I have met a great many, Zimbabwean entrepreneurs with brilliant ideas and businesses that are full of potential. Yes I say potential, because most of them struggle to convert that potential into stock primarily because of their desire to own everything.
As a deal structuring expert one of my roles is to link small start-ups to investors. The main challenge I encounter relates to convincing young entrepreneurs that they do not have to own everything. It may seem that most young minds are preoccupied with trying to retain majority shareholding.
The fear of having a third party own majority stake in the company that you founded appears to be rational, primarily because of the stories that we hear of young people who get elbowed out of the businesses they established. But is it really rational? The irrational bit however is that young people simply want to own the business they start, either because of some perceived future profits or undeniable business potential.
“I want an investor, but I am only willing to sell up to 30%, whatever happens I must retain control” I am often told. “I worked hard for this business to get to where it is and I must be compensated for my intellectual property and sweat capital,” they say. “This is huge, once its running, its going to be huge, so I cant sell,” others say.
You would be surprised to know that most big companies are not majority owned by the people who found them. Warren Buffet only owns 17% of Berkshire Hathaway. This is the case with most global brands like Alibaba, in which Jack Ma the founder owns a mere 6.2% or Facebook in which the founder Mark Zukerburg own just 24%.
Most great businesses are found by great people who realise they can not go it alone, so they open their doors to fresh capital and a fresh insight from third parties. They are willing to collaborate and accept that they need assistance to reach their goal. Most of the entrepreneurs who want own everything, on the other hand, go it alone and end up losing everything in process, and this is when the blame game begins.
If you are not willing to learn from others, you fool yourself into thinking that you know everything. People like Strive Masiiwa do not own 100% of Econet, they understand the power of partnerships in business. Econet Wireless had a protracted legal battle in Nigeria to have a mere 5% of its stake in Barti Airtell reinstated. Small numbers mean big things in big businesses, Potential must be unlocked, and oftentimes partnerships, venture capitalists and other investors alike serve that purpose.
The following pointers can help you establish partnerships and businesses that work;
- Set Parameters
Be clear of what you want you to achieve, understand your business in and out, then know what you want to achieve with the investor. Define roles clearly, ambiguity can lead to disaster. Always remember, the goal is to advance the goal.
- Put it on paper
No matter who you are dealing with, in business, contracts must always be in writing. If you are getting a shareholders agreement in place, ensure that key clauses state exactly how you would want the arrangement to exist. Your shareholders agreement must not be vague. My favourite clause is one that talks about the Right of First Refusal (If any of the Shareholders wishes to sell, transfer or otherwise dispose of any or all of his/her Shares, the other Shareholders shall have a prior right to buy such Shares)
- Look for much more than money
It is key to bring an investor on board not only because of the money they may bring, but more so because of the value they bring to the business. Before approaching a would-be investor/partner, ask yourself first what else do they bring on board. Do they bring their expertise? Do they bring their contacts? Are their contacts Relevant to what you intend to achieve?
- Be willing to learn
Bringing a partner on board means that you are not always going to have your way, they will bring a different dimension on board. It is key to ensure that your decision to bring an investor or partner on board is not one driven by emotions, you must be objective about their input as you also hope they will be objective in pursuing your shared vision for the business.
- Do not be an expert at everything, even if you are
It is good to surround yourself with people who add value to your business, people who advise you on financial, legal or other issues. The Strive Masiiwa, Econet story is a good example of this. When Strive was starting out he had people like Timba a banker, Wazara a Markerting genius, Nyambirai a lawyer etc in the picture.
Most young people want 100% ownership at the expense of progress, do not be one of them.