An Entrepreneur Prepares to Pass the Torchby
It's a classic dilemma. A first-time entrepreneur creates a thriving company from scratch with the potential to be The Next Big Thing, but her investors thinks she needs an experienced CEO and management team to take it there. They also bet future investors will want to see seasoned leaders in place. To make this happen, the first step, traditionally, is to forge a succession plan that keeps the company's momentum going and doesn't disrupt the culture the founder labored to create. This is one big challenge facing Michelle White, the founder of Leland, Mich.-based Michelle's Miracle, which makes a dietary supplement from tart cherries. White thinks her $800,000, four-person company, with its 2,200-plus regular customers who enthuse about the cherry concentrate's health properties, relieving arthritis and providing better sleep, could quickly become a $100 million company (think POM Wonderful) if it landed the capital necessary to hire a dream team to complement her existing team.
White is the founder of one of the women-led companies participating in venture catalyst Springboard Enterprises' latest venture capital forum, AllThingsLifeSciences. The forum, which kicks off on Sept. 30 in Madison, Wisc., is part of a mentorship program designed to improve women entrepreneurs' chances of securing equity investment. The forum pairs early-stage entrepreneurs with teams of experienced coaches who help them prepare to pitch their companies to a crowd of equity investors. (Last year's forum was limited to women-led companies in the media industry; this year's focuses on the life sciences.)
BusinessWeek is tracking a few of the companies at various stages in the coaching process. Michelle's Miracle is the first in the series.
The entrepreneur: Michelle White, 44, is the founder and president of Michelle's Miracle. She stumbled onto the idea of building a business to commercialize the health properties of tart cherry concentrate while working at a fruit processing plant as an office assistant. After doing research about the health properties of the fruit, she launched the company in 2001. Three of her four employees have been with her since its inception. The team has managed to create a market, get national distribution, and now sells in over 300 stores. A year and a half ago, White decided to look for equity capital. She landed an investment from an angel group earlier this year and is preparing to secure another by yearend. She's also seeking venture capital.
Her challenge: White wants to put together an experienced management team of individuals who have been successful in the consumer packaged-goods industry. She wants to raise venture money to hire a controller/vice-president of operations, a CEO, a vice-president of marketing, a vice-president of sales, and more sales people. Her challenge is to communicate this succession and management expansion to potential investors.
Says Michelle: "We've proven the demand and the market, and we've proven revenues, now we just need people to take it by the horns and roll with it. I know what the potential of this company is, but I also know I don't have the experience to do it. So as far as letting go of that control—I'm O.K. with that. I want to see the success of the company and if that happens whether I took or someone else—it doesn't matter.
"When we started the capital raise, the biggest question was, are you willing to let go of control? I'm more than happy to do so because I just want to see the success of the company and do what I love to do. Being buried under spreadsheets is not something that excites me in the slightest. I was surprised at how investors really thought I would resist that changeover, and I don't have that resistance at all. I guess I can't say it enough: I know how successful it can be. I also know it takes people who are far more experienced than me. I've created something out of nothing—out of a byproduct—and taken it this far."
Her coach: Lauren Flanagan, the managing director of Madison (Wisc.)-based Phenomenelle Angels Fund, is one of White's five coaches. She's also the primary investor in White's business and wants others to invest. Flanagan has been an entrepreneur as well as an investor.
Her advice: "White is a passionate entrepreneur who built a company around a product idea and now understands it's really a scalable brand. But she's not a consumer packaged-goods veteran. She's never run a big company before. She's kind of the classic entrepreneur who created a market. For entrepreneurs, the big fear is that they'll get an investor who will throw the management team out and put some of their cronies in—and those people won't know what they're doing, and they'll drive the company into the ground. Sometimes that's justified, but there's no reason an investor would willingly or knowingly put some bozo in charge of the company they're putting money in. So presumably they would try to put together a team that is going to really advance and grow the company.
"But the challenge in doing that is not to demotivate the team or lose the founder's engagement. It's very critical that the founder and the existing management team welcome the change and are part of the process. Those are the keys to making it successful. You have to really work through it. Entrepreneurs always tell you, 'I know, I have to step aside at the right time.' But they don't always mean it. The problem is how do you communicate that in a way that sounds good to investors. It's a normal problem. The founder-entrepreneur is not normally the CEO you need to scale it. I think the mistake founders make is thinking they can do the whole thing. The number who do actually take it to IPO or high-volume M&A is a very small percentage. It doesn't mean you didn't do a good job to get it where you did. You might just need someone else to help you take the baton the next relay lap.
"And then [another problem] is the investors who think they're doing the company a favor to try to find the team and put them in without involving the existing management team. That can lead to culture clash, or defection of the management team, or the founder, worst of all, or acrimony. And that's when the whole thing just falls apart. It's a classic problem for early-stage companies and investors. Because if you screw this up, you'll kill the company. But if you don't do it, the company is not going to be successful at getting as big as it could be because it won't have the support it needs."
The plan: The hiring will take place over time, with White serving on the search team and the interviewing team—and weighing in on the pros and cons of each potential hire. When pitching to investors, White will refer to herself as the founder and current president. When she gets to the management slide of her presentation, she will explain that one of the uses for the requested funds is to expand the management team and find a packaged-goods veteran to help lead as CEO.