Business Ownership Structure: Why 10% may be better than 100%

Why 10% may be better than 100%

BY OLA EMMANUEL 

Ola Emmanuel

No entrepreneur is happy if his or her business is not doing well. Failure of a business to perform as expected may give its owner sleepless nights and long hours of thinking and rethinking on what next to do to make the business perform better.

Who would not want to be happy seeing his or her efforts yielding good fruits? In the latest published result of a research on the top happiest countries of the world, it is explained in part by the researchers that “happiness means having opportunity – to get an education, to be an entrepreneur.

What’s more satisfying than having a big idea and turning it into a thriving business, knowing all the way that the harder you work, the more reward you can expect?” In the outcome of the research, which has Norway, Denmark, Sweden, Australia, New Zealand, Canada, Finland, Netherlands, Switzerland and Ireland as the top ten happiest countries, the researchers noted that what contributed more to the state of the countries include being small in size.

“Being small also seems to help. Big countries with heterogeneous populations are more unwieldy; disparate groups make it harder for a society to build social cohesion and trust.”

The gist I am picking for this page from the happiest country report is: how can a Nigerian business owner enjoy doing business or what can he or she further do to reap maximum profit; i.e. working smarter for higher rewards and better quality of living?

Not a few Nigerian entrepreneurs have seen their business ideas messed up because they chose inappropriate form of business to run it with.

The quest to own a business alone yet without adequate wherewithal to make it a success had made many businesses to wither few months after they are set up.

A lot of the businesses that have spent years are daily gasping for breath. Wonderful business ideas with capacity to become multinationals and first class global brands are struggling to get foothold just because their promoters want to hold on to the businesses as sole owners.

The end result is that they are proud owners of businesses that are fighting hard to survive.

Rethink your business structure

Ownership structure of a business is one challenge that most Nigerian entrepreneurs are finding so hard to really get right.

These entrepreneurs have good intentions and they express it through the names of their businesses with words like ‘international’ or ‘global’, but the right attitudes and approaches to make these intentions become realities are lacking.

The outcome is lack of happiness because the businesses’ performances are far lower than their expectations.

You may have very bright business idea but you may not have the required resources to make the business idea realise its full potential.

In this case, it will be a great disservice to the business if you choose to make it run within the confine of your own capacity as a solely-owned micro or a small business.

If I may ask, which one is better: a 100 per cent of a struggling business whose total annual performance is not up to N1m profit or holding a 10 per cent of a bigger brand with capacity to do billions of naira in annual turnover and multi-million naira in profit?

What makes business thrive exceedingly is the coming together of several strengths to seize available opportunities and operate on good economy of scale in such a way that even people who may not immediately need the product are aware of its existence.

What is in the ownership structure of a business that will not allow its promoter open it up for other people to participate in the business? My take is that pride and that unexplained ‘sense of satisfaction’ to see oneself as business owner is the hidden reason.

The pride is brought about by the level of social exposure, level of intellectual capacity, and the desire to prove that one is economically better than the several millions around that are considered poorer.

It is sheer demonstration of ego and false opinion of oneself.

Yet, someone who wants to prove to be above the next person is not anywhere near where he or she ought to be if he or she had allowed others to bring in their strengths to bear on his or her business idea.

If we look at some big global brands today – Microsoft, Facebook, Apple – we still know their owners despite the fact that the businesses are opened to other people to participate in.

The businesses were started anyhow but they didn’t remain anyhow. The difference is that they know what to do and how to do it.

Because of the mindset these people operate with, they are making huge profit with less stress. Some other people are doing the thinking for them while they go on holiday enjoying themselves and looking younger everyday.

So, why not you? You need to tackle the selfish and possessive tendency that may not allow you enjoy the best your business can offer you. Remember: at times, one per cent ownership of a business is better than gleefully holding on to 100 per cent of a worthless business.

A recurring issue in business ownership in Nigeria is the rate at which businesses are hijacked from their promoters by people who are invited to be part of the businesses. In some instances where two or more people mutually agree to start the business, it is commonly reported of instances where some of the part owners are schemed out directly or indirectly. 

Some Nigerians have the mentality that whoever brings the fund for the business is the owner. This belief places money-resource above intellect-resource. This way of thinking may not be correct. Intellectual capacity transforms money capacity to either perform better or perform woefully. Where the money is available but the intellectual capacity is lacking, such money – no matter the amount – ends up being wasted. Cast your mind now to many businesses whose owners were super-rich, well known some time ago but are no more: what has become of their money and the businesses they built with the money without good intellectual presence? Rather, money needs business intellect and business intellect on the other hand needs money. The two need each other. Never contemplate to rely on money alone to run your business without good strategist(s).

Undoubtedly, someone who is in need of money to give life to a business is in a desperate emotional situation. He is very willing to accommodate whatever is thrown at him for the money to come out. At times what is thrown at him is not articulated in a clear-cut, direct manner. It is often shrouded in innuendoes only for it to be prised open little by little when the damage must have been done and the emotions subsided. If you have approached your business this way or you are walking such a part, it is a clear demonstration of lack of business intelligence.

When shopping for investors or shareholders for your business, never be desperate to such an extent that you fail to give the business the needed structure. How much is the worth of a unit of share of the business and how much should it be sold for? You have to determine this so that you know what unit of shares you are selling for the money the next person is bringing into the business – and you should sell the shares at premium. What am I saying here? It is your duty to give proper valuation to your business, whether already existing or it is just being conceptualised. Also you need to determine what percentage you are giving to each of the interested shareholders for the money they are putting on the table and not forgetting the well-being of the business. This should be properly documented and legally crafted in such a way that it is binding on all interested parties who choose to be convinced to be part of the business.

Let’s look at the ownership structure of one or two businesses whose owners are well known but yet are not one-man businesses. We have good examples in the ICT sector: Google and Facebook. Recently, Facebook announced to sell shares of the company to the tune of $5bn through public offer. Investors jostle to have a piece of the company by subscribing handsomely. But the picture in Facebook is that the company has dual shareholding classes of ‘A’ and ‘B’ where Class B shares have ten times the voting power of Class A shares. What was sold to the public was Class A shares to generate $5bn. Mark Zuckerberg holds onto 28.4 per cent of Class B shares while other founding promoters and directors of the company own their own shares but lesser than Zukerberg. With this arrangement and notwithstanding the $5bn Class A shares, Zukerberg still has control over the company and decisions regarding it. With the ownership structure, he has power over the long-term direction of the company without feeling short-term pressures from any shareholder of the company because he has over 50% voting power for him to continue to determine what happens in Facebook.

Another way to work through the ownership challenge is to have a mix of equity investment and fix return investment. A certain percentage of the business can be earmarked for equity investment while on the other hand you seek investors who are willing to give money but on fixed interest payment. The agreement is to use their money over a period of time (possibly three to five years) and return it. The interests agreed may be paid annually or paid together with principal amount when you are returning the money.

What is the message here? You don’t need to rush and jump at any funding offer for the business from any quarter. Take time to properly articulate how the business should be structured to yield better returns with less stress before you step out to discuss with potential shareholders so that at the end, you will attract wonderful result for doing business without having to be bite your fingers.

Source: Punchng.com