Why Control Matters More Than Capital in Business
Initially written in 2009. Updated for republication May 2025
As an entrepreneur, I believe there are only two possibilities in terms of shareholdings in companies—you have control, or you don’t. I don’t like messy compromises where it’s unclear who can make the final decisions about a business’s future.
With my Dragons’ Den investments, I do not usually buy a controlling interest in the business. However, there was an exception in the case of Alex Foreman.
As a minority shareholder, I hope to be listened to where my expertise can help. Of course, I also have some rights over the future shareholding of the company and, for example, the sale of the business. But the business belongs to the person who persuaded me to invest, and they are, in the end, in control. I want them to feel responsible for their destinies, and that whatever I say and think, theirs is the final decision.
I always ensure that Shareholders’ Agreements clearly state what everyone can and cannot do. These Agreements don’t need to cost a lot of money to draw up and can be adjusted to fit any conditions that the interested parties agree to.
Tip from Shaf – Borrow carefully or not at all
Banks are very experienced in protecting their positions when they lend money. They can take rights over your debtors and stock. They can insist on mortgages on your plant and property if you let them.
When you are passionate and impatient about a big step forward, you may enter into covenants and agreements with lenders that could cost you control of your company. At such a time, you probably need some advice – speak to your accountant or lawyer to ensure you are not taking a rash decision and risking getting into hot water.
I would hate to lose control of a business where my shareholding should earn me the right to make decisions. This also concerns lenders. There was a case in point with Blacks Leisure, the outdoor clothing specialist retailer. They were closing shops and making people redundant at the Head Office. I am not saying such a situation will never exist in your company. Markets change, and sometimes people find that they over-expanded their business in an adverse economic climate. They have difficult choices, but at least they are their choices.
Blacks Leisure had to take action because its lenders would put them into administration if they didn’t: they had, in effect, lost control of their business to the banks. Borrowing money can be very useful when you are taking your business forward but remember always to look at the downside of what might happen that would make the lender butt in and take control.
It can also cost a lot of money if, when you have a problem, minority investors or lenders force you to hire consultants and write reports about what you can do. However clever the report is, you’re still worse off by the amount you have had to pay these people.
You have taken the risk of being an entrepreneur to be in control and not to have someone bossing you around. Keep that in mind as you make your plans.
Initially written in 2009. This blog reflects my early thoughts on control, shareholding, and the risks of borrowing — lessons that still hold today.
