Are You In Control?

October 26, 2007

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How much control would you be willing to give up in order to grow your business? Would you be willing to give up some of the shares, so long as you held onto the majority? Or would you happily give up 80% and take a backseat? Or would you cling on to every single share as though your life depended on it?

Many businesses could not come up with the cash if they weren’t willing to give up some ownership. Guy Kawasaki is hugely in favour of giving up control to grow a business, and I know Asako is in agreement with him. Ian Denny also feels the same. Yet others, like Felix Dennis would not give up a fraction of a percent of his business, and he’s still managed to become hugely successful.

But, the fact is that many businesses simply could not grow if the owner did not give up some control - or at least they wouldn’t be able to grow quickly anyway.

And usually with any type of outside investment, you will have to give up control to some extent. Of course you could always borrow from the bank to grow your business. And while they wouldn’t actually interfere in the day to day running of your business, banks are nice to you when it’s sunny and absolute tossers when it’s raining. And often if you hit problems they want their money back quickly.

Would you have a problem giving up control if it helped your business to grow? Or are you determined to hang onto every single share, even if it means growing at a snails pace?

Which of the following things would you do to grow your business faster, or would you try something else:

1) Borrow so much money that the bank would have to much to lose by shutting you down if you were in trouble - as Donald Trump did a few years ago.

2) Float your business on the stockmarket.

3) Take in a partner.

4) Franchise your business.

5) Borrow money from an outside investor.

6) Remortgage your house.

7) Rob a bank.

Borrow from friends and family (Richard Branson borrowed from his Auntie a lot).

I already have 3, but I wouldn’t have an additional one. I would do 6 or 8 before the rest followed by 2.

Which would you do? Even if you’re not sure, it’s good to think about it as it will help you plan how you’re going to grow.

[?]

Comments

8 Responses to “Are You In Control?”

Ian Denny on October 26th, 2007 4:18 pm

I’ve done number 1. But we had to shut it down in the end - suspect the bank would have wanted us to give it a go! And I’ve also done 6 and 8.

But that feels like a past life now.

I’m intrigued by franchising, but simultaneously scared. A major local rival - barely 7 months old, has already started franchising his businsess.

And I can see the attractions, but worry about quality - I imagine it is hard to recruit good franchisees. And I can imagine kidding myself that some were right when gut feel say they aint.

I can’t do 6 again (until the current lack of UK house-building to meet the growing demand from an increasing population creates more equity!).

I’d rather not do 8 again.

So that leaves slow organic growth, an outside investor/more partners or the stock market.

Out of those choices, an interesting outside investor who would bring more than money would appeal.

But too many partners is not good.

So the stock market it is!

The FTSE better watch out!
Asako on October 26th, 2007 9:01 pm

Hello Katherine,

Yes, I would definitely give up my control to grow the business. Even if I give up 80%, if the external cash can grow the business by 10 times, I still doubled my value.

Giving a caveat that I do not know much about a plumbing business operation, I will develop a vision presentation of the future plumbing franchiser - the brand, the service, and the technology. And then, I will go to those business incubation or angel investment entities and see if I can find a good investor. As your proposition and brand are so great, your competitors will all decide to become a part of your franchising operations…..
Carl Zetterlund on October 28th, 2007 3:05 pm

Been reading a lot about this around the whole tech startup VC world. It’s a delicate issue when you think about all the people involved. Employees, investors, and founders.

Now #7 is something that is overlooked! High risk -> high reward! Think of the emotional rush. Money can’t pay for that.
shy guy on October 28th, 2007 4:31 pm

How to borrow if my auntie also borrow from me??
The Foo on October 29th, 2007 5:50 am

i’ll borrow money from an outside investor or go the VC route. I won’t give up majority stake in the company to grow, especially if the business was close to my heart or if I built it from ground up. floating it on the stockmarket could be a possibility too.
cathlawson on October 29th, 2007 2:18 pm

Ian - I like the stockmarket idea too. The only thing I would hate is all those non-exec directors getting paid for bugger all.

Thanks Asako - that sounds great. And 20% of something is better than 100% of nothing.

Carl - I wish I hadn’t included that one! But I suppose they rob everyone else so I can see the justice in reversing the process.

Shy Guy - I probably shouldn’t suggest this - and I haven’t done it personally. But you and your aunt could probably borrow of each other’s businesses to secure funding from the bank. All you need to do is keep writing several large cheques to one another each month.

No money is actually changing hands - you’re just passing it back and forth. But when your bank manager looks at your statement your cashflow will look a whole heap better and you should be able to persuade him to give you a loan after a few months.

Mel - I’m like you in a lot of ways - I wouldn’t like to give up the majority stake. But I’d try not to get too emotionally attached to the business because that would make it harder to sell.
Asako on October 30th, 2007 3:10 am

One challenge is finding the right investors. So many great companies flopped after bringing in outside investors, who do not understand the business. Investors tend to feel entitlement, and interfere the operations…
Barbara on October 31st, 2007 10:49 pm

We did 5 and 6, and thought of 3.

Then, we downsized.

Now, we are letting our business grow (?), at a pace that is comfortable for us. However, with my husband getting close to retirement age, we will probably downsize even further.

Partnerships are tough. How do you put a value on someone’s expertise? With most of the partnerships that I know, it seems like each partner feels they are contributing more than the other.

Like Asako mentioned, investors often feel entitlement, and maybe, rightly so.

Banks cover their butts, so if something happens that prevents you from making a payment, they could potentially end up “owning” anything you put up for collateral.

Giving up control to grow a business is a tough decision. Whomever you give control to, may take the business in a direction you didn’t want to go. If that happened, I would begin to feel like it wasn’t “my baby” anymore.

Based on our experience, I would rather grow slowly by reinvesting profits back into the company, and have control over the future of the business.