{"id":1945,"date":"2013-06-19T10:49:24","date_gmt":"2013-06-19T17:49:24","guid":{"rendered":"https:\/\/masonmyers.com\/?p=1945"},"modified":"2015-01-28T12:58:41","modified_gmt":"2015-01-28T20:58:41","slug":"built-to-last-or-built-to-flip","status":"publish","type":"post","link":"https:\/\/masonmyers.com\/built-to-last-or-built-to-flip\/","title":{"rendered":"Built to Last or Built to Flip?"},"content":{"rendered":"

Is your business built to last or built to flip?\u00a0 No question influences your business strategy more than this one.\u00a0 There is no right answer — either strategy is fine.\u00a0 However, making sure that you have alignment throughout your organization on this question is very important, particularly when taking on an investor.\u00a0 Most private equity owners intend to only hold investments for three to five years.\u00a0 In fact, Pitchbook is reporting that hold periods for private equity investments have reach an all-time high of 5.4 years in 2013.\u00a0 This is most likely due to the difficulty in finding exits for companies bought in 2005 through 2008 which represent the bulk of the companies now owned by private equity, according to Pitchbook.<\/p>\n

Median Hold Time (Years) for Private Equity Investments<\/h2>\n

\"\"<\/a><\/p>\n

Here are some high-level differences in strategy and structure between the two options: building your company to last or building your company to flip.\u00a0 My investment fund, Greybull Stewardship<\/a>, is built to finance companies that are built to last.\u00a0 We have developed our structure and strategy to support companies that would prefer to be built to last.<\/p>\n

Built to Last or Built to Flip?<\/h2>\n\n\n\n\n\n\n\n\n\n\n\n\n
\u00a0<\/strong><\/td>\n\n

Build to Last<\/strong><\/p>\n<\/td>\n

\n

Build to Flip<\/strong><\/p>\n<\/td>\n<\/tr>\n

Customers & Revenue<\/strong><\/td>\n\n

Revenue always critical, but more willing to \u201cfire\u201d customers that are not aligned with the company<\/p>\n<\/td>\n

\n

Any and all revenue is good revenue as long as it contributes margin; little consideration of any other factors<\/p>\n<\/td>\n<\/tr>\n

Costs<\/strong><\/td>\n\n

Willing to do what makes sense over a longer term time horizon<\/p>\n<\/td>\n

\n

Shorter time horizon for payback<\/p>\n<\/td>\n<\/tr>\n

Growth Rate<\/strong><\/td>\n\n

Fast growth is good, but more willing to forego growth for long-term sustainability<\/p>\n<\/td>\n

\n

Faster the better<\/p>\n<\/td>\n<\/tr>\n

Employee Equity<\/strong><\/td>\n\n

Will orient employee equity and profit-sharing to long-term value creation and balance near-term and long-term gains<\/p>\n<\/td>\n

\n

Will focus employee attention on an exit with tools such as stock options that really only have value upon an exit<\/p>\n<\/td>\n<\/tr>\n

Ownership<\/strong><\/td>\n\n

Finding sources of long-term or permanent capital aligned with long-term value creation; Greybull Stewardship<\/a> is one option<\/p>\n<\/td>\n

\n

Private Equity or Venture Capital<\/p>\n<\/td>\n<\/tr>\n

Culture<\/strong><\/td>\n\n

Willing to establish more unique cultures that reinforce competitive advantages<\/p>\n<\/td>\n

\n

Only what\u2019s needed to attract new employees<\/p>\n<\/td>\n<\/tr>\n

Employee Development<\/strong><\/td>\n\n

Preference to promote from within b\/c have time<\/p>\n<\/td>\n

\n

Bring in outsiders who can contribute quickly<\/p>\n<\/td>\n<\/tr>\n

Tax Structure<\/strong><\/td>\n\n

More likely to earn financial returns from a combination of ongoing profits and maybe eventual exit; leads owners to select single tax of flow through entities (S Corps or LLC\u2019s) for tax efficiency<\/p>\n<\/td>\n

\n

C Corps are the usual choice to make gains be capital gains at a lower tax rate<\/p>\n<\/td>\n<\/tr>\n

Debt<\/strong><\/td>\n\n

Prudent use of debt to avoid debt-created problems<\/p>\n<\/td>\n

\n

Tempted to maximize debt and minimize equity to maximize returns<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

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