December 08 2000

WHAT HAPPENS when a company outgrows its entrepreneurial founder?

Look at Deepsea Leisure. The Scots aquarium firm, which has Centres in North Queensferry and Cheshire, hit financial problems recently and defaulted on its debts.

Earlier this week the company secured a £3.5million investment to pay off some of those debts and to finance additional working capital. The company will survive. But it will survive without the entrepreneur responsible for its existence in the first place.

Just last week the blame was laid firmly at the door of founder Phil Crane, and he was asked to leave by institutional investors who lost confidence in him.  In short, shareholders said, Crane overspent. He did what they asked and resigned. But how difficult a decision that must have been, to walk away from the business you dreamt up and built up, the years of blood, sweat and tears, of which I’m sure there were many.

Crane overspent. So what? What entrepreneur doesn’t? It’s their passion for the business and for their idea that supersedes all else; they get carried away by the excitement of it all.

An entrepreneur is terminally mercurial.  They usually suffer from something known as EADD – entrepreneur attention deficit disorder – which means they pay attention only long enough to create an idea, tell someone about it and raise some funding, by which time they’ve lost interest and have moved onto the next idea.

Managing an entrepreneur who is running his or her own business is a hugely critical role and not one to be taken lightly. And that’s the job the Deepsea Board, its advisors and shareholders should have been doing. Not searching for a blamehound or shifting the responsibility, but managing the entrepreneur, keeping a tight hold on the finances (entrepreneurs and money don’t mix well) and letting Crane do what he’s good at – being creative, developing and growing the business, and inspiring other entrepreneurs.

I have worked with entrepreneurs in the past who, by their very nature, have an idea and as soon as it is out of their head and happening then they are on to the next thing, expecting someone else to backfill the gaps they leave behind.

The best entrepreneurs are good at finding the right person to support them. Chris Gorman is the perfect example: his wife Mary co-founded Reality and then took on the Managing Director’s role to ensure people, processes and finances were managed properly and to allow Chris to do the creative bit, the bit he was good at.

So perhaps that was Crane’s mistake? He wasn’t able to find the right person or team to do the financial bit and free him up to concentrate on the areas best suited to his skills.

It’s often the case that to get cash into your business selling equity is the best solution, as Crane found to his cost. But in the early stages this can prove seriously difficult. How do you value such a young business? And how do you know that the cash-rich “angels” are right for your business?

There’s a sad experience I know of a young entrepreneur, passionate about his business idea (in the medical training market), who spent the best part of 10 years nurturing, fighting setbacks, seeking funding and trying to grow his business only to discover that he was left with 4.5% of his business and an investor-selected chief exec who hated his guts.

No matter what this entrepreneur tried to do, the chief exec blocked his efforts. During a Board meeting at which the entrepreneur offered to invest more of his own money to support the growing business, the chief exec demanded his resignation from the board. It was an illegal move; the only means of removing the founder allowed by the Mem and Arts was on grounds of gross misconduct, of which there had been none.

For the sake of the business the entrepreneur resigned. The money wasn’t invested. The business is now in liquidation.

But founders aren’t the only ones to find themselves left behind as the business grows. First employees are often in the same position.

“Friendship founded on business is better than a business founded on friendship.” So said American oil tycoon John D Rockefeller Jr.  How true. Particularly when that business happens to be an entrepreneurial business, usually staffed in the early days by friends and relatives of the founder.

When starting a business you tend to rely heavily on people you know, people you trust, and who are keen to help you where banks and financiers might not. First employees tend to be hugely loyal, to share the company’s vision, and to work extremely hard towards success.

But as the company grows and changes these roles are often the first to change, and increasing demands are placed on first employees. They find new recruits coming in, often above them, and in some cases just aren’t able to grow with the organisation.

A fellow businesswoman told me recently that she is struggling with this very problem, that it had in fact resulted in an industrial tribunal (which she won, incidentally) and a lost friendship.

So how do you manage that challenge? Do you cut the cord, risk losing a friend by getting rid of them, or do you leave that employee to plough along slowly, never really getting anywhere, often holding the company back and frequently infuriating other employees who are there on their own merits?

Deepsea made the decision to cut the cord. But I reckon Crane will be back, as will the other young businessman I mentioned: you can’t keep a good entrepreneur down.

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I wrote about something similar in my Scotland on Sunday column recently, about being big enough and wise enough to recognise when it’s time to hand over the reigns to someone else. It got a lot of positive feedback from entrepreneurs who have been, or are in, that very position.

So we might be 10 years further down the line, but the same business challenges face us every day.

I’d be interested to hear what you think about this article, and also what you see as the business challenges that are new, that wouldn’t have been experienced a decade ago.