I would invest in camels

I often get the question of investors: would you invest in this or that business? I would invest in many camels and hope they all survive and win the race together, instead of having a stake in many companies hoping for one unicorn to succeed. That’s one of the reasons I moved to Dubai, to understand more about camels(pun intended).

Camels are viewed as magnificent creatures here — there are even camel beauty pageants — and racing is seen as a unifying activity, a sport that brings together people of all backgrounds.

Alex Lazarow said in Entrepreneur Middle East: “We have much to learn from leading entrepreneurs operating outside Silicon Valley, in emerging ecosystems and markets. There, they have long faced a shortage of capital, a lack of critical resources, and regular macroeconomic shocks. Their startups are more akin to camels than unicorns — they can adapt to multiple climates, thrive when times are good, but can also survive without food or water for months in the world’s harshest ecosystems. To reckon with this new landscape where survival is by no means assured, the answers don’t lie In Silicon Valley, but with these global entrepreneurs.”

Am I an old camel?

The more I think about it, the more I come to realise that I could have become an old camel, looking to support young ones, with a big “hump” of experiences on my back.

From 1999 I was running a typical limited company with 3 founders each owning 1/3 (beginners mistake) growing the Hercules Trophy from our garage, combined with corporate jobs in various roles and industries. It took us 10 years to build an overnight success with thousands of fans.

In 2009, the whole start-up scene in Belgium was still tiny. Most of the entrepreneurs ran off to the US to raise capital. The word scale-up wasn’t used yet. The financial crisis was in full swing. The perfect time for Inge and myself to leave our corporate jobs and start a cooperative organisation, a coop, on top of the existing Hercules Trophy business. Every 2 years we raised capital to invest gradually, we bought the 2/3 of Hercules Trophy and we started experimenting in 10 countries to understand our true USPs.

In 2019 we became who we are. Duval Union joined as a smart capital partner and we became the Herculean Alliance. Employee Engagement Specialists. Crafting powerful workforces since 1999. We help our customers to measure and improve employee engagement through experts, formats and technology. We listened to our people, our customers, and shareholders and now run programs, engagement events(teambuildings, family days, company days), a platform, and organise other formats like Pink Ladies Games and Employee Engagement Awards based on the Hercules Trophy know-how. We even wrote a book “Employee Engagement, what else?” with 12 drivers of engagement.

In 2020 the v-madness hit us and again we managed to stay calm and innovate to jump higher. Because employee engagement will be the number one priority after this.

If I would start again, would I choose a coop again? No doubt! The only problem is: it’s not allowed anymore, by law 🙂

We collected over 20 years of obstacles and near-death experiences. But we survived and thrived as a camel would. Yes, I believe that the coop structure was one of the components to help us become a camel. And yes, I would invest again in the Herculean Alliance, because I know the team will fight until the last drop to thrive and survive. But no, a coop doesn’t guarantee you will succeed in becoming a camel. It’s the people.

Camels and dinosaurs

Why did I choose this model? I was frustrated by the dinosaur way of looking at a business. To put it bluntly: “Shareholders first, he(yes, in most cases someone who identifies as a male) who has the most money(and in a lot of cases the least experience) decides, top-down push to capture(“buy”) the market rapidly by squeezing employees and ripping off the customer, selling the company over-valuated“. Been there, done that, got the T-shirt. It all ended when I left the hospital after a heart attack caused by a board of directors that made me furious, but that’s another story. I’m grateful it happened. Never hold a grudge, but learn. I recently drank too much champagne on a Dubai rooftop with the former shareholder.

Yunus, Ban Ki-Moon, and former good and bad bosses inspired me that there was an alternative. It should be the other way around: engaged employees drive customer delight in the short run and shareholder value in the long run. The funny thing is: we’ve actually created a company around that belief! How meta is that?

Let’s keep the cooperative spirit

We are now 12 Herculean years down the line and I love to share my lessons learned about coops with you.

  • Transparency: shareholder agreement publicly accessible, general assembly & board are a must from day one, which also requires more transparency and audits in accounting etc. Typically “backward looking” things that start-ups don’t consider in the early days, resulting in a lot of issues afterwards. Transparency can easily be abused if given to the wrong people, especially stakeholders with the wrong intentions, but I still believe in the wisdom of the crowds if you have enough stakeholders. We count almost 200. However, wisdom of the crowd requires a lot of energy from the founder. Energy you can use to grow the business instead. It feels a lot like “going public from day one”, but without the continuous valuation.
  • Coops are expensive. You have to pay a lot for accountants, lawyers, government and notaries. Too much if you asked me. People warned me about it, but I didn’t believe them. In my case around 25% of the capital raised! I don’t have evidence that I would have spend less in a limited structure though. A lot of that money could have been spent differently and I hope blockchain will change that for all the entrepreneurs who come after me.
  • Dividends are limited by law, sustainability is part of the DNA. It attracts a certain type of people. The purpose driven one’s. The long term investors with patient capital. Investors who want to belong. Some investors don’t dare to invest in a coop, because they believe they will have no “power” and/or because they want fast/over-valuated exits. Well that’s exactly the type of bad investors you never ever want in your team. It makes vetting of investors – often forgotten by start-ups because they are too eager to raise capital – easier. Yes, some good investors are not ready yet, but that’s ok too. There’s plenty of capital in the market to chose from. You can bring the horse to the water, but can not force it to drink.
  • The possibility to create different share categories with different share values, voting rights, exit rights etc This made it for example possible to implement equity crowdfunding, or to make it easy for key people to get a stake in the company, or to attract business angels and smart capital. Founders can keep “control” through special shares. I believe that’s crucial and is one of the reasons we are still alive today. I see way too many examples of bad capital squeezing out the founders and killing the company’s DNA in the first 5 years. Yes, founders are a special breed. Yes, they make you feel uncomfortable as they challenge the status quo, but the good ones always listen to feedback and adapt. Feedback from employees, from customers and from shareholders. Believe me, everyone has an opinion to share about you or your business. A lot of that feedback is based on short-term self-interest. The good entrepreneurs dream, think, dare, act, balance, learn, adapt and persevere. They think long run.
  • Belgium changed corporate law recently. We are forced to transform into a limited company in the next year because coops can only be associated with “social causes”. Ridiculous of course, and again a high cost to implement, but we have to follow the rules. I hope we can keep the cooperative spirit though.
  • By nature, a coop is more “purpose driven“. Chances of attracting the right talent are higher. However, does that mean we don’t struggle with the same engagement issues as any other company? Of course not. Employee engagement is a wicked problem and the coop as such will not all of a sudden create engaged people.
  • Purpose driven doesn’t mean we don’t want to make money and create shareholder value. That’s probably the biggest mistake people make when thinking about purpose or sustainability. To build a sustainable business, making money is a big priority. Investors in a coop know that they’re in it for the long run and that if dividends are paid, they are low. However, in the future I would go for a model with dividends from year one. In Belgium you can only pay dividends if you make a profit and paid a lot of tax on those profits. That’s makes it a challenge for start-ups and scale-ups who are in investment mode.
  • You can not take a coop public(“IPO”), although it does feel like a public company. A few years ago I won the Euronext award which prepared me for “going public”, but the first thing you have to do is change your legal entity to a limited. It’s a shame. I do believe that you have to run a company as if you would put it on the stock exchange next year. It challenges you to run it as professionally as possible.

Are DAO’s the next coops?

If I would do it again, I can’t as the law changed. I still believe that wicked problems, like employee engagement or the war on talent, or the new way of working, require a metasystem approach as my smart friend Dado would say. I still believe that a coop type of business is a good way to structure a networked organisation. Collaboration is the oxygen of an ecosystem, next to capital. But how do you create an ecosystem, all the way to the board room? And how to create and capture value? How do you build a team of teams? I’ve been triggered by DAO’s since their inception, and as I’m now president of the Alliance I would advise the new CEO Inge to look at this. Here’s another inspiring article by Moonbag.

In a nutshell: A DAO is a combination of computer code, a blockchain, smart contracts, and people. The founders of a DAO set up the basic governance rules of how it will work. The DAO has stakeholders who own tokens that represent a share in the performance of the DAO. Essentially, what those stakeholders want is an increase in the value of their tokens as reflected by increased demand.

The bottom line is that, in a DAO, instead of being hired as an employee, you are awarded a contract on a project basis. The Fermat project, for example, calls these ‘Contribution Contracts.”  Then, after discussion among the community members, the proposal is voted upon and, when passed, work can commence.

So, the incentive for everyone who contributes to a DAO is

  1. Get your stuff done
  2. Get it done with high quality
  3. Treat people with respect

After all, if you don’t do these things, your livelihood is threatened.

Is it crucial to have an enterprise structure that has collaboration at its core? No, of course not, but it helps. You can create a limited company and add the collaborative DNA, but please do it from day one. I used to work for Telindus, a public company, who actually achieved that. The founder of Telindus passed away 20 years ago, but the spirit of his leadership and DNA still remains amongst the people who worked there. So that means something and shows that leadership and DNA are key. When Telindus was bought by the local incumbent Telco – through a hostile takeover – they killed the business in a few months time, most key people left, but the spirit remained within those people who all went their own ways.

Replacing camel jockeys by robots?

To win the race, camels need jockeys. Did you know that in the UAE they replaced jockeys with robots? The jockeys are now alternating between murmuring via the walkie-talkie and remotely enabled pops to the rear. I do believe that the role of leadership will become even more important in a networked organisation and I do believe that robots will come in handy to improve that leadership with solid data to make the right decisions. And yes, pops are a good thing when used the right way.

camel race

Collaboration is great, but what about capital?

For some people, capital is still a dirty word. It shouldn’t be. Without cash, you can’t grow. Growing from zero to 1mil on your own margins is very difficult and takes a long time. Not paying yourself a decent salary is not sustainable. Avoid investors who expect that from you and go for the investors who care about your wellbeing first. Those are the ones that know their investment will have a high chance of succeeding because the founder can have a life next to the business. And yes, you should have skin in the game and own shares in your company.

Finding money for a camel is easy if you aim for the right people. People who are in it for the long run.

Where to find the cash for your camel growth plans? As a founder, you need to become an expert in it. Here are a few of my takeaways:

  • Friends & family: I only involved them in the 3rd round. Just avoid the fools, as they can harm your business just by being fools. Make sure you have procedures in place to kick them out.
  • Business Angels: they typically don’t have the means to follow in the next rounds and want to help you with know-how and network. They want to belong. Watch out for too many opinions and ego-tripping.
  • Family offices: they are my favorite for medium size tickets, because they have know-how, network, are cautious and always think long-term. They like to invest when others are in too. They also have the means for a next round.
  • Banks: when interest rates are as low as they are today, it’s an option. But be careful: they give you an umbrella when the sun is shining and take it back when it starts raining. Don’t expect any compassion.
  • Government: I do believe in government support when the project helps the people. However, you see a lot of abuse in the Western world with politicians pooring the people’s tax money in the wrong projects.
  • Crowd: I’m a huge fan of equity crowdfunding, because it feels like going IPO. We’ve worked with Spreds because I do believe you need a professional company representing the crowd in your shareholder structure. It’s highly regulated, so go for it if you would like to involve a mix on investors.
  • Corporate venturing: I’m a fan, when done the right way. However, I see many failures. To me, what we did with Duval Union feels a bit like corporate venturing. It’s not just about the cash, but about the brand and the network. About being stronger together. If it’s done the right way, and I believe we did that, it really works well. But of course, Duval Union is not a corporate organisation with a massive customer base and resources.
  • VC funds and private equity: for bigger tickets, you can to go that route. However, be careful for the dinosaur approach. If they think “exit in 5 years” forget it. 5 years looks far away, but it isn’t. 10 years is better, but as a founder you think longer than 10 years. Be careful when they tell you they will “help” you, because the vast majority is just not organised to do that. You should understand the economics of a fund: the management gets around 2% of the raised capital ro run the fund and they receive carried interest on the exits when the fund closes. They are not incentivized to help you at all, because the simply can not afford to pay for senior people to do that.
  • IPO: I would love to go IPO (or ICO) one day. For me it feels like the ultimate goal: to leave your baby in the good hands of society and watch it grow further.

To conclude: I would invest in a camel community

I would gather the right capital from different sources, organised like a DAO, with preferential shares for founders, and build an ecosystem company around a clear purpose and seal, by investing in a herd of companies (yes, also Web 3.0 companies) who behave like camels with strong jockeys. I would help the jockeys with network, services, our seal, and capital. I would inspire them to learn from each other and collaborate to win the race together, in the long run. I would expect dividends in return. That’s what I would do.

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