Experienced entrepreneur, investor and best selling author,
Callum Laing discusses his unconventional approach to marrying
capital with small business owners.
From the penthouse overlooking Singapore’s incredible Marina Bay, this short interview takes a fresh look both at small business, inefficient capital markets and a wider opportunity to do significant good in the world. It may challenge some perceptions you have, but read on, there is an opportunity to download a copy of his book on the topic at the end…
Before we start the interview, you have been known to make some pretty controversial statements about ‘Startups’ and Angel Investing. Care to outline what your issue is?
Fundamentally, everything I do on a day to day basis is done with the intention of helping good entrepreneurs to scale and deliver more value in the world. Entrepreneurs are the change makers, they get stuff done and they create real value for their clients and for the teams they hire.
However, over the past decade, in my opinion, the word entrepreneur has been diminished. Being unemployed with a business idea does not make you an entrepreneur. Yet entrepreneurs are the new rockstars, and the world has become startup obsessed. Media and governments have glamorised starting your own business. Too many people seem to have forgotten the part about solving real problems and are just obsessed with fundraising. Otherwise, sensible people are being ‘taught’ by Silicon Valley that you should come up with an idea and then get funding. On the other side of the equation you have this explosion of Angels with no entrepreneurial or investing experience, that are also buying into this hype and throwing good money after bad. This perpetuates the money-go-round which is incredibly detrimental. Angels are getting burned and entrepreneurs think all their issues are funding issues, so are not even asking the right questions to build their business sustainably.
“Being unemployed
with a business idea
does not make you an
entrepreneur.”
Meanwhile, ‘grown-up’ businesses have already figured out the problem they’re solving, have built a team to do it, and have steady clients. The SME’s of the world are left completely neglected. They make up 50% of GDP in most countries, often account for 90%+ of private sector employment, yet are ignored by banks and investors alike. If a company has already figured out how to make $2m in revenue and you can help it scale to $20m, it will typically have to hire another 100+ employees. That has a far bigger impact on the economy than some 18 year old coming up with the next Flappy Birds app, yet the media and governments still obsess about Startups.
On the plus side, it does leave this huge market of great, well run businesses pretty much untapped for us to work with.
And now I’ve insulted most of your readers, shall we proceed?
So what is the problem you are solving for small business owners and how can it help those Angel investors that are bored of getting ‘burned’ by typical startups?
First and foremost we built a solution to a big problem we saw with SME’s; but in the process we also designed a solution that is incredibly attractive to investors, allowing them enormous returns and full liquidity so they can get in and out quickly.
Small business owners face two major problems, which often tend to lead to a third problem. The first is something we call the scale paradox. As a small, typically under resourced business, you are too small to win the big contracts. you can’t win the big contracts you remain a small business. All the things you need to become a big business, finance, senior employees, etc. won’t join you because you are too small.
The second problem is wealth creation. Entrepreneurs have a habit of throwing everything back into their business to support the growth, but because of the Scale Paradox they eventually reach a point where the business plateaus. Plateauing for an entrepreneur feels like going backwards, and so the frustration mounts. It can often feel like everyone is making money from your business but you. Your clients are clearly getting great value, and your team is getting value from being there. In fact, there is a whole eco-system of suppliers, landlords, partners and others that all seem to be doing very well out of the fact that you choose to get up and go to work in the morning. Yet, as the founder and majority owner, often you are the last to get paid.
More often than not, these two frustrations lead to entrepreneurs wanting to sell up; but, enter problem number 3, there are very few exit potentials for small businesses. The most common is to get acquired by a big player in your industry, but those deals are very much rigged against the entrepreneur. Most deals are structured as a 3 or 5 year earn out, yet very few entrepreneurs can even survive a year in that environment (we generally make terrible employees!); and so the acquirer ends up with the company, and the entrepreneur ends up with a fraction of the deal value.
“This is a great way to
support small business;
but have a guaranteed
exit in weeks rather
than years.”
Our solution to this problem is something called Agglomeration. In a nutshell it allows good, well run, debt free and profitable businesses to swap their private stock for public stock. The business owner gets to keep their brand and full control of their business, but they get all of the advantages of a big PLC.
How do investors benefit from this?
Our first priority is protecting the value of the entrepreneur’s shares, and our second priority is growing that value. You can think of us like a Berkshire Hathaway, but for small business. We find good, well run businesses. We make sure there is a lot of diversity, both geographically and within industries, and then we grow very quickly, because we are not confined by the usual M&A problems of trying to integrate systems and merge cultures. All issues that typically lead to ‘indigestion’ and the high failure rate of traditional takeovers.
Investors can buy stock on the open market, but we also have opportunities for investors to get involved behind the scenes. We can use their capital to actually invest in the businesses before we bring them into a group. This is a great way to support small business; but have a guaranteed exit in weeks rather than years.
How can entrepreneurs and investors find out more about this? In conjunction with WBAF I am offering a free copy of our best selling book on the model ‘Agglomerate – Idea to IPO in 12 months’.
I will also be speaking at WBAF 2018 in Istanbul in February.
Finally, people can get hold of me in the following ways.
• @laingcallum
Link to book: www.callumlaing.com/wbaf
