I knew a young woman whose parents had a tree-climbing business. They lived in a tree in southern Oregon (or at least, that’s what she said. Maybe that was a metaphor). They were tree climbers by avocation, and made tree climbing their vocation as well. They sold tree climbing equipment on the web. I don’t think they wanted to grow the business much. They weren’t looking for investors. They didn’t want to sell stock or get acquired. They wanted to enjoy their hobby and make a living at it.
The other day a friend asked me for advice related to taking on investment to build his business, for the first time. He knew the investor. They’d agreed on the amount and the share of ownership in exchange. My friend was comfortable with the idea. But I wasn’t.
I worried about incompatible goals. Assume, for the sake of discussion, that the business in question is doing very well right now, supporting the family, growing well, and keeping its owner involved and happy. I’d thought he’d at least want to continue doing that for a long time, nurturing his business baby, keeping it healthy but also keeping it his.
I didn’t actually ask him whether he wanted to build a treehouse or a castle. But I could have. It’s a good way to get at the underlying tradeoffs involved. It relates to the idea of defining success. The treehouse can be a great place to be, happy, comfortable, a good view. But it’s no castle.
How ambitious are you? How much control do you want to have? How much risk do you want to take? Are you comfortable with maybe growing more slowly but not having to compromise with your investors?
Business schools normally teach about building the castle, not the treehouse. By that I mean that the classic business teaching about startups is to get financing with the right investors and grow fast, then turn it over into a stock offering or acquisition. That’s the castle. So as a result we assume formal business plans, pitches to investors and high growth.
When you take on an investor, it’s not really your business any longer. Minority owners have rights. And aside from the detailed legal elements, you have ethical and moral obligations toward those minority owners. 
You can’t just keep the business for yourself anymore. At some point, in fairness to the investors, you have to sell all of it, or at least more of it.
Like having the cake and eating it, you can’t own the business and have investors. You have to choose one or the other: treehouse or castle.
You can’t have a business and sell it too.
Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.
