Imagine an Alberta tech company grown over many years by a founder who now needs to retire. The company has good products, capable staff, and a great customer list, but it never flourished because that wasn’t the founder’s vision. In short, it’s a hobby company (shhh! don’t tell the staff!). A capable employee is tapped to be the new CEO.
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| "The Brooke Swan", 1910. credit: The Telegraph, UK |
Stories like this are common in Alberta. Our resource industries ship rocks, trees and goo, which don’t change much over time. An engineer who solved a problem in 1971 may find himself selling to the same customers 40 years later. On retirement, if his heirs don’t want the company, he would like to cash out.
That’s a problem, because a company like this doesn’t have any cash. It’s worth something for its name, technology and customer list, but it may have only just made payroll for decades. The obvious solution is to sell the company, but to whom?
Maybe a bigger player in the industry would buy it? Perhaps, but the new owner’s best move would then be to take the brand, the customer list, a few key employees, and shut the doors. Sell to investors? They’ll just flip it to the big industry player. Go public? Not with such poor financials.
The bottom line is this company has to start generating cash. It likely needs investment for growth, and a plan to pay out both the investors and the founder. It also needs a strategic plan for the future. Can this company become a world-beater on its own, or is it permanently a small fish in a big pond? Given its financial needs it cannot choose to remain a sleepy hobby company, so the choices are to go big or just fatten it for slaughter.
An underlying problem is that technical people have a hard time switching from working “in the company” to working “on the company”. The founder never made this switch, and the new CEO has a real struggle. It's OK for the founder to work in the machine shop if he owns the company, but it won’t work for a new CEO with investors who expect a return on their money.
Even so, the company is a valuable legacy. A small technology company is the seed of a great technology company, with the right leadership. The new CEO needs vision, strategy, an ability to execute, and the passion to make it happen. But given all of that, the new CEO requires a willingness to become wealthy, and for technical people that can be scary.
The new CEO may have all the technical tools for success, but if he is terrified of making money and calls finance “the dark side”, nothing good is going to happen. Ownership of a small company means control, and ownership also means wealth if the company succeeds and poverty if it doesn’t. If he’s just bought out the founder in a personally-guaranteed leveraged buyout, the choices are wealth and bankruptcy.
If you want to take over and operate a small company, you have to focus on creating wealth for yourself. It’s a huge change of mindset from “technical employee, valuable because I draw a big salary”, to “owner, valuable because I pay salaries”. But, if you don’t make this switch, your new company will be sold at auction.
