Entrepreneurs who manage to build a successful business can reach two key decision points near the top of their company’s lifecycle: the time to accelerate or the time to reorganize. As an entrepreneur you can decide to ignore both decision moments. If you don’t, the question is whether you take on the challenge on your own, with advisors or with partners. But the most important question of all is whether you have the long-term value in mind.
Sometimes as an entrepreneur you come to the conclusion that your company is entering a new phase and you have to do something. Only a few are able to devise and implement the change themselves. The rest, depending on the challenge they face, look for consultants, change managers or financial partners for assistance. If collaboration with a strategic partner is sought, this regularly leads to the company being absorbed into the organization of the strategic partner.
Nowadays, a common choice is to enter into a partnership with a financial party. This party has the resources (and sometimes the experience) to guide the company to the next phase. What is not always realized is that the interests of this financial party need not be the same as those of the entrepreneur. The financial party is mainly focused on the return on capital made available by its investors.
“Plant trees in whose shade you will not sit yourself”
If the entrepreneur is focused on that too, there is no problem. But as with principles (which are only principles if they cost money), the question sometimes is what decision to make when something is in the interest of the company but not in the interest of short-term investors. It is therefore important that an entrepreneur consciously decides in advance which direction he/she will take. The combination of investor and long term is important. Commitment on paper is more absolute than in words. First of all, the financial consequences of decisions must be the same for all parties. In addition, there should be no time horizon for the investment. The focus must be long term because that ensures that decisions are made based on the impact on the company and not on the IRR. This allows you to grow the most beautiful trees, although you might never sit under them yourself.
Is being focused on the long-term the only right one? Not always. This depends on your objective as an entrepreneur or investor. Do you want a high percentage return on your assets or do you want to build a sustainable company? What is often overlooked is that the best investments yields long-term stable returns instead of a one-off very high return. For a further explanation of this, we refer to various reports, including relating to Warren Buffett. You have to ensure the right strategy in the right market and execute it well with the right people. Then you create the most value and take the least risk. It makes doing business a lot easier……. on the long-term.