Never too late to get into trouble

July 25th, 2013 → 5:10 pm @

The entrepreneur’s business was insolvent.  After trading moderately successfully for many years, it was suddenly in serious trouble.  In just three years the business had racked up millions of dollars of debts it couldn’t repay, and the founder was spending all his time pacifying creditors… so sales had also died through lack of attention.

The main cause of the problem was simple.  The business had grown to a point where the founder needed the support of professional managers and advisors if growth was to continue.  He hired a very expensive General Manager, and left him to run the business. The new manager took too much risk.  That’s pretty common; if it comes off, the manager enjoys the upside through bonuses and pay rises… if it fails… well, the manager can just move on!

A key client’s company collapsed, leaving hundreds of thousands of dollars of lost revenue, and unpayable debts with the entrepreneur’s creditors.  Along with the rest of the manager’s mismanagement, it left the company in dire straits.

When I got involved, the manager had left, along with all but the core staff.  This was a fairly straight-forward situation; largely a case of burying the carcass of the company, giving birth to a new one,  and parking all the debt well clear of the new business, to be paid off in future.

We took the opportunity to reconsider the business model, and quickly realised that there was a lot of ‘low-hanging’ business available.  So we launched a new model to capture that.  But my most important task was to ensure that appropriate client contracts and Governance would be in place in future, backed by appropriate financial and sales reports, to minimise the risk of a cowboy manager destroying the business again.  After all, it’s never too late to get into trouble!

 

Governance

Assembling a Board of Directors

June 18th, 2012 → 8:12 am @

Last week I facilitated a discussion of Governance with a Master of Entrepreneurship class. Before the class, I sat over a leisurely lunch reviewing my notes.  I felt uneasy, and realised that I wasn’t comfortable about what I was about to say.  So I explored the source of my discomfort.

The problem was simple.  I had prepared a strong case for good governance in start-up companies, and clearly identified the differences between governing young companies and governing more established ventures.   But I had glossed over the biggest ‘real world’ issue …. Most start-ups I’ve come across would have been better off without a Board than with the Boards they assembled.  It’s hard to promote something which is theoretically valuable but which has so often proven to be useless or even harmful to the start-up. (more…)

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