I’ve been involved in lots of start-ups, and seen many more over the years. From my successful and tragic experiences, I’ve decided that if I can do without three things in particular, I’m off to a good start.
If you’ve had a business partnership go south, you know just how bad it can get. Shouting matches, competition for clients, lawsuits, you name it, they all happen when a partnership blows up. It can be worse than a messy divorce, because unlike most divorces, it’s your income that unravels.
But even if you get along fine with your partner, and you trust them, they work hard, and they’re a credit to your business – even with all that, you can easily have an honest disagreement about where to take the company. That can be the most frustrating situation of all. Everything is perfect except for your goals.
You’ll never have a better relationship with an investor than on the day they invest. After that, their primary thought is not on growing the business, but exiting the business. And unless they invest more money, they’re now a constant weight on your honor and company reputation. They can launch shareholder suits in bad times, and in good times, be a frequent distraction from your core business by making you create reports, hold meetings, etc. And that doesn’t count all the time it takes before they actually write you a check.
If you haven’t dealt yet with Chinese factories, cargo ships, customs inspections, distributors, retail returns, etc. and you’re about to – go in with your eyes open. Having done this, I know all too well many of the pitfalls that can happen at any stage. Maybe your factory announces in the middle of a production run that your cost has just doubled. Or you’ve missed your ship date and you’ll be late by three weeks. Perhaps in your arrival port you finally discover that your units are faulty. Or your big box store’s return rate is just high enough for them to send you back all your remaining units – in boxes marked for them. I’ve had these, and many other problems, happen to me. And there are plenty more.
What Does That Leave?
What kind of business has no partners, no financing, and no products? Service companies that you grow slowly. Websites. Software. Many others. If you can possibly avoid the biggest business nightmares which are caused by partners, investors, and products – you’ll never know just how fortunate you are.
What If I Need Partners, Investors, and/or Products?
Sometimes you can’t help it, because that’s just how your business is. Here are some ways to mitigate common problems:
Partners: Spell out clearly, and put down in legal agreements, the percentages of ownership, responsibilities, authority, work load, work hours, etc. Get impartial Board members. Have explicitly stated procedures upon dissolution, and death of one of the partners. Agree to what the company is about, and specifically, how you will allocate resources over the next year, so that on a daily basis, it’s not about one partner effectively changing the company, but simply about execution.
Investors: Set reasonable expectations for the company’s performance. Discuss how and when you plan to get the investor their money back, and what kind of return is expected. Most entrepreneurs have little idea how to repay investors. Have clear bylaws as to what rights investors have, and conduct regular Board meetings.
Products: If possible, go with a product that you can put 100 of on your kitchen table – small and light. Research patent prior art thoroughly. Have a back-up factory lined up in case your primary factory goes out of business or becomes impossible to work with.
Easier said than done, I know. But nobody said that buying that private island in the Pacific was going to be easy. Thousands of people succeed in new businesses every year with partners, investors, and products – sometimes they get lucky and things work out really well, other times they just have to work harder.