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Entrepreneurs must separate ownership from management 28 January, 2008

Posted by varoom in Management.
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When you start out in business, as an entrepreneur, you have to perform multiple roles. At the same time you need to be management, director and shareholder. This multi-role, maybe even multi-personality, can become ingrained in a way of working which leads to problems when the company expands and involves others in the operation of the business. Employees, managers, fellow Directors and even investors who become shareholders all complicate business life.

One of the common major problems during the growth phase of a business is the reluctance of the founder(s) to accept the eventual separation of the management team, from the board and separation of the shareholders from the day to day running of the company. The founder(s) have to mentally make a separation of the role they have as founding shareholder from the role they have in the day to day running of the business. Not all founder shareholders have the necessary skills, experience or even will power to take the company through the various stages of growth.

As purely a shareholder, anyone with an investment in a company, must want that company to be run by a qualified and experienced management team in the best interests of that shareholder.

The founder, as an employee of the company, usually wants to continue doing a role for which they are motivated to perform and have the necessary skills to execute. But often they feel a loss of control of their company if not in full management control. This makes them driven to retain control.

It needs to be explained, as early as possible, to the founders that shareholders have ultimate control of the company, they continue to own the company and are not losing it to the new management team. As a company grows it needs different skills and experience to succeed and building the best team causes roles to change. The rewards to the founders come as shareholders in the future of the company and additionally as employees of the company.

There needs to be a clear separation, in the minds of the founders, of the roles of shareholder/owner and management/board level director in the company. This is the key to successfully performing in both kinds of roles.


Greville Commins