LEAD & LEARN
BUSINESS MANAGEMENT
| by Les Nemethy CEO of Euro-Phoenix |
For most business owners, this is an absurd question. “Of course I am, I created the business!” But the fact that you have paternity rights does not necessarily make you the best parent!
The same is true from a corporate strategy and corporate finance point of view. Allow me to give four examples to illustrate the point:
Company A has developed a world-beating technology. But it lacks the money to even register the necessary patent protection across the world, hence has been going nowhere for the past few years, losing valuable time. Meanwhile, the competition is catching up. In technology, no advantage is ever permanent.
Company B is a FMCG (Fast Moving Consumer Goods) company, that has a local brand, in one particular country. The owner knows that the brand could be rolled out to other countries, but lacks the capital and local market knowledge in these other markets to carry out its strategy.
Company C is an ESCO (Energy Savings Company) that installs new energy-efficient heating systems in old buildings (hospitals, prisons, etc.) The only problem is that the equipment is very capital intensive. The banks were thrilled to finance the company in the first years, because the company was very profitable, but even though earnings were retained in the company, the equity base of the company became too thin to support such rapid growth.
Company D has had none of the above problems. It was founded by the owner and grew rapidly. But the owner realized about himself that he is both happier and better at running smaller, start-up type companies. When a company grows beyond a certain size, it requires different systems, a different type of management, and yes, a different type of CEO.
So what do these four examples have in common?
The company would probably be worth more to someone else than it is worth to the current owner. It would be worth more to someone with deep pockets or the necessary expertise to take the company to the next level. If a new owner, thanks to its deeper access to capital or expertise, can accelerate the revenue and cash flow growth of a company, it is worth considering a change of ownership, or at least bringing in a strategic or financial partner.
I would suggest that the aforementioned four examples are not isolated examples, but archetypes – there are probably tens or hundreds of thousands of businesses in each of these categories around the world.
Yet there are a number of obstacles to business owners cutting the umbilical cord with their own companies, most of them of a personal or psychological nature:
• Many business owners have such tight emotional bonds to a company, that the option of parting with a company is unthinkable or heretical, like parting with one’s child. But does a parent do a child a service by keeping the child at home forever?
• Some business owners fear that if they sell their business, they will have nothing else to do. Have you ever heard the expression “serial entrepreneur”? These are typically business owners who have recognized that they are better at starting up and growing small business, spinning them off when the reach a certain size and maturity.
And then on to the next one.
Do you have it within you to start another business?
I am not advocating that anyone sell their business against their will; but I do advocate that every business owner should occasionally look in the mirror and ask whether they are truly the best possible owner of the company, the one that can maximize the potential and value of their company.
Les Nemethy is CEO of Euro-Phoenix Financial Advisors Ltd. (), a Central European corporate finance company focused on Mergers & Acquisitions. He is the author of “Unlocking your Company’s Value”
