A company's evolution from startup to established business is a complex transition that requires executives to have a wide array of leadership skills.
It's a reality that's not unique to the mortgage industry. As the co-founders of Google saw their creation blossoming into a full-fledged business, Larry Page, Sergey Brin and their venture capitalist backers recruited an experienced technology executive in Eric Schmidt to serve as CEO and provide what's been
But the
In order for a company to grow, it typically has to raise capital. This can occur in several ways, including selling an equity stake to outside investors, acquiring another company, or even
"The things that drive small business and make them successful, and the things that allow small organizations to work well — small scale, you've got one driver and four or five helpers — that is the way all small businesses start and really thrive," Sher said.
"But over time, as that business grows into mid-size, you need a team of leaders," he continued. "Fundamentally that starts to change the kind of people you bring into the business and you have to lead a team of leaders very differently than you need helpers."
The salesperson's mentality of "go out there and get a deal," is tempered by the realities of needing to have formal processes and a different workflow in place, he explained.
That may be a hard concept to grasp for firms built upon a sales culture, and one that requires a different set of leadership skills that the business' founder might not have. What's more is private investor groups typically aren't out to run a business, but rather partner with its management team. To be successful, the management team needs to have the discipline and focus to create a business plan and hold people accountable for delivering results.
"There are some entrepreneurs that want to learn it and are willing to dive in and make the adjustments," Sher said. "I often help those entrepreneurs figure out how to do it to work in a bigger organization, or an external investor needs it. And if they are eager to do it and if they enjoy this different type of leadership, because it is really different, fantastic."
But all too often, the entrepreneur finds the nitty gritty, day-to-day work of running a growing company boring, or "they just don't love it," Sher said. In those cases, the original founder doesn't typically last in the CEO position. Some transition into more of a strategist's role, while others just sell out and use their money to start something new.
Even in a branching arrangement, where a mortgage broker or small mortgage banker sells his or her company to a larger organization and remains as branch manager, the original founder is still part of a corporate management team and need to do the tasks to run the office.
But if they are unable to deal with that environment, they could find themselves looking for another job, Sher said.
Sher has worked with a number of companies in the mortgage industry, advising them on their growth strategies and the leadership implications that come with that growth.
In one case, a mortgage banker that had been an active purchaser of other small mortgage bankers was simply expanding its leadership team as it went along. Eventually, the firm's ownership elected to bring in a president to better corral the growing firm. Recently, that company sold itself to a larger lender. Some of the management team is remaining while others are using the deal as an exit strategy.
From the entrepreneur's point of view, many who have sold all or parts of their company to investors or other companies eventually decide leave the business because of a clash of culture.
Even if the owner plans to remain with the new ownership for a limited period of time, sometimes events intervene and things don't go as planned. That was the case when the ownership of Advectis, creator of the BlitzDocs electronic document management system, was
Advectis' co-founder and CEO Greg Smith became vice president and general manager of the renamed Xerox Mortgage Services. There were approximately 40 employees who joined Xerox after the deal was completed, a tiny number compared to the more than 140,000 who work for the parent company.
There were high hopes for growth; in a
Those hopes were never realized. "We were on a tear, and Xerox loved what we were doing. They came in and bought us and they did it right at the beginning of the financial crisis," Smith said in an interview for this story. "None of us thought it was going to be as bad as it turned out to be or they never would have bought us and we would have been on our own."
The first year after the deal was particularly tough because "the company I thought I sold was not the company that they bought," primarily because many mortgage lenders that had been Advectis' clients closed their doors in the early days of the mortgage crisis.
Smith planned to stay with Xerox until "it wasn't fun anymore." But he ended up staying nearly four years, "because I wanted to fix it. I wanted them to have the business they thought they bought. And we did that."
So the company made changes, and it needed to act more swiftly then it had expected. "We sold the business planning to expand it, and ended up having to contract within four months the acquisition."
It was a situation Smith termed as "unprecedented." He was supportive of those changes, but only to a point — he said he told Xerox to cut as much as needed, but warned if it cut "below the muscle, it would risk the whole business."
In this sense he was lucky; Xerox worked with Smith and it was able to bring the business back to positive growth. Partnering with Xerox meant the company was able to recover faster and with fewer cuts than it would have as a stand-alone company.
After a while, Xerox Mortgage Services ended reporting through another business that Xerox acquired, and didn't have the same appreciation for what it could do, Smith said.
After rebuilding the customer base, Smith left Xerox Mortgage Services on his own accord. While he doesn't blame anyone for the change in strategy, that change was the point when he decided to leave. "We parted friends. I have no hard feelings with Xerox. I'm grateful to them," he said.
Today, Smith is the president of Blue Vista Ventures, working as a start-up consultant and technology investor.
Even though his experience with Xerox was generally positive, Smith has some words of advice for those entrepreneurs looking for more capital. Namely, if an entrepreneur can't live with the added responsibilities that come with selling equity or debt in a company to investors, then maybe he or she shouldn't do it.
"Anytime you trade part of your company for money, you have an ownership change. Whether it is a majority stake or a minority stake, there's an ownership change," he said.
"Often times, entrepreneurs don't appreciate what that means. They are looking for capital to grow their business, but what they've effectively done is sold a piece or all of their company," he continued. "When you do that, there is a responsibility you have when you take other peoples' money of what to do with it."
