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Value: John Warrillow

How an Inc. 500 winner lost everything Add to ...

Jere Thompson Jr. sells electricity. A lot of it.

With the help of 70,000 independent agents, Mr. Thompson has built Ambit Energy into the fastest-growing private company in the United States, according to Inc. magazine’s 2010 rankings.

Mr. Thompson is undoubtedly a very smart man, but he did a very dumb thing in selling the business that preceded Ambit, a phone company called CapRock Fiber Network.

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CapRock grew quickly to 1,300 employees, then in the year 2000, Mr. Thompson sold it to McLeodUSA, a larger telecommunications company, in return for stock. Two years later, the telecommunications market collapsed, McLeod went bankrupt, and the value of Mr. Thompson’s stock went to zero. Years of equity evaporated because he traded equity in a company he controlled in return for equity in a company he did not.

Liquidity and control are two currencies that should move in opposite directions. It’s common and often rewarding to control an illiquid asset — practically the definition of entrepreneurship. Likewise, we don’t expect to control a relatively liquid asset — we may buy a share in a public company, but we don’t run the company.

One of the biggest reasons to sell your business is liquidity and the corresponding ability to diversify your assets. Instead of the thrilling-yet-dangerous tightrope walk of having most of your eggs in one basket, you get to sleep better at night because you’re liquid.

If they choose to keep their eggs in one basket, the good entrepreneurs I know control everything. They know exactly how many eggs they have, how big the basket is, what it’s made of and how far they can tilt it before an egg smashes to the ground.

Where does the energy and perseverance to build the fastest-growing company in the United States come from? Who knows, but my guess is in Mr. Thompson’s case, a good chunk comes from the need to erase the memory of a very bad decision.

But what if the acquiring company offering you stock is a stable blue chip? Tell that to the shareholders of Enron, which Fortune magazine voted “America’s most innovative company” the year before it went bankrupt, or to the guys who sold their company to Nortel in exchange for $100 in stock, or to the shareholders of BP before the Deepwater Horizon oil rig blew up.

Or maybe you know someone who sold his or her company for a slice of pre-IPO Google. Good for them. People win in Las Vegas every day. That doesn’t mean it makes sense to bet your life’s work on it.

Special to The Globe and Mail

John Warrillow is a writer, speaker and angel investor in a number of start-up companies. He writes a blog about building a valuable – sellable – company. Follow him on Twitter @JohnWarrillow.

Follow on Twitter: @JohnWarrillow

 

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