One of the tricky questions VCs ask entrepreneurs before funding them is:
‘So what will happen to the business if you get run over by a Truck’?
This week, as I recover from one of the most nasty flu infections I have ever experienced, I feel like I almost did get run over….
So, what happens to business in such situations?
– At a very early stage of starting up, the entrepreneur is the sole value creator of the business. Losing him or her can create value destruction. Having a co-founder helps, but usually people with complimentary skills become partners, so its a nightmare to even imagine losing either the right hand or left hand of a just born baby.
– As businesses mature, lots more ‘co-owners’ take over and begin to share in the value creation cycle. So, its a situation more manageable to live with, but there is no simple replacement formula of the founder.
– In ‘asset heavy’ businesses – think power plants and dams and textile factories, a lot of the value remains embedded in the physical investments put in place and more predictable revenue that acrrues from it. So suddenly losing the original founder may not be that damaging.
DONT LET THIS RUN OVER YOU
And, there are always exceptions to the rules:
Look at Apple. Steve Jobs clearly remains the SOLE shining diamond in an enterprise worth 300 Billion!!! This week as he excuses himself from the company for sick leave, there is a nervous flutter in the markets.
Why?
Is it because no one ON THE PLANET other than him who can think of an iPod, iTunes, iPhone and iPad?
Consider Google – The co-founders even today are central to the value creation and perseverance of that business (worth 200 billion)! If the twins stop inventing, their business will decline.
In businesses that are all about IP, idea creation, thinking of innovations and making them multi billion dollar product lines – the inventor has to be around. Like musicians and actors and poets.
Hmmm…. I wonder what Yoda would say to the VCs if they asked him this question?