Episode 2: Lessons From a Life-Changing Crisis | The Path to Entrepreneurship | A Board-Building Cautionary Tale

Guests

Octavian Pilati

Octavian Pilati is an Austria-based speaker, author and entrepreneur. Drawing from his personal experience as crisis manager after his own family business fell victim to a real estate scheme, he now advises family businesses on succession planning, fraud prevention, crisis management, conflict resolution and NextGen education.

Jamie Shah

Jamie Shah is the President of her family’s business, Chem-Impex, a distributor and manufacturer of high purity laboratory chemicals. In addition to teaching courses on ownership and operations of closely held businesses at Booth, Shah is a Polsky Center Entrepreneur in Residence where she provides mentorship and coaching to University of Chicago students.

Linda Fonner

Linda Fonner is the CFO of Edmund Optics, a director of HashWatt Inc. and a member of the advisory board of TrainedArrow.

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Here’s a summary of the podcast by interview, with key takeaways for each section:

Interview with Linda Fonner:

Topic: Building and Managing Effective Boards in Family Businesses
Summary:
Linda Fonner, CFO of Edmund Optics, shares her experiences in establishing advisory and fiduciary boards in family businesses. She recounts a situation where a lack of understanding about board governance led to embarrassment and missed opportunities.

Key Takeaways:

1. Over-communicate and educate: Ensure decision-makers understand the purpose and responsibilities of a board.
2. Avoid tokenism: Establishing a board simply because it’s “the next step” without committing to its role can lead to failure.
3. Family members on boards: Apply the same vetting process for family members as external candidates to ensure they add value and demonstrate passion and commitment.
4. Board service is a serious commitment: Candidates should feel their contributions are valued, and their expertise should be utilized effectively.

Interview with Jamie Shah:

Topic: How Family Businesses Foster Entrepreneurship
Summary:
Jamie Shah, president of her family’s chemical distribution company and an educator at the University of Chicago, discusses how family businesses can serve as platforms for entrepreneurial growth. She shares her career journey and how the family business allowed her to test ideas and solve problems creatively.

Key Takeaways:

1. Redefining entrepreneurship: It’s not just about founding a business but evolving, scaling, and reimagining its direction.
2. Freedom in family businesses: They allow optimization beyond financial ROI, focusing on shared values and community impact.
3. Iterative experimentation: Take small, calculated risks and adapt quickly to feedback to minimize losses and learn efficiently.
4. Support for next-gen leaders: Family businesses can provide a safe environment for innovation and experimentation, fostering entrepreneurial mindsets.

Interview with Octavian Pilati:

Topic: Lessons from a Family Business Crisis
Summary:
Octavian Pilati, a young family member thrust into crisis management, recounts the challenges his family faced after a real estate investment went awry. The experience not only impacted their finances but also strained familial relationships.

Key Takeaways:

1. Strengthen family relationships before a crisis: A strong foundation of trust and communication is essential for navigating crises effectively.
2. Education and character development: Beyond formal education, prepare family members mentally and emotionally to handle challenging situations.
3. Practice living on reduced means: Being adaptable to changing financial circumstances can ease transitions during crises.
4. Governance is critical: Proper checks and balances prevent unilateral decisions that could lead to significant risks.

Overall Podcast Takeaways

1. Preparation is key in family businesses: Whether it’s governance, entrepreneurial experimentation, or crisis management, preparation and structure are essential.
2. Family dynamics play a critical role: Strong relationships and clear communication can make or break the success of a family business during challenging times.
3. Support next-gen leadership: Family businesses can provide unique opportunities for younger members to develop and thrive, blending legacy with innovation.
4. Continuous learning and adaptation: Family enterprises must embrace change, whether by implementing governance, exploring new ideas, or handling crises.

Overall Key Takeaways:

• Clear Communication is Vital: Across interviews, communication emerges as essential for bridging generational perspectives and ensuring smooth transitions.
• Empowerment Fosters Innovation: Allowing next-gens to explore new channels and technology strengthens business agility.
• Technology and Core Values Coexist: Embracing tech advancements while preserving foundational values can balance growth with heritage.
• Relationship-Driven Succession: Involving the next-gen in stakeholder relationships—internally and externally—builds a seamless succession path that respects past partnerships.

Podcast Intro
Zack Needles:
This Zack Needles: This episode is brought to you by Deloitte Private, serving family-owned companies, family offices, and privately held businesses, and advising them on addressing a range of issues from growth, talent, and succession to the potential and perils of AI.

Octavian Pilati: Relationships were damaged due to us not handling the finer parts of family dynamics properly.

Zack Needles: That was Octavian Pilati, a speaker, author, and entrepreneur whose own family business was upended by a crisis that caused lasting damage to his family relationships. We’ll hear more about Octavian’s story in a bit.

Welcome to the Family Business Business Family Podcast. I’m your host, Zack Needles, editor-in-chief of Family Business Magazine. In this episode, Jamie Shah, president of her family’s business and a Polsky Center Entrepreneur in Residence at the University of Chicago, explains how family businesses can provide a pathway to entrepreneurship. Then, Octavian Pilati tells the harrowing story of the real estate scheme that threw his multigenerational family business into a tailspin and caused a rift in his family that still has not been fully repaired. He also discusses the lessons he learned from the crisis and how other families can avoid similar pitfalls.

But first, I catch up with Linda Fonner at our Private Company Governance Summit. Linda is the CFO of Edmund Optics, a director of Hash White Inc., and a member of the advisory board of Trained Arrow. She’s also seen the good, the bad, and the ugly when it comes to board building in a family business. In this interview, she walks us through some of the do’s and the definite don’ts of putting together an advisory or fiduciary board in your family business.

Before we get started, support for today’s show comes from Deloitte Private. Our passion for innovation creates powerful opportunities as we advise family businesses on ways to stay ahead of change, leverage technology to drive progress, and transform disruption into multigenerational value. Deloitte Private brings the service, depth, and breadth of Deloitte, tailored specifically to the unique demands of family enterprises, family offices, privately held businesses, and venture-backed companies. Connect with us at deloitte.com/us/private.

Zack Needles: And now on to my conversation with Linda Fonner. Linda, thanks so much for joining me today.

Linda Fonner: You’re very welcome.

Zack Needles: So you have a ton of experience with boards and family boards as well. And I know not all of that experience has been great, right? Can you talk to me a little bit about the pitfalls that can happen when you’re trying to set up a board in a family business, and some of your experiences that maybe didn’t go so well?

Linda Fonner: I would love to. I actually have a really interesting story. Well, actually, not that cool—not that cool—but yes, that’s right. You live and learn. So I’m a CFO, and I was working for a family-run company. There happened to be two co-CEOs, and they came to me and said, “Okay, Linda, we want to start having a board. You go out and create it.”

Well, okay, cool. I know all about that. I can do that, right? I used my experiences and skills. So I defined the roles and responsibilities, put it in front of them, and they approved it. I said, “Okay, this is what I’m going to do. I’m going to go out to this group, this group, and this group. I’ll use my network and find your candidates.” I found stellar candidates. The co-CEOs even interviewed them, and we found the perfect first board member. We put a contract in place and outlined payment and responsibilities. The candidate came to the first board meeting, and then the co-CEOs did a 180 on me. They said, “We’re not giving them any voting rights. We’re not letting them decide our business.”

It was so embarrassing. I had used my personal network to find this amazing candidate. The candidate had even turned down another board to join ours. It was an eye-opening moment for me. I realized the co-CEOs didn’t really understand the roles, responsibilities, and governance of a board. They just thought it was the “cool thing to do” because their peers were doing it. They weren’t ready to truly integrate someone into the business and take advice or make changes. It was a missed opportunity.

Zack Needles: Well, that’s exactly what I was going to ask you about. Do you think sometimes people just think, “We need to have a board because it’s what successful companies do,” without fully understanding what that entails?

Linda Fonner: You’re absolutely spot on. In hindsight, the co-CEOs saw their peers doing it, thought it was “the next level,” and wanted to follow suit. They were also in acquisition mode at the time, so having board expertise could have helped tremendously. But they weren’t ready to really embrace the concept of a board, and that led to missed opportunities.

Zack Needles: If you do it right, being a member of a board is a significant commitment. For candidates, it means something.

Linda Fonner: Absolutely. It’s a big vetting process, and candidates need to feel their contributions are valued. I felt terrible for the candidate I brought in. They turned down another opportunity to join us and were excited to contribute, but it backfired. It’s critical to over-communicate and educate decision-makers about what having a board truly entails.

Zack Needles: Especially in a family business, how do you determine if family members should be on the board? Should they go through the same vetting process as external candidates?

Linda Fonner: Absolutely. Family members should have the same passion, drive, and motivation as external candidates. They must add value and be properly trained and vetted. Entitlement—thinking, “I should be on the board because I’m family”—is a recipe for disaster. Proper training, accountability, and proof of value are critical, even for family members.

Zack Needles: Definitely. Linda, thank you so much for your time and insights. This was great. I really appreciate it.

Linda Fonner: You’re very welcome, Zack. You made this so easy for me. Lovely to talk with you.

Zack Needles: Entrepreneurship is typically associated with innovation and risk, but can those traits really thrive in multigenerational family businesses? Jamie Shah, who leads her family business and teaches entrepreneurship at the University of Chicago, believes family businesses are uniquely positioned to foster an entrepreneurial mindset. In this interview, she shares her career path and explains how family businesses can support next-gen members in taking risks and trying new things. Hi, Jamie, thanks for joining me.

Jamie Shah: Hi, Zack, it’s great to be here.

Zack Needles: Let’s start with a big-picture question: What does entrepreneurship mean to you?

Jamie Shah: It’s an interesting question. I’m on the entrepreneurship board at the University of Wisconsin, my alma mater, and for a long time, I struggled with whether I qualified as an entrepreneur since I didn’t found a business. But the university’s initiative to promote “entrepreneurial thinking” in all students helped me see entrepreneurship differently.

To me, entrepreneurship isn’t about creating something from scratch. It’s about evolving, growing, and scaling something. It’s about rethinking who you are and who you want to become. In family businesses, we have the freedom to innovate while staying true to our legacy and values. Family businesses allow for optimization beyond profit—focusing on employee well-being, community impact, and shared dreams.

Zack Needles: I love that. People often associate family businesses with continuity and preserving legacy, but you’ve reframed them as entrepreneurial environments. Tell me about your journey into your family business.

Jamie Shah: I started my career in investment banking and later worked at Google. Both were formative experiences, but I realized I wanted to be more involved in the operational side of business. Business school gave me time to reflect, and during a conversation with my dad, he suggested I consider the family business. It was like a light bulb went off—I had overlooked the opportunity right in front of me.

When I joined, I didn’t have a defined role. My dad told me to prove my value, so I started wherever I saw a need—answering phones, improving our warehouse systems, and responding to customer questions. Entrepreneurship in the family business became about following the customer’s needs and solving problems.

Zack Needles: How can family businesses create safe spaces for next-gens to take risks and even fail without jeopardizing the entire enterprise?

Jamie Shah: It starts with identifying real opportunities. Is this idea rooted in customer needs, or is it just a whim? Then, it’s about iteration—testing ideas quickly and learning from small steps. My twin sister, who’s risk-averse, balances my tendency to move too fast. Together, we iterate carefully, which helps minimize risks.

As Jeff Bezos says, most decisions are “Type 1” decisions—you can open the door, peek in, and step back if needed. That perspective helps us evaluate risks without fear of failure.

Zack Needles: Thank you so much, Jamie. This has been incredibly insightful, and I think it will help others see family businesses as a platform for entrepreneurial growth.

Jamie Shah: Thank you, Zack. I’m always happy to share and would love to continue this conversation.

Zack Needles: Octavian Pilati was in his mid-twenties when he became the crisis manager for his family business after a real estate scheme plunged the company into turmoil. In this interview, he shares the ordeal, its impact on his family, and the lessons he now passes on to other business families. Hi, Octavian, thanks for joining me.

Octavian Pilati: It’s my pleasure.

Zack Needles: Can you give me some background on your family and its business?

Octavian Pilati: My family business stems from Austria’s aristocratic history. We managed forestry and agriculture, with roots going back centuries. However, in 2014, we faced a massive crisis due to a poorly managed investment in Costa Rica. My father had provided securities for bank loans based on inflated land valuations, and when those values were corrected, the company filed for bankruptcy. This triggered a chain reaction that resulted in significant financial and emotional fallout.

Zack Needles: You became the de facto crisis manager at a very young age. How did that happen?

Octavian Pilati: Initially, I was just a translator for my dad during meetings. Then, one day, he sent an email saying he’d be unavailable for two weeks and left me in charge. That was my introduction to crisis management. I was 25, didn’t have a clue what I was doing, but I tried everything. For every ten misses, there was one hit, and those hits made a difference.

Zack Needles: What was the outcome of the crisis?

Octavian Pilati: Financially, we sold our landholdings in Austria and managed to stabilize. Emotionally, it was much harder. Family relationships suffered greatly, and some have never fully recovered. This taught me the importance of strengthening family relationships before a crisis hits.

Zack Needles: What lessons from your experience can help other families?

Octavian Pilati: First, invest in strong family relationships—they form the foundation for weathering crises. Second, prioritize education and character development for family members. Finally, establish governance structures to ensure checks and balances, especially for major decisions.

Zack Needles: Thank you, Octavian, for sharing your story and insights. I know your experience will resonate with many.

Octavian Pilati: Thank you, Zack. It’s rewarding to help others avoid the challenges we faced.

Zack Needles: That does it for this episode. Thanks for listening to the Family Business Business Family Podcast. If there’s a topic you’d like us to discuss or if you’d like to be a guest, reach out to me at zneedles@familybusinessmagazine.com. See you at the upcoming Transitions Fall event in Newport Beach, November 6-8. Talk to you soon.