Striking off on my own to buy a business was all about my being in “control” of my destiny; I wanted to be King! Being rich was way down on my list. I had so much debt – almost $2M when I started – that I was entirely focused on giving all the cash flow to the bank and the old owner and would be for many years!
The EC course Founders’ Dilemma, created by Noam Wasserman and co-taught by Ginger Graham, examines the various challenges founders face. ÿI attended the classes this semester and learned a lot about how other entrepreneurs made decisions around partners, equity splits (a la ZipCar), VCs, Angel funding, hiring staff, bringing in CEOs and exit strategies. ÿThe cases present a variety of founders, some who were swinging for the fences and loading up on multiple VC rounds to make everyone rich; others who wanted to grow at their own pace and be King; and finally the few that ended up both Rich and King, like Steve Jobs! However, all was not rosy; we did see examples of ending up Broke and with no friends in a failed start-up! ÿThere were lots of guest visitors with insightful comments and observations. This is a course well worth taking if you are contemplating an entrepreneurial endeavor any time after you leave HBS.
Early on in my own business, growth was not an option – we just could not afford it. Increasing volume meant increases in inventory to support the orders and extending credit to customers who generally took 60 days to pay. ÿOur working capital revolver line with the bank would cover some but not all of it, and any cash from operations was being used to pay down debt and cover interest charges. ÿI remember getting a call from the banker who noticed a slight increase in revenue, and he said “You are not growing, are you? Remember, I want you to pay me back first!” I was concerned about bringing in outsiders to support the growth, like Angel, PE or VC money, who would then have expectations of us getting larger and my losing control and, of course, some equity. ÿI did not want to be following someone else’s agenda.
A decision point about growth occurred in the 7th year just after we finished paying down most of the debt and a competitor came up for sale. ÿI negotiated hard, using the skills from the “search” process, and my offer was accepted that would result in doubling our size, capacity and number of employees with a business that was 60 miles away. However, Debby pointed out the long commute and wondered if we had done everything that needed to be done with the business and were ready to move on. ÿMore importantly, our boys were now in grade school, and we had talked about adopting a 3rd child when they were in school. I passed on the business deal, and we adopted our daughter into the family when she was 5. ÿWe had plenty to keep us busy both at home and the office and had no “outsiders” pressuring us to expand.
However, once we cut our lead times to customers from 8 weeks down to 3 weeks, our orders began to increase. ÿTheir first step was to “fire” some of the core customers, generally who had lower margins and no longer utilized the new skill sets that we had and diverted our attention and energy away from our newer customers. ÿWe did this very carefully to ensure our “reputation” was maintained by finding another “source” for them to use, offering to cover them for a 12-month period until they switched and explaining in the nicest way we could that our business model was shifting and it was not about them! ÿBut, it was hard to turn new business away.
Growth seemed to consume lots of our time, and the first place to suffer was our own personal time away from the business. ÿDebby was going back into the office after the kids were asleep to close the books, and I was doing more work with customers from home in the evenings and some weekends. ÿOur staff was stretched thin, and we developed ways to outsource much of the capacity that we needed. ÿMy conservative nature also made me question whether this new level of customer orders would continue – did it make sense to hire more staff, add additional shifts, purchase more equipment and expand the operations if all of this was just “temporary”? ÿBesides, it felt good to be debt free, once the loans were all paid off and we would have to go back into debt again to support the growth.
As we got bigger, I realized that I was just not interested in taking the business to the “next level”; I was not any good at delegating. I loved walking the shop floor, being involved in the details of the business, speaking directly with customers, setting pricing and continuously “tweaking” the business. ÿI knew from my days with larger companies that we needed a stronger management team, a field sales force, more formal computer systems and investments in new products. ÿBut our kids were getting older and our daughter more demanding of our time, and we felt we needed more balance. ÿWe decided to sell the business – it was ready to move on “beyond us”. ÿUnfortunately, it took 9 years before it finally came to pass, but we were able to step away and take the steps to position it for growth, without us!
Our kids are all in college now, and our business is also moving into a new stage of its life, as are we. ÿIn the final outcome, there was no dilemma for us. ÿWe were able to be “King” at the business and “Rich” at home!
If you have comments…website or letters to editor.ÿÿThe Harbus and Jim would love to hear from you at firstname.lastname@example.org, or comment online at www.harbus.org.ÿ
Jim Sharpe (MBA `76) is one of theÿHBS Entrepreneurs-in-Residence for the 2009-2010 academic year, who ran an aluminum manufacturing business for 21 years while working with his wife, Debby Stein Sharpe (MBA `81) after both left careers at GE and large companies and sold the business in late 2008.ÿ Jim can be reached at: email@example.com,ÿ310 Rock Center, 617-496-6285 or sign up on his wiki for office hours or Brown Bag lunches at //wiki.hbs.edu/confluence/display/Shapre/Home.