I was asked to consult with â€˜Cliveâ€™, a British immigrant entrepreneur who owned a company back east this week that needed some help with raising some capital. Now, this can be an easy show me the money scenario based on sound management, a great business plan and a wonderful innovative product or it can become a finger pointing analytical dissection of a business in turmoil. Clive unfortunately is the latter.
Most management consultants will tell you the three most important parts of a successful corporation are good management, enough capital and a great product. The theory is if you have 2 of the three you can ALWAYS find the third. I agree with this and time and time again this scenario is played out in boardrooms all over North America.
My client told me his friend Clive needed $3M to get his troubled company back â€˜on trackâ€™ so that a consortium could utilize his revolutionary prototype to fill a huge multinational contract. Sounds good I think! Hmmm. Something is wrong here.Â I call the entrepreneur and have a conference call during which he tells me he needs $5M (it started out at $3M the day before). I asked him bluntly about the difference and he said some of his staff had not been paid in a year and he felt they should get something. Bad vibes now flowing.
I suggest people who might be able to help him out and then the exceptions start coming out. I tell him my angel investors will need control of the corporation, No way he says; â€œIâ€™ve put my blood and guts into the businessâ€. I say well the very least weâ€™ll need to replace the CFO (Chief Financial Officer) with our own guy to oversee expenditures. No way the entrepreneur proclaims, â€œthe current CFO is my buddy!â€ My next comment infuriates the entrepreneur when I coldly tell him most of his management team needs to be replaced with qualified people, but theyâ€™re my friends he tells me. I ask him in his role as CEO, what his background is. Heâ€™s an engineer and academic. Therein lays the answer to my growing concerns. Another entrepreneurial dream lacking direction and substance and being run by an academic. Here’s an inventor and nice guy who is a reluctant entrepreneur and CEO.
I thought of numerous solutions to his problem in the day since I spoke to him and the more I thought about it the more incensed I became. Clive had broken all the rules:
-Â Â Â Â Â Â Â Â Â hired his friends because he was comfortable with them,
-Â Â Â Â Â Â Â Â Â undercapitalized the corporation thereby running out of cash when it was needed,
-Â Â Â Â Â Â Â Â Â was afraid to give up control (whatâ€™s 100% of nothing?),
-Â Â Â Â Â Â Â Â Â wanted to create a legacy for his employees without taking care of them
-Â Â Â Â Â Â Â Â Â had an arrogance that was born of ignorance
-Â Â Â Â Â Â Â Â Â was afraid to manage except by consensus
-Â Â Â Â Â Â Â Â Â felt everyone was out to get him
-Â Â Â Â Â Â Â Â Â didnâ€™t understand the concept of shareholders
-Â Â Â Â Â Â Â Â Â And on and onâ€¦
Good management requires tough decisions. If you have built a business on a house of cards it will fall down and nothing except a major overhaul will fix the problem. When Clive arbitrarily changed the amount he needed fro m$3 to 5million dollars he forgot that the investors had earned every cent of their money and his cavalier attitude was infuriating.
The sad effect of all this discussion is that a lot of people who canâ€™t afford it will lose a lot of money and an incredible and revolutionary product will be lost to the world because of mismanagement.
Being an entrepreneur is not for the faint of heart and perhaps some people should stay academics.