Discipline, Principles and Rules - Julie Meyer
Maybe my perspective is tainted by 10 years of getting start-up companies funded, but the recent ménage à trois between the Bank of England, FSA and the Chancellor of the Exchequer has left me reflecting on the various elements of power inside of a freshly minted company.
Inside of any private company, there are three layers to power. First of all, there is what the founder/entrepreneur has, and his/her decisions in the setting up of the venture will be key to its success from a corporate structure perspective. His/her role as a strong CEO is vital to the smooth functioning of the fast train on which any start-up is. If people don't follow the CEO, then chaos reigns. If the Board later tries to rip out the founder, and insert new [frequently big company] CEO, then a very dangerous balance can slip out of balance. We've all seen this train crash somewhere before.
Secondly, there is shareholder power. What does one entrepreneur need to give away in his/her company to attract top talent [the team] and the right capital providers. Some of the best entrepreneurs I know - know to keep it simple. One class of shares aligns interests and objectives better than any 40 page shareholder agreement can every do. If any of us make money, then we all make money. Who can argue with the simple power of that statement?
Finally, there is the Board of Directors. Board Directors are there to represent the interests of the shareholders, and to protect and maximise shareholder value. A good Director will be able to do that and make sure that the company achieves its potential. He/she needs to be an expert in human psychology, and understand the make-up of the entrepreneur/CEO. Influence well-yielded can go much further than control exercised ruthlessly. The moment that Board Directors start pulling in different directions, the chance for any real shareholder value to be created drop to the low digits.
People talk a lot about corporate governance and when grandmas have their pensions in public companies, that's a real concern. In the private sector, and in the start-up phase of that sector, there are hundreds of reasons why a young company won't make it. It might exist in the space of the living dead, but fail ever and utterly to be a game-changer - which is what every entrepreneur aspires to be.
So, worry less about corporate governance, and worry more about success. If I think back over the past 10 years to what is the shared thread throughout all of the very successful businesses which I've observed up close or near by, it's that the entrepreneur has been very very much in control, and the dominant source of leadership and power in the firm. That has been consistent even as the sectors, eras and ambitions of the firm have been very different. It's hard to argue with patterns which stand the test of time.
I believe that the reason for this is that - the market for something or someone to believe in - is infinite. Great entrepreneurs feed that market need. They give the people on their team something - a mission to believe in - and they embody that mission themselves.
So there is at the end of the day: discipline, principles, and rules.
I hate discretionary power, so give me a rule-based approach over a principles-based one any day of the week. I'd rather know what the rules are, and then follow them, amass a position, and then if I can, change the rules [if I feel they need to be changed], then build my company in a vague principles-based universe, and have someone at the 11th hour, interpret those principles differently than I do. The risk of losing everything is too much.
What does this have to do with Northern Rock or the powers that be in the credit crunch?
In the 21st century, whether you want to be or not, you are becoming the entrepreneur of your life - CEO of Julie Meyer or You UK Ltd [not a real company], and you are in charge of your personal P&L, your brand, your financial statements, your goodwill, and your ability to barter and influence with the people you need most - your bank manager, your landlord, your cleaner, your family.
You will need discipline to succeed. If you take out more credit than you can pay back if interest rates increase, then you will fail. It's your job, not the government's to imagine how rates could increase, and how you might be in a tighter than acceptable squeeze. Every successful entrepreneur I know is at core - disciplined. I can spot lack of discipline a mile away now, and I run, not walk, away from these people fast. Give me creativity and passion, but give me discipline alongside or I will find the former and the latter elsewhere.
Every entrepreneur also wants to create and keep a positive architecture in their firm. That requires building Boards and shareholder bases which they can control to a good extent, and it requires a rules-based approach. There is a positive tension in determining what the rules are, but relying on principles where money is involved, is almost sure to lead to tears.
One of my investors said at my firm's 1st Anniversary party in 2001, "the time between the wobbles of things going wrong and the free-fall into a downward spiral - a descent from which an entrepreneur cannot recover - is very fast. In hindsight, it goes so fast, you think - how could I have known? What could I have done differently? You can only be very paranoid." You must have personal discipline, and you must know what the rules are. You cannot afford to have different interpretations of power and scope for action in a moment of crisis, and you cannot afford to not know who is in charge when the crisis comes.
What is good about the emergence of You UK Ltd is that more people than ever are going to be confronted with the harsh reality of living their lives as businesses. It is - as they will discover - one of the most powerful feelings around to know that you are the architect of your life. This will have very strong positive knock-on effects throughout British society as young people grow up relying on themselves and not blaming others for what happens in their lives. Watch this space.
Julie Meyer is the CEO of Ariadne Capital who invest in digital media, life services and communications firms.