How to Build a Small Company… Don’t Sell too soon

Over the Memorial Weekend we ventured out to Eastern Utah to visit the famous dinosaur park. A remarkable site… Utah is filled with all kinds of wonders.

People are familiar with the gorgeous national parks, skiing, and perhaps even recall the 2002 Winter Olympic Games Salt Lake hosted.

What you might not know is that Utah is a bustling hive of start-ups and privately owned companies. Perhaps more small companies per capita than any other state in the Union.

The state’s character and culture consists of self-reliance, initiative, and family. This leads many would be entrepreneurs to complete college, sometimes not, with a business plan to start a company that will support themselves, families, and friends.

Sometimes they grow to be quite successful. Omniture an Adobe company is an example. But most of the time the companies remain small, and the entrepreneurs migrate from one company to the next in search of the next strike as if they are panning for silver and gold in the 1800s in Park City.

Occasionally there’s a company that is building a substantial enterprise for generations to come. I came across a company called Qualtrics by the Smith family. Forbes 6/4/12 issue article The Best Kept Secret in Tech is in Utah. Notable in this story is that they turned down a $500MM offer to buy their company. The reason: give up a smaller part of the company, and build a significant company that grows and stays in Utah.

Lessons to share that this company is taking applies to any entrepreneur following a similar path. First, recognize it is really hard to manage from a start up to a growth stage. The skills for starting a company, securing funding, obtaining first sales are different than later growth stages for propelling the company forward where sales are multiplying and people and processes are needed to create a scalable foundation.

Other points to consider:

  • Hold off going public or selling a majority interest. It’s expensive, time consuming and a distraction from the core need to build the business. Many companies sell their interests long before the company matures through the growth stage. A point where the next few years of growth are reasonably predictable, the mission is clear, and good management is in place to execute a plan for profitable revenue.
  • Capital is important. The enterprise will starve without it. However, there are lots of ways to obtain growth capital. Finance the growth plan by selling a minority equity stake to a partner similarly committed to growing the company for the next few years; use debt judiciously, there’s plenty of low interest financing available; or self-fund via cash through revenue growth.
  • Get the best professional help around you to complement your skills. Professionals who understand how to work with an owner/founder can constructively challenge one’s own business assumptions, contribute ideas, and lend perspective to addressing opportunities and weaknesses.
  • Create a board of trusted advisors. This group should be independent of your family, management, and friends. This is not often easy to do. Finding objective people willing to give time to listen requires relationship building. Time and patience is not something most entrepreneurs have a lot of.

Peter Klinge, Jr. is an executive and advisor for various companies. His expertise areas include leadership and general management, marketing and business development.


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