Ten lessons from building and selling a company to McKinsey

In 2004, my business partner Doug Wilson and I co-founded Finalta, a financial services benchmarking company. In 2011, we sold the business to McKinsey. I then spent three years as CEO, scaling the business globally.

Now, as a Venture Partner at LocalGlobe, I am fortunate to work with many first-time founders. As I do this, I reflect on the things I would have liked to know when I started out.

If you are about to, or have recently taken the entrepreneurial plunge, I hope the following helps.

1. Start your business when you have found the right co-founder

I believe the significant moment for most great businesses is the coming together of co-founders, not individual ‘eureka’ moments. I hugely admire solo founders but facts support the co-founder argument. According to Geckoboard, the highest-valued tech IPOs were created by companies with two or three co-founders.

Complementary co-founders are more than the sum of their parts. They also provide support and resilience during the inevitable tough times.

In 20 years, I have met no more than three people I would have wanted as co-founder. If there is someone you have in mind, don’t wait for the ‘right’ idea.

Great people working together create great companies regardless of circumstance.

2. Embed desired behaviours into the recruitment process from day one

Like many start-ups, as we grew we rushed into hiring decisions and suffered the consequences. Faced with a small talent pool, speed can be vital but it can lead to painful separation processes from capable but ill-fitting colleagues.

You need a clear idea of the behaviours you expect and those you can’t tolerate. Think long and hard about your hiring process to ensure you can really get under the skin of your interviewees. I found role-playing the toughest, real-life situations we faced as a company to be the most insightful methods.

3. 80% stay the course, 20% pivot

In the first 18 months, as we took our proposition to market, we had to decide whether to adapt based on (often conflicting) feedback or stay true to our original idea.

As a first-time founder, my instinct was towards the former. My co-founder, a second-time founder, favoured the latter. Without conscious intent, we followed the classic Pareto Rule during the first two years: 80% of our core proposition remained the same and we re-thought 20%. In the absence of any science, this could be a helpful rule of thumb.

4. Invest all the time you can in senior hires

Senior hires are our most significant cost line so we expect quick results. I would strongly encourage a contrary approach. Give them as much space as you can to become productive and invest as much of your time as you can in helping them.

This approach will incur opportunity cost but the benefits are multifold. Not least of which is the personal connection you build with your senior hire during a more intensive onboarding process.

5. When going international, be prepared to tread the ground less trod

As you start to achieve scale in your home market(s), the natural lure of international expansion kicks in. Long term, we all aim for the largest markets with the greatest revenue potential.

However, we found fantastic opportunities in less ‘attractive’ markets.

By chance, we took a detour through the Czech Republic and quickly signed-up all the major banks. One client gave us a fantastic platform to scale into other countries through its parent company. We learnt how to execute in a new country and developed a well-defined playbook for expansion into the biggest markets.

6. Anticipate your first crash in employee engagement (and don’t take it personally)

Everyone revels in the excitement and chaos of a fast-growing start-up. New products are launched, the team expands and everyone gets close time with the founders. Then the buzz wears off. Morale drops, attrition grows and the founder is left puzzled.

The business cost can be substantial. Growth stalls, panic hiring starts and a vicious cycle can begin. Accept that things won’t recover by themselves and act quickly.

What worked for us was a classic values-based re-assessment of all we did. Overhauling our recruitment process to put values and behaviours front and centre had the biggest impact. A biannual 360 survey, designed around these behaviours reinforced our approach.

I wish we had done this at 20 employees rather than 50.

7. Experiment your way through the impossible art of delegation

So much management theory is dedicated to the art of delegation and, boy, it’s a hard skill to master. It’s rarely a founders’ strength but getting the balance right is liberating and hugely accretive for company growth.

My early efforts led to ‘dumping’, not delegating. A weekly review of my to do list helped me identify potential responsibilities to handover. But these had to be meaningful; smart employees can easily sense ‘false empowerment’. And I had to be honest with colleagues about learning my way.

When do you know you have got to a good place? When you can take a week’s holiday and completely switch off for at least half the time.

8. Only you will know when it’s time to sell

Any entrepreneur that says they don’t want to sell their business is lying. For sure, if this is the sole reason for starting a business, it will fail. You must love what you do and have deep personal resources to ride the storms. But wealth creation is an intrinsic part of the entrepreneur make up. Founders should not feel apologetic for this.

Any number of reasons can lead to the decision to sell but it most cases these are personal. At Finalta, I experienced the shock of losing my co-founder. I have no doubt we could have continued to grow and increase the value of the company but I knew the time was right. My priorities had shifted.

9. When choosing a buyer, look beyond price

When you’ve given every ounce of effort to build your business it is hard not to be swayed by price. We were fortunate to have several interested acquirers but I didn’t grasp the longer-term implications of our decision at the time. After a great deal of rumination, I am so glad we chose our eventual acquirers.

In its simplest form, an acquisition in this sector will involve an earn out, often three years or more. This time is important but not so much as the health of the company you handover. Unless you are at the end of your career, you should have many exciting years ahead. Being able to reflect on a successful outcome for the acquirer will have ramifications beyond those you imagine.

10. Post sale, take time to do the things you’ve always wanted to do

Many founders rush into another venture or outstay their welcome at the acquirer. This is natural and is symptomatic of the fear of the unknown. The business has become your identity and separation can be hard.

After stepping down, I took an 18-month break. We went on some wonderful family adventures and I did many things I had always wanted to do. Jumping off the conveyor belt was surprisingly challenging — you can expect a range of emotions as you readjust from ‘entrepreneurial institutionalization’.

But please do it.