Fired from Salomon Brothers, in the 1981 recession, Michael Bloomberg used his pay-off to start Bloomberg, the eponymous financial information business. The career swap set the merely wealthy ex-banker on the road to membership of the world’s super-rich club and, eventually, political celebrity as mayor of New York.
Yet crossing from Wall Street or the City to main street can be a perilous step, even for the talented and powerfully connected. Only some of the management tricks learnt working in a big money-markets business can be applied to a start-up.
Ron Packard, chief executive of online education business K12, had the start-up funds to pursue his vision in 2001 of taking online learning into the schoolroom, thanks in part to having the financier Michael Milken and Oracle’s Larry Ellison as his principal investors.
But it has taken him a decade to get to the point where, with annual revenues of $500m, he feels the business can afford the management information systems and analytical tools that he took for granted in his earlier career as a Goldman Sachs banker and as a McKinsey consultant. “You know what state-of-the-art is,” he says. “But you cannot afford the sophistication you have seen in other businesses, which is very frustrating.”
Attempting to build a sophisticated business on a shoestring is one of many reality checks awaiting those who quit Wall Street or the City of London to run their own business. Many foresee – but may underestimate – the effect of going from receipt of a big monthly salary to paying other people, whether or not the business is turning a profit. But add to that the emphasis that elite institutions place on ironing out risk through exhaustive analysis, coupled with a management culture that buys the loyalty of ambitious high-fliers with tantalising bonuses, and it becomes apparent that a money-market background is lacking as a training ground for building a business.
As former technology investment banker John Prendergast – who quit Wall Street’s Jefferies & Company in 2008 to co-found Blueleaf, a US online money management start-up – puts it: “The deal as a young banker is that you will accumulate wealth and in return take as much pain as [your employer] cares to heap on to you.”
That is not a formula for company founders, who must inspire people to believe their business has a future before they can hire them.
Just how banking-style solutions, in which the emphasis is on getting deals done and moving on to the next project, can come to grief on the factory floor was brought home to Karim Sekkat. A former mergers and acquisitions specialist at Barons Financial Services, the City investment boutique, Mr Sekkat put his banker’s theories on how to create value to the test by starting his own acquisitions-led manufacturing business, KAS Technologies, in 2004. Reasoning that an injection of brain power would transform the solid engineering companies he bought into world-class outfits, he recruited managers from blue-chip corporations to knock the operations into shape. To his dismay, competent long-standing employees were soon handing in their notice, while the manufacturing glitches and missed deadlines were still not fixed.
“My mistake was to imagine that people who had worked for a world- class organisation would know how to [create a high-performance culture],” says Mr Sekkat. “Actually, what they knew was how to run a company that was already world class.”
His response was to perform a U-turn in early 2008. With the help of the shopfloor employees, he turned his old analytical skills to the task of identifying production bottlenecks and designing easy-to-follow procedures, illustrated on wall-mounted visual boards. “When you are in the City, you can make a lot of things work on paper,” says Mr Sekkat, whose group last year achieved revenues of £19.3m. “But when you are [a manager], you really have to understand what makes a business tick.”
Nevertheless, some practices can be imported directly to the new business.
Former HSBC banker Ian Zilberkweit, co-founder of LPQ Russia, which trades as Nash Khleb (Our Bread) Bakery Group and operates the Russian franchise for Le Pain Quotidien – as well its own retail chain and a wholesale business – imported a practice from his old employer to tackle a problem of managers ducking responsibility for commercial performance by getting them to set their own targets. Introducing a vested employee share scheme has also encouraged experienced staff to stick with the business, which has a turnover of just over 600m roubles ($21.5m).
“There are definitely [practices] from banking that are applicable [to running a small business],” says Mr Zilberkweit, “but you may have to simplify them.” Without the help of the Russian HR director, he says he and his business partner would have struggled to explain the City-inspired concept of vested shares to the workforce.
The realisation that the buck now stops with them can leave some new owner-managers, used to working in a City peer group, feeling exposed and isolated. Mr Zilberkweit says: “In banking it is easy to make friends [because everyone has a similar background]. In the company you create there is much less of that.” For instance, “you cannot afford the sort of people [that you used to work with]”.
In such cases, joining business networks can prove a pick-me-up for ex-City suits in search of peer group support, says David Molian, director of the business growth and development programme at Cranfield School of Management. He says former City colleagues can help open doors with introductions but their ability to advise new entrepreneurs on running a business or even to identify with their daily dilemmas is limited “because they are not doing it themselves.”
Having just opened his fifth London ice-cream parlour, and with three more planned, Carlo Del Mistro might not seem in need of advice on entrepreneurship. In fact, the ex-Lehman Brothers banker turned founder of Gelato Mio, an upmarket Italian ice-cream brand, admits he found old habits hard to shake off. “At the beginning, I might spend four or five days trying to get a promotion or a poster completely perfect,” says Mr Del Mistro. He opened his first parlour in 2008 while doing an MBA at London Business School, on sabbatical from Lehman. “But, if you want to be an entrepreneur, you have to take risks.”
So far, his risk-taking strategy appears to be paying dividends – which, as he mischievously points out, is more than can be said of his erstwhile employer.
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