When a big company buys a little company, why do so many of the entrepreneurs who have sold out fail to stick around?
A clue may have been recently discovered by Saras Sarasvathy, an associate professor at the University of Virginia’s Darden School of Business.
Prof. Sarasvathy compared 45 super-entrepreneurs (all had at least 15 years’ experience, had started at least four companies and had taken one public) with a group of equally successful big-company chief executive officers.
One of her key findings was the differences in how entrepreneurs and big-company execs approach planning for the future.
In her study, Dr. Sarasvathy found that the corporate types tended to set goals, and then systematically developed plans for reaching them.
The super-entrepreneurs, by contrast, started by assessing the resources they had at their disposal, and then asked themselves what could be created.
“They are less like gamblers,” explains Dr. Sarasvathy, attempting to bust one of the common myths about entrepreneurs, “and more like an Iron Chef who has the skills to bring together readily available ingredients, whether mundane or exotic, in delicious ways that make us want to pay more for a taste of the end product.”
According to the Darden research, big-company bosses are used to setting goals, yet entrepreneurs do not think in the same linear way.
Each time the corporate boss requests a goal or plan, the entrepreneur is likely to become frustrated, instead wanting to know what resources are available to him or her. If the acquiring company is big and its resources are hard to quantify or access, the entrepreneur will feel discouraged at not having a good handle on what raw materials are at his or her disposal.
If the acquirer is a private equity group with a number of competing portfolio companies, the entrepreneur will quickly become irritated with trying to get an accurate read on available resources in the face of a labyrinth of business units all eager to protect the resources they have developed.
In either type of company, the boss will likely just yell progressively louder for a plan, and the entrepreneur will dig in his or her heels further, insisting on being told what ingredients are available to work with.
Push will come to shove, and the marriage, ultimately, may fall apart: Either the entrepreneur will leave of his or her own accord; he or she will be fired by the acquirer; or they will come to a mutual agreement that things aren’t working out, with the entrepreneur negotiating a portion of their earn-out as a settlement.
Whatever the way, the big company fails to keep the one resource – the entrepreneur – whose energy it had been desperately trying to harness in order to monetize its investment.
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. He is the author of Built To Sell: Creating a Business That Can Thrive Without You, which will be released in April.