What are your goals?

Personal

• What is your leadership style?

• Have you had anyone analyze it besides yourself?

Financial

• Have business revenues reached a plateau? 

• Is more investment required? 

The irony of owner-run companies is that their current success has often grown as a result of their autocratic leadership style. The challenge moving to Stage 3 is adapting to a team of peers—partners—and learning together. It is not an easy evolution. The business founder will need to rein in and even put aside that very same dominating ego and personality that pushed, prodded and pulled the business to its current level. Only then is he or she ready to invite in partners. Ironic, yes, and very hard to do. 

Stage 3 company owners understand the paradox of future success: transforming from autocracy to partnership. Yet, it can be excruciatingly difficult for owners of a business to allow in partners.  

Stage 3 means working hard on integrative skills from which the foundation of a legacy business can be built. Integrative skills such as teamwork, listening, and the ability to learn by taking feedback—without feeling threatened—are the essential skills necessary to incorporate a talented team into a common vision that builds a lasting legacy. The mushroom farmer was fond of his Owner Controlled lifestyle and would not be able to handle other people telling him what to do—or that was what he believed, anyway. He did not want to evolve the business beyond its current size. He was happy where he was. You can respect that. But he could be leaving a great deal of money on the table, as well as missing out on the opportunity to grow the business into something greater, and maybe growing as a person as well. 

Decision 2: your level of investment & risk

The second question entrepreneurs or CEOs need to ask is, how much risk are they willing to carry on their own? Being the sole decision-maker, with the bulk of ownership, raises the risk profile of the mushroom farmer’s business. What would happen if he got hit by the proverbial bus? With strategic private equity partners, his business would not need to die too. His family and employees might appreciate that spread of the risk!

Also, there is the stretch of growing a business. A food processing company CEO was happily engrossed by his business, and making a great deal of money. Inspired by a speech by Apple founder Steve Jobs, however, his true dream became to grow the company more. This CEO knew that he had the drive but worried about putting so much of his personal money at stake. He could not afford to take the risk, but nor could he go to the public markets at that stage. To help his company evolve, the CEO sold 75% of the company’s shares to private equity partners. They helped build up the staff, create systems and identify acquisitions. Ironically, his 25% share ownership ended up giving him more financial return than if he had kept 100% to himself. How incredibly satisfying when the difficult course turns out also to be the best! Of course, if you’re following Steve Jobs’ advice, you must know the risks to growing. One additional point—Jobs may have lost his spot at Apple for a decade but he says the company made it through that period due to the private equity financial partners in place. 

Risk is relative. A medical device company wanted to launch a new product. As the owner knew it would cost $3M to bring to market, he weighed the risks, “Right now, I’m profitable. If all goes well, the product will grow my $50-million company to $60 million, with a cash flow of $1 million. If it does not go well, I’m in the hole for $3 million and it will take me five years to break even and get back to where I am now.”

Pass!

But private equity partners will be lured to possibility of growth. They catch a glimpse of the big fish in the dark water and appreciate the gleam of its scales; they will pick up the harpoon and take on the struggle, bleeding from holding the line, facing unbelievable adversity to bring home the fish others can only admire from the shoreline. That medical device company’s CEO settled on admitting to the conservative nature of his personal and financial goals. “I built this business in my garage and now it has to fly without just me. Let’s get in partners and share the risk.” He got enough cash off the table to cover his retirement and compensate for all the hungry years, but he was still able to stay around to enjoy the new growth with the partners who brought valuable new skills—vision, contacts and patient capital through the storm.  Heaven forbid you hit a rainy patch when financed by a bank.