Understanding “why” we own or might own a business, an investment or a racehorse, is far more revealing (emotional and psychological reasons) than the mechanics (structure).
Yet the overwhelming majority of people you meet (investors, advisers, wealth managers), rush to examine the plumbing, the wiring and the construction, to grasp “how” something is, or could be, owned by another owner.
Who has your best interests at heart?
I was asked yesterday by a friend how I learned to cook after leaving home. I explained that largely I was self-taught. I bought food I liked in Australia, and then when I moved back to London. I followed the cooking instructions, experimented a little, sort advice from people who were experienced and learnt through trial and error. I don’t recall having poisoned anyone in 30 plus years!
I didn’t need months of training, an expensive cooking course or a “cooking coach” to cook a Sunday roast lunch for 8 people. The same applies in business. Speed of learning is as important as the quality of the learning. Yet a great many people and companies don’t think and act like that. They defer to regimented training timetables that have little to do with those being taught, and all to do with the trainer justifying their value and fees.
Some business founders, who have long since left the “survival” phase of building their business when money was actually extremely tight, overlook the fact that their beliefs haven’t changed or adapted with their business growth. Such that their attitudes and behaviours, which are governed by those beliefs are out of sync with their logical aspirations today, when it comes time to “exit” (maximise wealth).
I see this in my retainer work with 30% of entrepreneurs and founders seeking to realise their lifetime’s work, particularly in the latter stages of their careers (a full or minority sale of the business). It is particularly prevalent in those, who have arguably hung on too long, suffered through poor health for a brighter future or an unforeseen event that has precipitated a sudden sale.
They perpetuate trying to do everything in areas that they are visibly struggling with or not an expert (transition planning, attracting and converting interest with buyers), in order to save a paltry amount of money (fear of going broke). All the time feigning interest in external expertise, other than to unearth a “solution” (buyer or investor relationship) that they might consummate directly. Money is more emotional than logical.
The mindset is “I managed to sell my business for $120 million and it didn’t cost me a thing” (long forgetting the angst, excessive risk and the labour intensity for they and their families in the days to cash landing in their bank account).
How do you know your business couldn’t have realised $190 million? How do you know that the terms and conditions with the payment schedule (indemnities, earn out etc.) couldn’t have been exponentially more favourable to you? How do you know that there weren’t cheaper sources of capital within or outside your business? How do you know the “process” couldn’t have been completed in half the time taken?
You don’t but you have to trust your judgement at some point, and recognise the limits of your behaviour (talent) and skills. After all, drawing blood is a relatively straightforward procedure but you’d feel far safer in the hands of a trained nurse, irrespective of the cost. Common sense comes at a cost.
Once a week I receive a request from an entrepreneur or investor proposing an equity arrangement in lieu of cash for my expertise. Ask yourself do I possess sufficient control and power over the desired outcome (my financial return) to “guarantee” success? In most cases, you don’t as much as others might convince you that is the case.
Then, what is the impact on my cashflow, time and enjoyment if I do accept the offer? The shiny reward is often very clear, what is less obvious is the probability, and seriousness of the downside risks, and the very real consequences for the life that you are seeking to lead.
I receive a call a week from someone working on a deal with a wealthy individual or single family office that starts with “on a whim, they’ve turned 180 degrees on my advice”. Quit whining to others. The whole point of their wealth is that they have absolute independence and freedom to make the choices that they see fit, at any moment in time. If that is where you seek to invest your time and to mitigate your risk, at every step until the cash is in the bank, I’d suggest from first-hand experience that you need plans B, C and D. Not out of disloyalty but absolute common sense.
If you are seriously confident about the prospects of your business growth, and the impact of our potential collaboration, why do you insist on asking me for “free” help and to assume the overwhelming risk? Is it that you are “cheap”, don’t trust me, fearful of the future or broke? Those are the only viable conclusions.
There are two forms of “entrapment”, physical and virtual. “Physical”, in the sense of the car being caught up in a traffic jam with nowhere to turn on a highway or motorway. “Virtual”, in the sense of being “stuck” in a lousy investment, business or job. Too often with the latter, I meet individuals where their mind has a vice-like grip on their ability to figure out how to adapt to the prevailing conditions (de-risk, effect change, change accountabilities) or escape entirely to a safer, more positive position. The good news is they can and very often will “escape” but their refusal to seek expert help dramatically prolongs the suffering. Move on!
“I am not here to tell you how smart I am, I am here to tell you how smart you will be in the eyes of your peers after backing my business….” Superior returns are rarely found in anything other than individuals, who are sharp, agile and fast-on-their-feet. Their intellect is manifest in an unconventional but simple business approach, which generates dramatic value and results for the investor. That sounds so simple. yet nearly every entrepreneur makes the simple complex and dilutes the impact.
© James Berkeley 2018. All Rights Reserved.
Back in 2014, HSBC triumphantly announced a dedicated pool of $200 million to fund an innovation team and direct capital to young entrepreneurial fintech businesses. It has made some small bets in the intervening years and housed 3,000 digital techies in a separate London building because in the words of then CEO-Stuart Gulliver “we have a cultural issue.” Yet these actions masquerade a more profound Board and Senior Management issue: a fierce split has persisted for over 5 years about the priority that should be given to innovation, and the probable return on the time invested.
If innovation, internal or external, is truly critical to the business or profit centre’s future, why wouldn’t it sit within individual P&L’s, and the accountability reside with the appropriate P&L leader? When large organisations persist in setting up innovation labs, accelerators and dedicated corporate venture units too often they are “divorced” from the cut and thrust of the day-to-day business. They point to an unspoken truth, innovation isn’t really a strategic priority for certain powerful voices and/or the environment is insufficiently supportive of bold ideas or foreign bodies. Which is it? Common sense dictates that those leadership issues must be fixed first BEFORE investing a dime on innovation initiatives.
© James Berkeley 2018. All Rights Reserved.
I just finished reading a quite brilliant book, Lifestorming by Alan Weiss and Marshall Goldsmith. Marshall reminds the reader of one of his most powerful learning points from arguably one of the smartest minds over the past century, American businessman, Peter Drucker. I smiled when I reflected upon how frequently I am asked to correct this behaviour in my own work, particularly amongst entrepreneurs and private equity investors building businesses.
An excessive amount of time is wasted
The private equity or venture investor doesn’t have to invest. The entrepreneur doesn’t have to accept the investment. When they do accept majority investment, the entrepreneur ceases to have the ultimate decision-making power. Don’t whine or somehow think you retain superpowers, you really don’t, concentrate on making a positive difference within those constraints. If you don’t like the constraints, let it go and move on. The same applies to capricious General Partners feeling that the private equity model is underappreciated in the wider world or when power has shifted from their investee businesses to their customers or competitors.
A case in point, yesterday’s headline sale to Disney of large chunks of the Murdoch empire, is just that recognition that the Murdochs cease to have the power to positively impact their family’s and their assets’ future within the constraints laid down (market competition). Letting go is a common sense response, nothing more.
© James Berkeley 2017. All Rights Reserved.
