Enduring businesses require investment, infrastructure, talented people, and innovation. Investments take time to yield results; critical infrastructure and processes take time to implement; learning and adjustments from experimentation take time; great talent can’t be added instantly, nor can teams or cultures be built overnight; and innovation and R&D needed for growth take time to bear fruit. As a result, the most precious resource for long-term success is often time. Building and managing for the long term requires a time frame that is future focused without distractions.
Yet, founders and owners considering a business’ next stage of growth or ownership transition can very often be forced to make decisions that introduce distractions and greatly impact how a business will be managed. In many cases, the benefit of executing on long-term strategies is compromised for artificially imposed short-term results. Companies looking for liquidity or capital to grow have a few options: pursuing an IPO, taking on a private equity partner, or selling to a strategic buyer, and each has different expectations and implications for growth, control, and organizational culture.
For example, in a sale to a traditional PE firm, pressure for quick wins easily leads to short-sighted decision making, as well as diligence distractions, transaction costs, and changing ownership dynamics. The typical time frame of three-to-five-years before another sale as a PE-backed company, impacts longer-term decision making and can impede strong business building. In a sale to a strategic, there may be some incentive for an earnout, but after a short time frame, a founder no longer controls outcomes and rarely receives further upside. In both traditional paths, there is often the potential for misalignment of incentives, expectations, and visions. Lastly, the liquidity in an IPO should be weighed against the requirement to disclose sensitive information to the public, including customers and competitors, the time and infrastructure required to meet public company requirements, and the correlation between a company’s size and the success of its IPO.
Importantly in each of these cases, an owner may have a reduced ability to preserve their legacy, ensure that their employees and customers are treated well, and reap the financial benefits from continued business growth and success. Moreover, inevitable economic cycles affect short-termed focused businesses differently than longer-term-oriented firms. It can be easy to close operations, cut staff and drastically reduce expenses, instead of being more thoughtful and well-positioned to manage through dips and then not having to execute on costly rebuilds. A longer-term focus offers an ability to manage through cycles, taking all stakeholders into consideration.
So, what are some essential considerations for an owner when looking for an aligned capital partner for next stage of growth? Here are five important areas to reflect on and ask questions:
As you consider your next steps, explore all options, talk to others who’ve been through the process and remember to consider what happens after you embark on your next stage of growth. Make sure that time is on your side.
“Having run a major PE firm for 20 years, what concerned me most was having to sell our very best companies, rather than continuing to invest in and grow them. I started Cranemere as an alternative partner to ‘short-termism’ so prevalent in financial markets today.”
Vincent Mai, Founder, Chairman & CEO, The Cranemere Group