A new way to do business

When an investor puts money into a company in return for a share of its earnings, that company will never conduct business the same way again. Now, the investor is a stakeholder in the company, vitally interested that it receives the technology and business and marketing expertise that will grow it into global markets.

It's a tradeoff: greater opportunity, but also greater responsibility. It means unequivocally meeting obligations, getting its financial house in order, adopting international product standards, and opening up what may have been a closely held family operation to outside scrutiny. Although a company does not necessarily have to be transferred from generation to generation to benefit family members, families will have to relinquish absolute control.

"Taking on partners is not only about structure and organization but about learning how to listen," says Guillermo Pereira, president of Costa Rica's Fortech Química, (see article this page). "When you are immersed in the daily operations of a business, you can get lost in your own little world."

Moving from mom and pop operations to professionally managed companies usually requires improving productivity. For some firms it may mean competing in larger markets with higher standards. Equity financing helps small companies to step up to these challenges.

When Fortech Química developed its solvent to clean quartz crystals, Motorola, its main customer, required that Pereira's company refine the product to meet export regulations established by the International Organization for Standards. To help the company comply, the Corporación Financiera Ambiental, which owns 35 percent of Fortech's equity, provided consulting services and technical assistance.

A similar thing happened in the case of an herbal tea company in Lima, Perú, called Mushu S.A. As a condition of a 1997 $180,000 equity investment by Fondo de Asistencia a la Pequeña Empresa (FAPE), the company was asked to use part of the equity to improve administrative and accounting procedures. FAPE provided the firm with assistance on how to do it.

"The owner is a good produce --he knows his teas, he knows his formulas--but he needs more focus, more strategic guidance," says FAPE Director Andrés Blondet. "Right now, he is the happiest entrepreneur in Lima because he hired a good administrator and now he can concentrate on developing his company."