Carol Roth | Crain's

In this ongoing series, we ask executives, entrepreneurs and business leaders about mistakes that have shaped their business philosophy.

Carol Roth


A former investment banker, Carol Roth is an entrepreneur, CNBC contributor and author of the book "The Entrepreneur Equation." 

The Mistake:

I started a career as an investment banker. I worked for a firm called Montgomery Securities back in the mid-90s. It was a great environment because it was very much a meritocracy. I worked very feverishly as an analyst. The better I became, the more the senior staff was willing to give me more and more responsibility.

About a year into the job, I had worked on a couple of initial public offerings and I was put on the IPO team for a consumer services company. It was a fairly small execution team. There was a senior banker, a vice president level banker and me. My uppers were so excited by what I did that the VPs stopped coming to meetings altogether and the senior banker started giving me more responsibility.

So we were at the financial printer, which is the place that you go when you are finalizing the registration documents and getting the S-1 ready to file. It was very late at night and the senior partner wanted to go home. She said, “Hey, can you look at this document when it comes out? And in the meantime, can you and the CFO go over the projections for the company and make sure that they’re conservative enough that they can meet the numbers?”

We go over the projections to make sure that when a company goes public and they report their first quarter, they’re putting projections out that they can, hopefully, exceed so that the stock continues to get a lift. I had been working long enough to know some things, but not long enough to know everything. But the thing that I knew was we wanted to be conservative here. So I sat down with the CFO and we went over the projections. We shaved a little bit off the revenue and off the margin and came up with something that was a bit more conservative, and that was that. We filed the S-1 statement. I told the senior partner that I made everything more conservative, and here it is. She says, “Great!” But she did not really look at it.

Days later, there becomes a firestorm in the office that the research analyst wants to take the valuation of the company down because the projections now show a lower net income because I sat with the CFO and made them more conservative. I didn’t realize that by being conservative, it would change the entire valuation of the IPO. I didn’t have enough experience to know. I had been involved in bits and pieces, but I didn’t know what I didn’t know. It had serious implications for the company being able to go public and became a giant mess that the senior team had to work out with the research analyst.

When you delegate things, you can’t abdicate.

The Lesson:

I always explain things holistically to the people that I work with because I think that if you understand what we’re trying to accomplish, you can do a better job in approaching it. The most senior banker never really explained to me the entire object of what we were trying to accomplish. She only communicated a little bit of it, and so I was only able to pick up that little piece.

Also, it’s important to know what you don’t know. I did not have enough experience to be in that position, and the senior team should have been able to at least fill in that gap. But most of all, when you delegate things, you can’t abdicate, and the senior team handed it off to me, I said “I did it,” they went, “great” — they didn’t actually check that it was consistent with what they were trying to achieve.  

Sometimes people may say, “Why are you taking so much time to explain it?” or “Yeah, I get what we’re doing,” but I think it’s really important to lay that groundwork upfront.

Follow Carol Roth on Twitter at @caroljsroth.

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