Maria started making yoghurt from a small shed on the side of her dairy farm in the late 1990s. She didn’t start it by choice, as she had had to pour hundreds of litres of milk down the drain when her regular buyers stopped taking her produce due to a huge oversupply in the market.
Swearing never again, she quickly researched how she could convert her raw material into a viable product and discovered yoghurt. Within a few years, she was supplying supermarkets in the capital city and she expanded her product base into other dairy products like cheese, whipped cream and ice cream.
Two of her four children were now helping out in the business, with her eldest daughter Trudy driving sales and her third born son Michael heading the finance department.
A few private equity funds had knocked on her door, wishing to invest in her business to help her “scale up”, a term that both petrified and fascinated her simultaneously.
Her trusted banker had told her that if she got external investors, they would require a board seat and take some level of control in the management of the business. These “governance manenos” as she often told her children didn’t sit well with her.
“Why don’t you start with an advisory board?” Michael asked. “We can get the skills we lack that can help us grow organically while getting used to having external voices weighing in on company matters without ceding control.”
Which knights should sit at Maria’s round table? A key skill Maria would need would be route to consumer, as in how do you get your product from the factory to the customer’s plate?
This would require determining which are the optimal distribution channels for a product that has a limited shelf life and one that requires a refrigerated methodology for storage along the distribution path.
Should the product be sold at supermarkets, which can throttle the business’ cash flow with their extended payment terms, or should the product be sold at cash and carry retailers like kiosks or bicycle mounted cooler kits?
This knight would have to be someone who has worked in the large consumer goods space, preferably edible goods as they would have the experience of running a business at a national level.
Another critical skill would be supply chain management. Consistent and quality supply of raw material from the outgrowers to managing the warehousing and distribution logistics of a highly perishable refrigerated product is a science not easily purchased at aisle number five of your favourite supermarket.
It also wouldn’t hurt to have someone with strategic financial skills at the table. Maria’s son, while a good accountant, had not had any experience in driving growth at scale which requires strategic thinking around best sources of capital, whether debt or equity and how to leverage the balance sheet efficiently for that growth to happen.
To be honest, Maria could likely not afford to hire such people in her management team but would benefit from having those insights at an advisory board level as she and her family considered growing their business beyond the capital city’s borders.
“How would we find such people Michael?” posed Maria. She knew she couldn’t afford them and worried that they would demand a lot of money to sit on her advisory board.
“Funny you should ask that,” he said. “At my last MBA class, we discussed this very topic and my lecturer said that there are a lot of people in middle management at multinationals and top-tier local corporates looking to grow personally and give back to society. They might be willing to come and sit with us if we put our minds to it.”
This unsettled Maria. Total strangers knowing about her business? Michael could see his mother’s discomfort reflected in her furrowed brow. In his last class, the lecturer had circulated a Harvard Business Review article titled Founder’s Dilemma which had really resonated with him.
The author, Noam Wasserman, researched hundreds of businesses and concluded that founders grappled with two choices: to be rich or to be king.
To be rich meant ceding control to external investors and allowing them to unlock the potential value inherent in the business. To be king meant to never relinquish control and grow organically with a mix of luck thrown in.
Michael didn’t want to be trapped in the business forever. He had his own dreams of becoming a movie producer. He wanted to be rich and doing nothing related to accounting. He knew that Trudy his sister felt the same way.
But Maria’s kingdom didn’t seem to have an expiry date. Not as long as she was alive. Next week, find out how Michael and Maria found a point of convergence.
