher income for one reason or another.

We do focus a lot on cash and reserves.  In the book, I talk about George Heisel who was in the Medical equipment business. A substantial portion of his revenue was from Medicare - where they can pull an audit any time. When they pull the audit, you don’t get paid during the audit - sometimes for as long as six months. He said many people in the business go out of business when they get audited, but because he had saved his money, he knew he would get his money eventually.  Otherwise you can’t survive that audit. So we do tend to focus a lot of time on the sustainability of a members approach to investing and spending.

What other types of issues come up in the meeting?

Sonnenfeldt: We had one member, who did his Portfolio Defense many years ago, and he said he had 80 per cent of his money in one fund.  And nobody had ever heard of the fund. Well -I had, but not a lot of people in the group had heard of the fund, but it doesn’t matter what fund you are in, you don’t put 80 per cent of your eggs in one basket. So that person left TIGER 21 after his portfolio defense because that person said, “I have nothing to learn from you guys because your views are so antithetical to mine.” It turned out the fund was Madoff, and a year later he was ruing the day he left, and obviously it is a very sad story.  

One of the other stories I feature in the book is the marshmallow test, which is a research study about self-discipline, where three-year-old kids could have one marshmallow immediately or wait 20 minutes and get two. It turns out the rare kid who could wait is more likely to have success in future years and more likely to be happier and score higher on SAT’s. In fact the marshmallow test is one of the single best predictors of future success - just from a three-year old!

TIGER 21 members generally exhibit a willingness to wait and are pretty disciplined about expenses and delaying gratification. By the time someone has created the level of success required to join TIGER 21, by and large, they are pretty disciplined about expenses. Generally, they had twenty or thirty years of scrimping and saving because they were the banker of last resort that kept their business alive through good times and bad.  

Our first generation wealth creators (the majority of our members) are, if you know family wealth consultant Jim Grubman’s work, immigrants to the land of wealth. They are still mindful of the old country middle class values, which, of course, is a relative term. Think of it this way - our members on average, are living on 2 per cent of their net worth, so, by definition they could live for fifty years, forget about inflation and everything else. Look at all the athletes, entertainers, and movie stars who have amazing careers, but go bankrupt. 

What I came to realize is that all those people, they are not building a career based on financial discipline, but rather, they are selling their God-given talents.  God gave them a voice that is like no other, God gave them some ability to jump higher or farther, or whatever.   Whatever it is, is just amazing.  Those are not our people. Our people didn’t get that gift from God, they achieve success through a level of financial discipline most of the entertainers and sports figures never develop.

Do people change over the years?  How much is peering and how much is just making mistakes?

Sonnenfeldt: Yes, so I would say that is the transition from success to significance.  Somebody sells a business, they are at the end of a ten, fifteen or twenty-year run of working seventy hour weeks single-mindedly on the business, nose to the grindstone, never picked their head up, never looked around, never spent enough time with their kids or community, they were just working their butt off. Of course, that is not every person - that is a stereotype. So now you sell the business and all of a sudden, you start thinking about repairing your relationship with your kids - you think, who am I as a father or a member of society? 

What do I want my legacy to be?  It is not because of TIGER 21, it is because they are in a new phase of their life, and we are like a sherpa, a facilitator, the peer-to-peer support, but they are the ones who created the success, went through the looking glass, left it behind, and decided to get off the merry-go-round, and now they are thinking about what the next phase of their life looks like. Sometimes it is going back and starting something else, but rarely with 100 per cent going back into one basket, because now they have some cushion and can now afford to put it in a better perspective.

Are you a fan of “Silicon Valley” the show?

Sonnenfeld: Yes. (laughs)

The show does a great job of demonstrating the tremendous ups and downs of entrepreneurship. Does the show come up at meetings?

Sonnenfeldt:  Not very often, because interestingly enough, we have more Main Street entrepreneurs versus Silicon Valley entrepreneurs.  When you mention entrepreneurs today people think of Mark Zuckerberg, Steve Jobs, Bill Gates, Elon Musk. The high-tech entrepreneurs.   But the book includes people who are other than that. It is about hamburger and hot dog stands and hotels and everyday businesses. That is what is interesting about our community, they are where North America built the backbone of what we think of as the economy, but no one can deny the growing role of technology as the backbone of the new economy or its growing impact on our society. 

But, when you brought up Silicon Valley, I thought you were coming from another place that has been most fascinating for me. I have called this the Economy’s Dilemma. There is a growing proportion of capital going to technology startups. The number of jobs created in technology startups-per dollar of investment is much smaller than jobs created by manufacturing or service businesses. Then, when successful, those technology companies create products and services which are labor saving by definition, because scalability, by definition, means you can bypass having to train labor, because you can grow without it- or, at least, with less of it. 

So, we have a fundamental dilemma in our economy now, which is that capital is increasingly allocated to the start-ups that are producing the fewest number of jobs, just a time when jobs are most critical to our economy, and when those companies are successful they are eliminating the need for even more jobs.