From my 40 years in business finance I always marvel at how some seem to figure out how to do things on other people’s money. And how they find ways to avoid risking their own.
I never worked with the mega deals and don’t claim to know much about them other than it takes a lot of money to make many of these plans work and they must seek investors who understand and trust that the management has a good plan and the experience and moxy to make them work. I dealt with the small ones and enjoyed helping these people make their business work.
I think much of the reason I like the small deals is that the owners have risk capital in the game; equity and personal guarantees are usually required to finance the business. I find that these people have a big “fire in their belly” to make their business work, both because they believe in it and they want to avoid personal loss. I don’t think the big deal guys are that concerned with personal financial loss other than the lost opportunity for gains on their free stock. Again, that is just my guess, I don’t have research to support this idea. Just years of experience.
I have also witnessed high success by people that knew how to start and run a business, make a profit and grow. Fastenal in Winona is a good example of how some guys started a business with $30,000 capital and built it into what is now a NYSE company. They had personal risk while building it too, but made their decisions work.
Getting small business started requires talent, market knowledge and the right product to meet the needs of the market. I see some common attributes to both big and mall that trouble me:
• Salaries are often determined based on the market value of the management people. That sounds good but how do you figure out if someone really believes in the endeavor or just wants a high paying job? (Fastenal guys had salaries of $100,000 for many years)
• Would management be more frugal if they had their own money at stake?
I recognize there pos and cons to these arguments, lots of them probably and by people much smarter than me. But it does get me thinking about how different things may be if people really had personal risk in their endeavors, big businesses, small businesses and even big government.