Blog Post

To Control Or To Not Control

  • Date: Friday 2nd October 2009
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My view as an entrepreneur is that there are only two possibilities in terms of shareholdings in companies – you have control or you don’t have control.  I don’t like messy compromises where it’s unclear who can make the final decisions about the way forward for a business.  With the Dragons’ Den investments that I make, I do not normally buy a controlling interest in the business. Though there was an exception in the case of Alex Foreman. http://www.bbc.co.uk/iplayer/episode/b00n46w4/Dragons_Den_Online_Episode_3/

 

 

 As a minority shareholder I hope to be listened to where my expertise can help.  I also, of course, have some rights over the future shareholding of the company and, for example, the sale of the business.  But the business belongs to the person who persuaded me to invest and they are, in the end, in control.  I want them to feel that they are really responsible for their own destinies and that whatever I say and think, theirs is the final decision. 

I always make sure that Shareholders’ Agreements make it clear what everyone can and cannot do.  Shareholders’ Agreements don’t need to cost a lot of money to draw up and can be adjusted to fit any conditions that the interested parties agree.

 

 

Tip from Shaf – Borrow carefully or not at all

Banks are very experienced in protecting their positions when they lend money.  They can take rights over your debtors and stock. They can insist on mortgages on your plant and property if you let them.  When you are passionate and impatient about a big step forward you may enter into covenants and agreements with lenders that could cost you control of your company.  At such a time you probably need a bit of advice – speak to your accountant or even a lawyer to make sure you are not taking a rash decision and risking getting into hot water.

 

 

I would hate to lose control of a business where my shareholding should earn me the right to make decisions.  This also concerns lenders.  There’s a case in point at the moment with Blacks Leisure, the outdoor clothing specialist retailer.  They are closing shops and making people redundant at Head Office right now.  Look, I am not saying that such a situation will never exist in a company that you run.  Markets change and sometimes people can find that they have over-expanded their business in, for example, an adverse economic climate.  They have difficult choices to make but at least they are their choices.  Blacks Leisure is having to take action because its lenders are going to put them into administration if they don’t: they have in fact lost control of their business to the banks. Borrowing money can be very useful when you are taking your business forward but remember always to look at the downside of what might happen that would make the lender butt in and take control.

It can also cost a lot of money if, when you have a problem, minority investors or lenders force you to get in consultants and write reports about what you can do.  However clever the report is, you’re still worse off by the amount you have had to pay these people.

The reason you have taken the risk to be an entrepreneur was to be in control and not to have someone bossing you around: keep that in mind as you make your plans.

 

You can see Shaf on programme Four of Dragons’ Den Online this Thursday at 10pm, on BBC2

 

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Member's Comments

  • Report Imran: 4393 days ago

    Your right on the ball on this one, as an a entrepreneur make your own destiny.. Also shaf, I recently downloaded some software from your invested company http://www.blubox.com. Its great, I have compressed my family pics by 60% for archiving.. Winzip does not even come near it.. This company is defo going places!

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