Patience has its rewards

Very few business plans survive their first interaction with the real world,’ says Luke Johnson, whose own ventures have ranged from Pizza Express to fresh fish distribution and the UK’s largest chain of dental surgeries. ‘Entrepreneurs have the advantage that they can adapt swiftly — “pivot”, as they say in Silicon Valley — to satisfy real demand, or improve their product and its distribution. Bigger companies find it much more difficult to change course in that way.

‘I’m a great believer in incubating a business quietly: pivoting it until the model works. Maybe I’m unconventional, but I believe raising money too early — through crowdfunding, for example — can be a dangerous thing. I’ve seen it too often in the chain restaurant business: you open a couple of outlets, raise money, then open a whole lot more before you realise your concept doesn’t work at scale. It puts you under all sorts of stressful obligations, whereas the discipline of scarcity of capital, relying on retained profits and borrowing, can be positive because it forces the entrepreneur to be more ingenious. Raising a load of capital is no reason in itself to celebrate — and businesses like Tesla that are great at raising money but have never made a profit, are not good role models.’

As for the right moment to exit, Johnson says: ‘I never go into a business worrying obsessively about when to sell. As a private equity investor I offer “patient capital”: I’ll stay in for ten years if the business is going in the right direction, and I’m unlikely to back entrepreneurs whose first question is “How are we going to get out?”. There are many myths in this game, and one of them is the myth of overnight success. I want to back people who care about rising value but have the patience to build real success. Eventually they’ll be spoiled for choice.’

Finally, we reach the happy end of the entrepreneurial lifecycle when that choice has been made and a business sale has been completed. Alan Hooks, head of wealth planning at our sponsor Julius Baer, observes: ‘For the serial entrepreneur, a sale is simply an opportunity to move on to the next venture. But for others it’s a once-in-a-lifetime rebalancing — a shift from being fully in command of a business to relying on others to guide you through the unfamiliar subject matter of investment and tax.

‘As advisers, we have to build trust over time, earning the right to help clients reset their priorities and objectives. We have to understand each client’s needs, and often find the entrepreneurial principles are the same for their personal circumstances. These days the drive is towards simplicity and transparency rather than complexity, particularly when it comes to organising your long-term affairs: wealth planning that sustains and incentivises the next generation, and stands the test of time.’

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