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Wednesday
Jul252012

When should a Founder hand over the reigns?

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I read an interesting article about Billabongs founder Gordon Merchant in SmartCompany today - see below...

The article discusses the importance of delegation and letting go of the reigns as a business grows and develops.

I look forward to your thoughts on this subject.

 

The problems of a founder’s continued involvement with a company when they should have long ago left have been thrown into stark reality by Gordon Merchant’s $155 million mistake at Billabong.

Billabong founder Merchant, who still owns a 15.6% stake in the company and sits on the board, aggressively rejected a $3.30 a share offer from TPG for the beleaguered company in February, declaring he wouldn’t even listen to a bid below $4.

Since then TPG watched Billabong’s shares plunge below $1 after yet another profit warning and dilutive $225 million capital raising and has now gone back to the surfwear company with a $1.45 a share offer, priced well above yesterday’s share price of $1.01.

TPG’s first offer valued Billabong at $850 million. Its new offer values the company at $695 million, meaning Merchant’s call has left shareholders $155 million out of pocket.

Merchant now admits he made a mistake by pushing the board to reject the $3.30 a share bid. He infuriated shareholders, such as second-largest shareholder Perennial Value, by saying he made the decision “as a shareholder, not as a director”.

This $155 million error has only strengthened the calls for Merchant to stand down from the board and stop influencing the company, leaving new chief executive Launa Inman to take charge unfettered.

So when should a founder and entrepreneur leave their company?

It’s going to be a hard move for Merchant to make, Billabong is his life and he started the company back in 1973 producing handmade board shorts from his flat.

Creel Price, who works as an entrepreneur coach after selling out of the $109 million company he founded, BluePrint Management, told SmartCompany deciding when to go was a hard decision for all entrepreneurs.

“It’s hard for the founders themselves to leave and you often hear of them leaving and just being chairman but still meddling,” says Price.

“Secondly, the founder casts a long shadow and often people don’t realise how big an impact they have on the values and culture of the business. You have to be mindful of that.”

Price says there are two times that a founder should leave a company.

“The first time to leave is when you grow out of the company; in other words, you have other things to achieve, you are bored of that industry maybe, and maybe you love the start-up bit and don’t love when things become more corporate,” Price says.

“The second time to leave is when the company grows out of your skills. Maybe you are running a more corporate style business; changing focus every six months is not good for the growth of the company.”

He says a founder should leave if key management teams show signs of frustration, there’s management attrition, and revenue and profits have plateaued.

Price says entrepreneurs can feel torn between their roles as a shareholder and a director.

“I think you do have to make decisions differently depending on whether you are a director or investor and the rationale behind making it is different. If you are a director, that’s your first responsibility before your responsibility as an investor,” he says.

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