Owning 1% of a successful company is better than 100% of a floundering one

Mitchell Elegbe, founder and group managing director of Nigeria’s Interswitch Limited, a pan-African integrated payment and transaction processing company, has some advice for entrepreneurs that not everyone agrees with. He believes entrepreneurs should consider giving up the ownership of their companies when first starting out.

Mitchell Elegbe, founder and group managing director of Interswitch Limited

Mitchell Elegbe, founder and group managing director of Interswitch Limited

“This is very controversial advice because every time I have mentioned it to entrepreneurs they don’t take it seriously. I don’t know if you are aware, but when I started Interswitch I did not have a single share in the business… and I gave up 100% ownership,” Elegbe told How we made it in Africa.

He added that the fact a founder of a company can be fired by new owners “is something I think a lot of entrepreneurs must strive for”. Why? Because this is one way to ensure objectivity when making important business decisions.

“The man who runs a business cannot distinguish between the business and his private assets. The line is usually blurred,” explained Elegbe. “So my advice to entrepreneurs is to deliberately put yourself in the position where you can be fired for wrong decisions. Overall it helps you.”

This raises questions about the decision many entrepreneurs must make when seeking to fund the expansion of their companies through private equity investment, at the expense of losing control and ownership.

“What I find with a lot of entrepreneurs today is that they want control. So my question is, why do you need control? I believe that every entrepreneur must be under authority, otherwise you will make the wrong decisions,” continued Elegbe.

“By putting yourself under the authority of other people who are wiser, who can guide you, and [through] you recognising that you could lose your job if you do not do the right thing, is pressure that every entrepreneur should deliberately seek to put themselves under because in the end you end up becoming a better entrepreneur.”

Interswitch’s success

Interswitch started operations in Nigeria in 2002 and was initially financed with NGN 200m (about US$1.2m) from a number of Nigerian banks, not through a loan but through equity. The second round of capital came through private equity investment. Eight years on, in 2010, Interswitch was valued at NGN 26bn ($163m), according to Elegbe.

The company has become a leader in providing technology integration, advisory support, transaction processing and payment infrastructure services to governments, banks and various corporate organisations in Nigeria. Three years ago it expanded into Uganda and last year Interswitch made a move into The Gambia. Furthermore, Elegbe told How we made it in Africa that they are presently looking into expanding further into Africa.

Considering Interswitch’s success, Elegbe still has no regrets about giving up the ownership of his company and, in fact, believes that Interswitch would not be where it is today if he hadn’t.

Three years after giving up ownership, the chairman of Interswitch rewarded Elegbe with shares for his hard work and contribution to the company’s growth. “To me, [owning] 1% of a very big and successful organisation is more important than 100% of an organisation that is going nowhere.”

Elegbe has won a number of business leadership and managerial awards. Most recently, he was awarded the Transformational Business Award by the African Leadership Network at the 2013 Africa Awards for Entrepreneurship. The award is in recognition of a notable business leader who has created significant socio-economic impact in Africa by building a business with revenues greater than $50m.