Entrepreneurs in control: is it time to consider taking investment?
Few start-ups get where they want to be without some kind of support – whether that’s through venture capital investment at the outset, or via an acquisition as the company matures.
We all start out with a vision for our company and want to retain control. But what if this control is holding the business back? For any start-up owner, the thought of relinquishing total control of their business feels very uncomfortable. However, there’s no denying that for some start-ups, capital investment or acquisition can propel the business forward at a pace that’s simply not possible going it alone. Consider the advantages:
1. Economies of scale
Being part of a larger company gives you bulk-buying power, allowing you to drive down unit costs.
You can also cut costs by pooling infrastructure. For example, an ISP that buys another ISP in a different part of the country could centralise its cost centre set-up, such as its customer service and billing operations.
Also, as a larger organisation you can typically afford to invest more in training, legal and intellectual property protection, and pay higher wages to attract the best staff.
If a larger company invests in your business, you normally gain access to a pool of qualified personnel, saving you the hassle and cost of hiring good staff.
Earlier this year, Fluidata secured investment from SCC, part of the Rigby Group. Aside from the additional funding, the investment gave us access to many other resources like a highly skilled engineering team who can visit clients on site, a professional services team and the ownership of data centres.
Acquiring a successful business with a strong brand can open lots of doors and allow you to cash-in on existing customers’ goodwill.
Similarly, being acquired or part-owned by a large organisation with an established brand can make it easier to attract new customers (assuming their brand hasn’t been tarnished) and opens up an existing customer base to market to.
4. Complementary services
Taking investment from a company offering complementary services in the same sector can boost your market share and enable you to enter new markets. Take SCC’s investment in Fluidata. The collaboration means we can deliver a wider range of connectivity and data-centre services, while SCC is able to enter the data telecoms market. Win-win.
5. Career opportunities
Staff retention hinges largely on opportunities for career progression. An acquisition can open up new career paths and give staff the chance to work in specialist roles.
Also, some people are reluctant to join a start-up, for fear of uncertainty or limitations. With investment from a known, larger, longer running brand this fear is reduced.
6. Diversified services
A start-up might have only enough capacity to focus on a limited number of products or services. But with investment funding, it could diversify and broaden its portfolio to increase revenue streams.
If the start-up is acquired or part-owned by a big company, it gains immediate access to a large customer base, enabling it to grow overnight from a regional to a national or even international operation.
7. Shared responsibility
When someone invests in your business they shoulder some of the pressure. Being able to pick a partner’s brains and share the decision-making can really lighten the load.
A change of ownership or part-ownership will invariably mean a conversation with the bank about credit arrangements. But acquiring or being acquired by a business with a solid financial record could mean better financing arrangements for the start-up than it could secure on its own.
9. Political clout
If you’re part of a larger company, you’re in a far stronger position to influence laws and legislation that impact your business.
10. Policies and procedures
Start-ups tend do this stuff on the fly, which is fine at the beginning but can prove problematic as the company grows. Having ready-made policies for appraisals, pay rises, complaints and disciplinary action can save you a tonne of time and money.
Clearly, there are downsides to taking investment. Start-ups often have an energy and dynamism that large corporates lack. This can be very appealing to prospects, who may feel a corporate approach seems stale by comparison. Then there’s the potential for conflict: you may disagree with your partner(s) about which direction to take the business. Start-ups are typically less risk averse than established companies, while a venture capitalist may have a limit to how much risk they’re prepared to accept.
Ultimately, the start-up owner knows what’s best the company, and if after weighing up the pros and cons they decide to continue alone, that’s their prerogative. But owners must be brutally honest and do what’s best for the business. And if that means accepting investment and relinquishing some control, so be it – that’s what being a responsible business leader is all about.
It is all about choosing the right partner, one that shares your vision for your business and doesn’t want to turn it into something it isn’t.
Piers Daniell is the founder and managing director of Fluidata, one of the UK’s fastest-growing tech companies. He was named “Young Entrepreneur of the Year” in the LondonlovesExcellence Awards 2013
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