Business Success - Ability
to Bring Home the Bacon
Dr Sing Kong Yuen, BVMS (Glasgow), MRCVS
Case written: 11 October 2010 |
 toapayohvets.com
Be Kind To Pets
Veterinary Education
Project 2010-0129 |
An old friend (Allan)
wanted to be free from office politics and to start his
own company at the age of 50 years.
He asked me for advice on his proposed event management
company start-up with two trustworthy partners (Brian and
Charlie). All 3 will have equal shares in a private
Limited Company. Since he would be the one bringing in
most of the business via his old clientele while the other
two provides administrative and backup services, all 3
agreed to the respective following distribution of profits
at 40:35:25 with Allan getting 40%. There will be no
salary for the first 3-6 months. After 3 months, all 3-6
months, all 3 will get a salary based on 40:35:25 formula
every month.
MY QUERIES
1. How much are Brian and Charlie earning now? Brian is
unemployed, having left his food and beverage (F&B) hotel
job in Vietnam. Charlie is earning around $5,000 a month
as an employee in the F&B business.
2. What amount of revenue can Brian and Charlie generate?
Practically none.
They just provide the support services as they do not have
business development experience or important
decision-making clientele to generate business.
3. Is Charlie an IT expert? He has some information
technology (IT) knowledge but is not an IT experienced.
Therefore he has no valuable contribution and in any case,
an event-management business does not depend mainly on IT
skills and expertise.
MY OPINION
1. Brian and Charlie have 66.6% of the shares. In any
company resolution, they can out-vote or frustrate Allan's
plans for the business expansion or changes. Allan will be
unhappiness when they do that since they don't generate
income and are more like "sleeping partners".
2. Since Brian and Charlie will not be generating income,
they are not worth being given 35% and 25% of the net
profits.
3. What happens if Brian and Charlie find better job
prospects since they don't get salaries for the first 3-6
months? Or they take long leave, die or become sick? They
still get their 60% every month as agreed, assuming the
company is profitable.
4. In the end, Allan will feel very unhappy as he brings
in practically 100% of the revenue and gets 40% of the net
profits. If he is that good, he should be getting the
lion's share of the profits.
Getting in the business and sustaining the profitability
of any business is extremely hard work while
administrative services can be outsourced. If the business
really generates $6 million in revenue as projected by
Allan, there is no problem employing good people to do
administrative work. Of course, Allan must be involved in
ensuring that the accounts are properly kept.
CONCLUSION
Allan should be getting the controlling share of at least
51%. There are the operating costs to think about.
I know Allan has the clientele and can generate the $6
million revenue he projected since he is battle-tested for
the past 30 years. He is now around 50 years old. He had
started up two small businesses before and knew success in
earning big money is not guaranteed. That was why he
worked for others as there is a steady income every month.
With a large clientele who trust him, he ought to have the
confidence to start up small. He needs to change his
mindset that there must be a big office, top IT facilities
and supporting staff as in established event management
companies to be able to succeed as an entrepreneur.
He had seen too many people failing in businesses and that
was why he worked for hotels and resorts for the past 30
years as an employee. There will always be office politics
in corporations from employees and if he really can bring
in a $6-million event management business, I don't see why
he cannot be successful on his own now that he has been
"battle-tested".
A better business model will be to give Brian and Charlie
a commission based on each project they successfully
completed. If they can't do the project, there are many
others who can be out-sourced to do it. Otherwise, they
still get paid a combined 60% of the net profit every
month. This is a large amount if the revenue generated is
$6 million a year. Assuming conservatively 5% as net
profits, the income will be $300,000. Allan will get
$120,000 but his non-income generating administrative
partners making the connections get $180,000! He
will not be happy to continue the business relationship
and there will be nasty feelings when the business breaks
up.
The $180,000 can be used to employ good energetic people
who have been battle-tested in the getting more business
deals. In business, it is how much profits you can
generate for the company, not how good your administration
is. Without income, top companies close down even though
they are well administered. An ability to bring home the
bacon is what counts in business start ups, whether one is a
private veterinarian opening his veterinary clinic or an
event manager.
P.S. "Bring home the bacon". Singaporeans generally don't
eat bacon and eats for breakfast unlike the English and so
may not appreciate the title of the story. I studied in
Glasgow in the late 1960s and my favourite breakfast in
the hall of residence was bacon and eggs. "Bring home the
bacon" means to "achieve desired results or have success"
in this story. |
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