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After the Windfall
Anne Field
09/01/2004
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After selling her 9-year-old mattress company, Sunny Kobe Cook spent the
evening at Ruth’s Chris Steakhouse in Seattle, drinking champagne with friends
and family. Cook, who was raised by a Western Union repairman and never attended
college, toasted the sale price of somewhere between $30 million and $50
million—she declined to say exactly how much. As often happens with
celebrations, reality set in when the champagne wore off the next morning. She
sat in her kitchen, head in hands, surrounded by boxes piled from floor to
ceiling and filled with papers and belongings from her former office. She should
have felt a sense of triumph, but all she could do was gaze at her cluttered
kitchen, overwhelmed by the remnants of her old life and a feeling of
disbelief.
 For entrepreneurs like Cook, 45, who suddenly find themselves with
a windfall, the transition to wealth is a complicated, difficult time. People
who have exhausted their energy running a business—not managing vast sums of
cash—now must immediately decide what to do with their liquid assets. Family and
friends may be resentful, or expect handouts. Swarms of charities descend in
search of donations. “I think the first year is the hardest,” says Lee Hausner,
a psychologist and vice chairman of IFF Advisors in Irvine, Calif., a consulting
firm that works with wealthy individuals and families. “It turns your world
upside down. It can be an extraordinarily overwhelming experience.”
In
extreme cases, entrepreneurs develop what Stephen Goldbart and Joan DiFuria,
cofounders of the Money Meaning & Choices Institute in Kentfield, Calif.,
call “sudden wealth syndrome,” a condition characterized by debilitating anxiety
and depression, rather than by the joy and sense of accomplishment one expects
to accompany a significant financial event. Goldbart, for example, recalls one
entrepreneur who was so paranoid, fearing everyone he met was only after his
money, that he became immobilized, unable to make decisions about anything and
barely able to leave the house. As for Cook, she never became depressed. But,
she admits, “I had panic attacks throughout the first year, thinking we would go
broke the next day.” She recalls many Sunday nights, soaking in a hot tub with
her husband, worrying about their financial situation.
TOP VIEW
Entering the world of the newly affluent can invite a deluge of
solicitations from charities and family, giving rise to dilemmas concerning how
that wealth should be managed. It can even incite panic attacks. But maintaining
a low profile while carefully consulting qualified money managers can help
ensure that, during the transition, we build a firm foundation without
compromising the relationships and values that have supported our success. |
Yet, the reactions of,
say, lottery winners and recently wealthy business people are typically quite
different. The entrepreneurs often feel more justified than other suddenly
wealthy people about receiving their money. After all, they ostensibly worked
for their fortunes. “They can say ‘I really deserved it,’” says Hausner.
Gradations exist, however. Entrepreneurs like Cook, who have experienced a
decade or so of the business roller coaster before becoming financially secure,
also tend to handle sudden wealth with more aplomb than newly minted
entrepreneurs. “The more mature they were before, the better they will handle
the transition,” explains Goldbart.
Take Raul Fernandez, who started
Proxicom, a technology services company, in 1991. By the end of 2000, he had
made $100 million in an IPO. While almost immediately he invested in three
sports teams and bought a two-bedroom condominium on Fisher’s Island, Fla., he
made few other changes in his life. In fact, he continued to work long hours at
Proxicom. “It’s not as though I was an overnight success,” he says.
Still,
even the most seasoned entrepreneurs can experience excruciating self-doubt.
Just before Cook signed her deal, for example, she experienced what she calls a
“major panic attack” in a store, pacing back and forth, wringing her hands.
“I’ll never manage to accomplish anything again,” she told a long-time friend,
who eventually calmed her down. “He told me, ‘You’ve done more than most people
ever do. You don’t have to prove anything to anyone anymore.’”
First-Year Syndrome
The thought of not bringing home a regular paycheck
unnerved Cook, despite her business savvy. Without that weekly or monthly accounting coming in, she felt as though she had nothing to live on—her large
nest egg notwithstanding. “People are in a new financial situation, and they’re
not sure what it means,” suggests Gary Ambrose, a director at Personal Capital
Management in New York. “They knew what they could afford before, but now their
judgment is clouded.”
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