Four basic rules for a happier future
By Luke Johnson
Published: December 28 2010 18:56 | Last updated: December 28 2010 18:56
Last week, I sold my shareholdings in two companies. It was a coincidence that both deals completed on the same day. One business I helped to co-found more than nine years before; one I had backed about four years ago. In each I made reasonable returns, and for different reasons it seemed the right time to depart.
As the poet Cecil Day-Lewis said: “There’s a kind of release/And a kind of torment in every goodbye for every man.” So it feels appropriate, as the year draws to a close, a time when we look both back and forward at the start of a new year, to reflect on what it means to be a partner in an enterprise.
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The first proper companies were called joint-stock, and that is the nature of a commercial undertaking – a combination of management and capital for mutual advantage. The journey together is frequently haphazard, for commercial life is an unpredictable rollercoaster for most of us. The invention of these limited liability corporations made possible the modern world: how they arise, and how they die, matters.
With experience, I have come to the conclusion that true success in a long-term venture has four important ingredients. First, you must make a profit. This provides the working capital for the next project and is the essence of capitalism; without financial gain, the risks seem pointless. But one should not allow this imperative to overwhelm the others – if it is the only measure, then the job is not well done. A project should be profitable in every sense, if at all possible.
The second element is that you should learn from the experience. If you have not acquired a business education of sorts – an understanding of an industry, how a team works together, how to behave when things go wrong – then you are not improving yourself and probably not trying hard enough. Lifelong learning is meant to be a cornerstone of a happy existence – this is one way of finding it. A career of endless repetition would be very dull; better by far to be engaged in at least an attempt at regular renewal.
Third, you should have recruited some friends. It is by no means easy to become close and lasting allies with business partners. You may have nothing in common apart from work; the stress of sharing the effort and spoils might undermine the relationship. But if you can emerge from the compromises with real comradeship, then you have done well.
Finally, the business should have generated jobs and created wealth. These outcomes will normally follow naturally from any capital gain, but not always. Occasionally, a downsized operation can be more profitable and valuable. But the greatest satisfaction for any owner comes from having contributed to the expansion of an enduring business, so increasing the overall prosperity of society.
Not every purchase will match up on every measure, for sure. But if you hit the right notes more than half the time, there should be no complaints. This sort of investing is a hazardous endeavour and, if you never allow for mistakes, you are likely to be disappointed.
From time to time I pass a lorry carrying the logo of a company I once owned or someone mentions a restaurant or a shop that belonged to me or I am struck by some other reminder of a previous involvement. When that happens, I feel both a tinge of sadness but also a sense of pride that I played at least a part in its history.
And, of course, with each final curtain there follows the liberation of funds and time, and one is free again to focus on a new challenge. There is never a shortage of those. As the philosopher Arthur Schopenhauer said: “Every parting gives a foretaste of death; every coming together again a foretaste of the resurrection.”
This year has been a tough one in most quarters and 2011 promises to be hard going. Yet I cannot deny my optimistic spirit, a belief that splendid opportunities await those willing to take bold initiatives. Every new acquisition is a step into the unknown, full of dramas about to unfold.
I look forward to it all with great anticipation.
The writer runs Risk Capital Partners, a private equity firm, and is chairman of the Royal Society of Arts
Copyright The Financial Times Limited 2010.
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