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A hands-on founder may find it hard to hand over

BY Rachel | 12 September, 2014 | no comments

Entrepreneurs need to understand when to step back from running a business

Mr McCourt replaced one of Britain’s most famous entrepreneurs and inventors when he took the top job at Dyson in 2001. If anything, he believes that the change should have come a little sooner. At the time, he says, the management of the company was “starting to crack quite badly.

“It was a good business making a reasonable noise. [Sir James Dyson changing his role] was him recognising that he may be a brilliant engineer, designer and inventor, but running a business isn’t just about that. There’s taking a business on to the world stage, finessing operations, expanding manufacturing — all challenges he needed assistance with.”

With Sir James deciding to concentrate on his strength — running the company’s engineering and design division — and Mr McCourt running all other disciplines, Dyson enjoyed a decade of sales growth, international expansion and product launches. “Managing is not James’s core strength, but he was a super mentor for the engineers in a way that nobody else could do. He’s the best in that area. He drove and inspired them and that led to successes like the Airblade [hand dryer].”

As your company grows, Mr McCourt argues, the trick is to find the discipline you enjoy and excel in — and hire experts to run everything else. “You’ve probably got a discipline — you’re an accountant, a technology guy, an inventor — but you will not have the full range of skills to optimise your idea.”

Kevin Dorren, a Scottish internet entrepreneur, is about to leave Diet Chef, the online food business that he founded six years ago. With sales already at £17 million and an American launch well under way, it is an exciting time for the company. So why, with the business “still in the growth stage”, by Mr Dorren’s own estimation, is he handing over the reins?

Successfully growing a company is all about being honest about your limitations, he suggests. “As you grow, you need to specialise. I love the start-up bit, but I’m not as good at the general management stuff. “If someone wants to run a business for 50 years, that’s fine, but as a founder you have to recognise what you’re good at. It’s easy to get very close to the nitty gritty and forget about what you’re doing in the long term.”

He thinks that dependence on founders can be bad for any company in the long term and that it’s better to leave the company completely rather than risk becoming a back-seat driver for his replacement Brigitte Read. “I’ll be an interested shareholder and I’ll share my opinion, but ultimately I’m more interested in going back to a blank piece of paper.”

As Sir James Dyson has shown, leaving the chief executive role does not have to mean leaving the company. However, Mr McCourt, now a partner at Montagu, the private equity firm, agrees that founders can find it hard to avoid the temptation to meddle in all functions of the business if they take on a different role. It’s an influence that isn’t always helpful.

“Founders can be brilliantly right and totally wrong, but they often don’t know the difference between the two,” he says — although he notes that other than a few “scary moments”, his relationship with Sir James was relatively harmonious.

William Kendall, who sold Green & Black’s, the chocolate brand, to Cadbury in 2005, warns against encouraging entrepreneurs to step away from their ventures too early — especially when it is driven by a desire to cash in. The problem, he says, is that succession often means a change in ownership and strategy with no guarantee that it is in the best interests of the company.

“Is it better, as an entrepreneur to stick with the business and build forever, or exit and use the funds to start again?” he asks. “I can tell you which one is more exhausting.

“I am less clear which route is best for the country, but the current policy environment encourages you to sell rather than build. That goes against the view that John Lewis-style ownership models and family businesses ought to be the backbone of the new UK economy.”

Indeed, he says that “in some ways” he regrets selling Green & Black’s, because he feels that he could have done a lot more with the brand under his own steam. “It has taken me nearly ten years to find another brand with similar potential [Cawston Press, the juice maker] and to muster the resources and all the right people to be in the position to do it again.

“This does rather beg the question why, unless retirement beckons and there are no successors, are we all in such a hurry?”

How do you avoid the Manchester United own-goal?

Founders who choose to step back should involve others in managing the process. You need think only of David Moyes’ disastrous spell as Manchester United manager after his anointment by Sir Alex Ferguson to recognise the risks of letting a powerful incumbent choose their own replacement.

Annabel Feather, of Piper Private Equity, a backer of Diet Chef, Boden and the restaurant chain Las Iguanas, says that a chairman is an ideal choice to oversee the transition. However, “the founder must be closely involved in agreeing the time frame well in advance and determining his or her eventual role”.

She says that an ideal replacement “would be promoted from a functional role (typically sales and marketing), having built the trust of the founder”.

Kevin Dorren admits that it is a hard process. Diet Chef’s change of management has been years in the making, he says, mainly because it is “not a classic hiring situation. It’s your baby you’re passing on to someone else.” He has spent 18 months working alongside his replacement to ensure a smooth transition.

Jonathan Buxton, a partner at Cavendish Corporate Finance, says that a well-managed transitionout can take from six months to two years and should involve a chairman and a formal interview process.

“Hiring a chairman is often an ideal starting point. It removes the personality aspect.” Too often, the founders’ approach is to “phone a friend from the pub”. Instead, he says,