Too Many Cooks in the Kitchen
A friend of mine is fond of saying that when you start a business, everything has to go right. You don’t have any capital, you can’t get credit, and you don’t have any customers. The conditions have to be perfect for a new venture to work. The same is true for partnerships, if the relationship doesn’t work well, it can destroy the business. The more personalities you bring in, the more conflicts and problems. I think of it like bringing in particles to bounce against each other. One particle creates zero friction, two particles a little bit, but as you add them up you might get a nuclear explosion of too many cooks in the kitchen. Any move toward sharing of ownership could be a disaster. And, realistically, how can you start a business that way. It’s hard enough with one decision maker, how could one do it with 10 or 20. Better to keep things the way they are, with one owner of capital who has the authority to make the decisions and keep the conflicts to a minimum. Fewer conflicts means better efficiency because you don’t get bogged down in all that negotiating between owners.
I Only Get One Chance to Get Out
It’s common to read about serial entrepreneurs who had numerous successful businesses with nice buyouts. I think it’s less common to actually meet such mythical creatures in reality. For most of us, we only have one chance to sell that business we spend a chunk of our lives building. With my retirement and family’s future on the line, I can’t afford to play the shared ownership game. I need to go outside into the open market and really push for the best price I can get. My ideal is to look for a strategic buyer willing to pay more so that I can maximize my exit. Why should I explore different ownership structures when I might have opportunities to secure my future and walk away?
Deepest Darkest Fear
I could probably go on and on about why not to convert to a shared ownership model. There are a lot of good reasons, but in the interest of brevity, it’s probably better to cut to the chase. 10 years ago I had the privilege of starting a new food distributor. I started with about $2500 in a bank account and over three years worked up to a business that was doing $120,000 per month (probably roughly $1.4 million per annum run rate at a 10% EBITA). It was hard, but exhilarating, and a solid little business (I came up with an ingenious way and very profitable way of marketing belly rupture hogs, ask me about it if you’re interested :)). The business was organized as a non-profit and was governed under a shared ownership board model. Around year three, we started to have conflicts around the business, where it should go and what the direction should be. To make a long story short, I was forced out of the organization I was a big (even main) part of building. It was a major loss and heartbreaking … and to this day is hard to think about without getting a little emotional. Which brings me to my deepest darkest fear: If I start to share ownership, not just financial benefits, which is less scary, but actual control, what is going to happen to me? Am I going to get forced out again? Will my work and effort be discounted? Will I get my fair share of the benefits if I’m putting in the long hours, losing family time, feeling the stress, and losing my sanity during those lean early years? Will I get pushed out before I’m ready? Can I stay on in an ownership and governance capacity if I’m not ready to fully retire if I’m not full time in the business? To me, this issue and question of “What will happen to me if I lose control?” is the main reason to avoid a shared ownership model. The Germans have a word herzblut which translates literally into “heart’s blood” but probably more accurately to “a piece of your soul”. I don’t want to have to deal with the heartbreak of losing something I put so much of my herzblut into.