The Entrepreneurial Journey

So, here’s a question:

If you were setting off, say, on a twenty-year spell as an entrepreneur and your only point of self-interest was personal wealth creation, then, on average, which of the following two models do you think you are likely to be more successful with? Model one: overseeing four five-year cycles (i.e. start-up-to-sale four times); or, model two: a concerted twenty-year stint building the mega-firm and the mega-payout?

The Entrepreneurial Journey
(Photo Credit: unlimited inspirations via Compfight cc)

Before I answer it – and for the absence of doubt – please let me be clear on the point that doing this for wealth creation alone would not only be a pitifully empty strategy, it is also unlikely to work – as such a business leader is unlikely to command the respect or followship required to actually grow a high-performing team.

This is more of a thought experiment. The prize of wealth creation is one important – and very valid – aspect of your motivation, so the answer to this question is of some interest.

Well, it would appear from the data on professional service firm acquisitions, that – on average (exceptions clearly exist) – you would be far better off undertaking the four shorter journeys. Why is this? One key reason is probably to do with the near inevitable dilution of original owner shareholding that takes place as a firm grows. Even within an ambitious five-year journey this aspect will be a factor for you. For a firm developed linearly over twenty years, it is almost certain that the original owners will have needed to dilute their shareholdings – perhaps significantly. I suspect, aside from size per se, this is partly due to the point that with maturity comes a heightened sense of equity awareness and expectation from many members within. Such firms potentially also need to offer equity to attract new business development talent (whereas the younger firms can market the competing attractiveness of being a more fun, personable place to work).

I doubt anyone reading this is considering the multiple, serialised build-sale journey as a premeditated ambition – you would need Herculean levels of stamina to undertake such a course!

The point I am making is just that the optimal strategy in relation to personal wealth creation – on average – is a focused, short-to-medium term one. With a fair wind this can play out fully in five to seven years (including the period to ‘earn out’ all your value post any sale).

The entrepreneurial journey I describe in my guides, based on a professional services model, is realistically framed in this kind of time period. Well prosecuted, this should be the main ‘play’ of your working career such that future choices beyond this period can be based on the security of the financial buffer it creates.

These extracts from my guides cater, deliberately, for the reader at the early conception stage – who has yet to even incorporate. It should be noted, however, that my guides do not get too ‘bogged down’ in the actual mechanics of starting up a company. The reason for this is that it is actually quite straightforward; it can appear daunting but it really isn’t. You can actually have the basics in place in a couple of days (statutory registration, bank account, finance control package etc). A myriad of resources already exist to talk you through this – arguably quite prosaic – section of the journey.

Rather, my guides/posts stay focused on the aspects that (a) shorten the time taken to get to a potential sale point and (b) maximise the value as/when you get there.

That probably all sounds a little mechanical so it is worth me dwelling also on how all of this will feel. In this regard, the metaphor of the ‘journey’ is very apt. At times, the destination will feel very, very distant and the path towards it will have its highs and lows. The ‘roller coaster’ was an oft used phrase in my firm. Whilst you must never lose sight of the ‘end game’ in order to traverse such dips, don’t get totally fixated by it. Like any journey, as much of the reward is with the ‘here and now’ and the serendipity of ‘what’s around that corner?’ as it is in getting to your declared final port. Most importantly, you are in a people-centric business, so it will be a journey of companionship – with colleagues and clients joining you en route. This is the richest part of the experience – as the hard miles you share will forge a deep sense of professional camaraderie. Building a firm that harnesses this metaphor, this kind of ‘we are involved in something special’ culture, should be part of your forming plan.

In the next blog post, I will address an aspirant entrepreneur on the topic of ‘What is unique about a professional service business?’