The most important innovation ever — The Limited Liability Company

I love every day I can get out of bed, even Mondays. Being an investor is a very privileged job. It is not for everybody. You don’t control the companies you invest in, you can only influence. You don’t know for 4 or 5 or maybe 10 years whether you have made a good decision that will return a profit.

It is a privilege to be an investor because you get to work with innovative, inspiring, driven, visionary people. Every day!

There are no easy days and you are only one phone call or email away from your next disaster. It is a very humbling profession that way. But problems are opportunities to grow and to learn. Being an investor is a chance for lifelong learning and an opportunity to play a small part in changing the world.

“Being an investor is a chance for lifelong learning and an opportunity to play a small part in changing the world.”

Invention of the corporation

This brings me to the invention of the the limited liability company. As with many good things, this originated in what today is Finland.

The first known recorded share certificate was issued by a precurser to what today is Stora Enso, a pulp and paper company domiciled in Finland.

Wikipedia reads : “The corporate history can be traced back to the oldest known preserved share certificate in the world, issued in 1288. Based on this, some observers consider Stora Enso to be the oldest limited liability company in the world.”

Some people consider the invention of the corporation the greatest invention ever!

As a founder or a leader, you run a version of this particular legal innovation, that has enabled us to share and manage resources, limit the liabilities of our actions and divide the profit resulting from this work.

Start early and plan ahead

As you gather scale and your organisation grows from 10 to 50 to 500 people, you realise that it is getting more and more complex, and the impact of your decisions has larger and larger ramifications for every stakeholder you have; employees, investors, partners or customers.

Therefore you need to plan and to explain what you are doing. You allocate resources. Human, financial, technological, intellectual, brand, real estate … it is a long list. So start early, and plan ahead of where you are. It is much harder to catch up on improper planning and a lack of organisation later on.

”It is much harder to catch up on improper planning and a lack of organisation later on.“

What are the typical difficulties companies wrestle with? Here are a few:

  • Top line growth
  • Hiring
  • Office space
  • Stock Options
  • Tax planning
  • Fundraising
  • Exit
  • M&A

Budget is a budget

In the mid 90s, Nokia moved to a rolling 13-month forecast and had very strict monitoring on how you accounted for Actuals (ACT), Budget (BU), and Latest Estimate (LE).

I have been delighted to see that one of my companies is now doing a rolling 5-quarter forecast.

But I have been in so many boards where people are confused about these things. Is it the plan? No no, it is the revised budget. Oh really, but what happened to the budget? Oh, we could see we were going to miss it, so we revised it!

Hmmm, maybe not the best way of holding yourself and your management team accountable. I know there can be many reasons for why you want to keep the sales staff motivated — you want to reset some goals, you are fundraising… but a budget should be a budget, at least at the level of the board.

“A budget should be a budget, at least at the level of the board.“

Then you can track your LE throughout the year as ACT shows you where you can go, whether you exceed or miss the full year. And we all know the “peanut butter mountain.” Yeah, we know we missed Q1, but in Q4 we will catch up! It rarely happens.

If you will be fundraising shortly, you want to hit or exceed your numbers, but you also want to show sufficient growth. Be transparent in your dialogue with the board and find the best compromise.

“Be transparent in your dialogue with the board and find the best compromise.”

Create a Plan A and a Plan B depending on how much capital you can raise. Show the board an upside and a downside view so you can create something that caters to a potential new investor.

You are the guardian of possibly the greatest innovation of human kind. Guard it well. Plan to plan ahead!

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Partner at NGP Capital. Raised in Europe. Sharing my learnings through Notes to CEOs, the bi-weekly letters I send to the CEOs and leaders in my portfolio.

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Bo Ilsoe

Bo Ilsoe

Partner at NGP Capital. Raised in Europe. Sharing my learnings through Notes to CEOs, the bi-weekly letters I send to the CEOs and leaders in my portfolio.

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