Friday 7 June 2019 11:42 am

Theresa May, take comfort from knowing that leaders change all the time in business

John Morris is a partner at Smith & Williamson.

Two weeks ago, as Theresa May stood outside Downing Street to announce her resignation, you would  have been hard-pressed not to feel a degree of sympathy, regardless of political affiliation. But the truth is that what can look like a bruising resignation is sometimes exactly what’s needed for an organisation to move on and – in most cases – prosper.

Today is May’s official resignation date as leader of the Conservatives, although she’ll remain as Prime Minister until her party selects her successor. She might perhaps take some comfort from the fact that we see business leaders replaced surprisingly frequently. This is particularly apparent when firms are in the midst of major change – not unlike the Brexit negotiations.

Recently, we’ve been looking at scaleups and small businesses, and how they raise external finance as they prepare for a period of significant growth.

A staggering 40 per cent of founders who’ve successfully raised funds told us that changing their chief executive was part of the process, and 28 per cent also said that they had replaced their chief financial officer during the funding journey.

To understand the importance of the leadership team, it’s worth exploring businesses which have tried and failed to raise finance.

Considering all the funding success stories that we hear about, the fact that seven in 10 businesses fail to raise finance during their first attempt may be surprising. Two fifths of firms fail to secure funding more than three times, while nine per cent have made five or more unsuccessful attempts.

What links these failure rates is the rationale, from nearly half of founders, that the management team wasn’t strong enough. This far exceeds the number of companies that failed because their business model wasn’t good enough, demonstrating that the quality of the management team is the most important factor for investors.

So the fact that such a significant proportion of those businesses which secured that all-important funding deal replaced members of their management team during the process speaks volumes.

In short, organisations need new ideas and new ways of thinking to thrive, and this is often brought about by new leadership teams. This can be particularly felt at the scaleup stage, as businesses transition from “growth to super-growth”. It is here where a new leader might help refocus the business on its key objectives, while delivering scale as it aims to reach the next level.

Of the businesses that we spoke to which have successfully raised finance, scaleups were also far more likely to have a concise business plan in place. Unfortunately for the outgoing Prime Minister, she did have a plan, but it did not stand up to scrutiny.

In the business world, securing an agreement – especially one which could be viewed as risky – requires preparation. Securing investment should by no means be a blind leap of faith into the unknown.

To be ready for complex negotiations, firms need to ask themselves difficult questions and demonstrate that a strong management team is in place which can successfully handle unexpected events and adapt to the fast-paced nature of business growth.

Equally important is the level of ambition displayed, and a degree of certainty on future plans and objectives. But even so, getting something signed is never easy.

Unfortunately for May, it became clear that she’d run out of steam. In practice, this was reflected by parliament repeatedly voting down her Brexit deal, and members of her own cabinet briefing against her.

And unlike in business, where lengthy gardening leave is the norm, she now has the unenviable task of operating in a caretaker capacity. That’s politics for you.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.