By George P. Bukuras, Esq., CPA
Our economy, and our country, would be in a superior state if there existed more entrepreneurs and fewer people like me, who counsel those entrepreneurs. That said, it remains true that “it takes a village”. The point: what follows comes from a place of great respect and humility; with the appreciation that entrepreneurs are the true magicians of our economy.
Though the objective of this article is to comment on privately held businesses which have attained some sizable mass, much of this article will be focused on the dynamics often at play within companies during their infant and toddler years. I take this approach because, just as the young adult is a reflection of parental and other influences occurring during the individual’s earliest years, so too, I believe, businesses reflect the legacy of their early years, and no legacy so profound as the psychological composition of its founder. The reader should also take note that when I later describe the logical consequences of some of the early dynamics studied, I use the logical extreme to best illustrate the point; thus, I have attempted to provide the more mature entrepreneur readers, as much a sense of what they may have overcome, as to provide a sense of what some may be suffering.
Before sharing observations, however, I want to share with the reader a word about the ether in the entrepreneur’s world. I remember traveling in Europe and visiting an ancient cemetery in a village on the isle of Crete. Though the visit occurred some twenty years ago, there is one particular grave marker which I have always remembered, and which speaks to the forces at work with many entrepreneurs I have known. The deceased was a writer and a philosopher. His tomb stone read “I fear nothing. I desire nothing. I am finally free.”
Fear and desire have been real and present in the lives of many entrepreneurs I have known, together with the sense that they and their businesses were one. Desire is often subjective; it could be as basic as wanting to earn a living, or something more ego related, like achieving recognition or inflating self-esteem. Sometimes it is simply making a better widget. Fear, however, has a more universal quality. The instinct is of biological origin – survival of the fittest. It motivates. Sometimes the emotion has productive result, sometimes not; but, my experience has been that in the life of most entrepreneurs, fear is a constant. I recall speaking to a man who had started and sold, later in life, a hugely successful business. This man had been well celebrated in the press, and the business he founded and grew will likely live for many generations under its new owner. When I asked this man at what point in the development of his business he finally felt secure in what he had created, his answer was: “[w]hen the check had cleared,” referring to his ultimate sale of the business. No joke had been intended.
I take the readers’ time to focus on the emotion of fear because, as will be seen, the paths to transcending certain developmental stages in a company’s existence require great courage on the part of these business founders. Unless the entrepreneur consciously recognizes this emotion at play, the entrepreneur will be less likely to overcome her fear; and rather than having the fear serve as a productive motivator, it will serve unconsciously to keep the entrepreneur stuck, unable to adapt and guide her company through its various developmental milestones.
Entrepreneurs successful at starting businesses often exhibit unbridled initiative combined with a penchant for action. Self-esteem and ego are generally subordinated to the importance of the task at hand, whatever that task may be – from restroom maintenance, to driving hours to pick up samples from a vendor for a potential customer visit, to persuading a lender that the business is bankable, to calling the Governor to complain about recent anti-business legislation. Most successful entrepreneurs do not tolerate well those who allow formalities to stand in the way of action – NOW. In such an environment, there is little distinction made of the value of one’s individual time, to that of another. Though, perhaps, an essential precursor to starting a business where nothing yet exists, the seed of a weed later in season, nonetheless.
Additionally, many entrepreneurs have a keen intuitive sense when it comes to economics at work in their business. Not in the Keynesian sense, but in the Rain Man sense. They seem to just get it, and they expect those around them to “just get it” too. I remember working with one particular entrepreneur who owned a manufacturing company. It is relevant to note that I was trained as a CPA early in my career by a major international accounting firm. As a result, I am not intimidated by things financial. This was known to the entrepreneur. Nonetheless, the entrepreneur’s frustration with me would reveal itself because I was unable to understand, as quickly and intuitively as he, why a particular fixed-price contract would be profitable and should be accepted. After the exchange, I wondered how an employee with, perhaps, less self-confidence (and much to lose) would fare by questioning the master. The answer was: no one questioned the master. Perhaps a good thing at first when nothing exists and it falls to the master to create quickly; quite different, however, as the entity matures.
Hiring in a small and growing business is like trying to hit a moving target. Often the target is moving fast, and the hiring has to follow suit. The wise entrepreneur recognizes the issue of whether the skills she should be seeking in a hire are those skills necessary today, or those skills which she anticipates the business will need tomorrow. Almost always a compromise is necessary which translates to hiring someone who is affordable and capable for today’s need, leaving the worries of tomorrow for some other time, the genesis of human resource issues, which will inevitably present in the future.
Even more troubling, consider the less wise entrepreneur making the common mistake of seeking to hire others in her own mold. Because the “entrepreneurial mold” is so rare, this is seldom possible. The default is to simply hire for muscle and loyalty. This often means an entrepreneur’s first hires are candidates the entrepreneur can rely upon to effectively and loyally execute tasks given by the entrepreneur; good “worker bees,” if you will. Often missing in the mind of the founder is the fact that with each hire, the collective team “batting average” is either raised, or lowered. Here too, what grows in the spring will wither in the fall.
The entrepreneur may even have taken on some hires for seemingly significant roles (i.e., CFO, VP Sales, VP Manufacturing, etc.). It is not an uncommon occurrence, however, that the entrepreneur who hires for these lofty positions has never worked in a more mature business environment than the one in which she now finds herself. In such cases, the entrepreneur may never have had modeled for her what a competent CFO, VP Sales, etc., does.
Often I have heard entrepreneurs make the comment that: though their businesses had grown larger than imagined, and though they were making more money than they ever reasonably had hoped, they were more miserable than ever before, with fear and anxiety seemingly constant companions. Often these entrepreneurs express thoughts of selling and walking away, complain of feeling like a parent with too many children, while yearning for simpler times when they felt less consumed by their business. The reality likely is, however, that they were always consumed by their business, but the activity level was tolerable.
When a business gets to a certain size, lack of organization will be costly and may ultimately translate to the loss of enterprise value through a sale under less than optimal conditions. In fact, there are many private equity funds which buy such companies at below street multiples. Once acquired, these funds institute systems of corporate governance and bolster management teams, ultimately exiting at street multiples, and often to other private equity funds.
Now for the logical extreme, fast forward some years. What type of organism may exist?
We have a company with either no organization, or a company with the appearance of more organization than really exists; a company that is not practiced at managing by objective or using shared information to make decisions; a company for which the annual budget exists solely to appease lenders; a company staffed with loyal associates of the owner, in positions where they may no longer belong, and with titles unfulfilled; a company lead by an “Army of One”, a founder that knows something different is needed, but without the experience to know what that is, and not practiced at asking for help.
The solution to the phenomenon described is for the entrepreneur to embark on a similar path to that which would be taken by the type of opportunistic private equity buyer described above. Initially this might be accomplished by seeking assistance from above the entrepreneur’s position on the organizational chart. I speak of a board of advisors or fiduciary directors, though in most cases, an advisory board is the appropriate first step.
Thinking about corporate governance requires, perhaps for the first time, that the entrepreneur recognize the business as an entity separate from self. The difficulty here is not technical. It is emotional. The entrepreneur must be willing to make the emotional leap from being an “Army of One” to being a chief executive officer, responsible for leading a team and subjecting herself to being accountable to a body of business people with complementary, and in some areas superior, skills and experience. This is scary business. “You mean, forsake those tools which got me here?!”, says she.
If the entrepreneur is to survive to the next developmental phase of the business, the entrepreneur will need to adapt and acquire different skills. If not, the only path to organizational growth will require that the founder step aside. A board of advisors, which comes to understand the personality and skills of the founder, the operation of the business, and the management team, can help provide objective feedback to the entrepreneur, give the entrepreneur a sense of accountability, and serve to accelerate the entrepreneur’s growth and development as a CEO.
Some entrepreneurs spend their whole business lives making due, managing the chaos, while they continually search for that “perfect pearl” in their same mold, often going through a series of individuals, each typically losing their luster in the eye of the entrepreneur in less time than their predecessor. Some, more fortunate, introspective, and disciplined entrepreneurs come to appreciate that the freedom they seek can only be possible through the development of organization and systems of corporate governance. This is counterintuitive for most entrepreneurs who, by choosing to start their own businesses may have been fleeing organization and rebelling against authority in the first place. The path to freedom and the recognition and acceptance of this reality, therefore, is more a matter of personal understanding and growth, than it is business strategy. It is a concept easily understood intellectually, but most difficult to accept and adapt too emotionally. It takes a brand of self knowledge that requires great moral courage. The entrepreneur’s ability to deal with this personal issue will, in large part, determine the company’s future.
A board with oversight will support the entrepreneur by: bringing comprehensive experience to the table; increasing the quality of decision making on major issues; enhancing self-discipline in the conduct of the business; instilling a measure of accountability and responsibility; assure realization of goals and compliance with stated values; and, mediate conflict.
The reader should not interpret that what is being suggested is that there exists some magic elixir that, if only ingested, will make all of the pain go away. Growing a business is continual challenge. Fear is a motivator even in the best of times. What is being suggested is that just as a child requires different nurturing and exposure to experience at various developmental stages in order to grow, so too do businesses and the entrepreneurs who operate them. A board of advisors or directors can provide the entrepreneur with the parenting, if you will, needed to nurture the child. Systems of corporate governance provide the framework in which such individual and organization growth may occur, without which the entrepreneur will be left relying on luck or divine intervention.