534  Corporate Portfolio Strategy
Consider an example of how the best owner for a company might change 
with its circumstances. Naturally, a business’s founders will almost always be 
its first best owners. The founders’ entrepreneurial drive, passion, and tangible 
commitment to the business are essential to getting the company off the ground.
As a business grows, it will probably need more capital, so it may sell a 
stake to a venture capital fund that specializes in helping new companies to 
grow. At this point, it’s not unusual for the fund to put in new managers who 
supplant or supplement the founders, bringing skills and experience better 
suited to managing the complexities and risks of a larger organization.
To provide even more capital, the venture capital firm may take the com-
pany public, selling shares to a range of investors and, in the process, enabling 
itself, the founders, and the managers to realize the value of the company 
they created. When the company goes public, control shifts to an independent 
board of directors (though the founders will still have important influence if 
they continue to own substantial stakes).
As the industry evolves, the company might find that it cannot compete 
with larger companies because, for instance, it needs distribution capabil-
ity far beyond what it can build by itself in a reasonable time to challenge 
global competitors. Other external factors, such as regulatory or technological 
changes, also can create a need to change owners. In response to this limita-
tion, the company may sell itself to a larger company that has the needed 
capability. In this way, it becomes a product line or business within a divi-
sion of a multibusiness corporation. Now the original company will merge 
with the manufacturing, sales, distribution, and administrative functions of 
the division.
As the markets mature for the businesses in the division where the original 
company now operates, its corporate owner may decide to focus on other, 
faster-growing businesses. So the corporation may sell its division to a private-
equity firm. Now that the division stands alone, the private-equity firm can 
see how it has amassed an amount of central overhead that is far higher than 
is needed for a slow-growth market. The response: the private-equity firm 
restructures the division to give it a leaner cost structure. Once the restructur-
ing is done, the private-equity firm sells the division to a large company that 
specializes in running slow-growth brands.
At each stage of the company’s life, each best owner took actions to in-
crease the company’s cash flows, thereby adding value. The founder came up 
with the idea for the business. The venture capital firm provided capital and 
professional management. Going public provided the early investors with a 
way to realize the value of the founders’ groundwork and raised more cash. 
The large corporation accelerated the company’s growth with a global distri-
bution capability. The private-equity firm restructured the company’s division 
when growth slowed. The company that became the final best owner applied 
its skills in managing slow-growth brands. All these changes of ownership 
made sense in terms of creating value.