Business Owners Toolbox Blog Discussions and articles to help the small business owner solve the challenges they face as they grow their business.

October 21, 2009

What qualities do you look for in a partner for a start up?

Filed under: Entrepreneurship — Tags: , , — Mike Van Horn @ 2:00 am

Asked by David Shaw on LinkedIn

1. First of all, never form a partnership, period. Use some form of incorporation instead. Partners have 100% liability for each other’s actions. But we often say “partner” when we mean fellow stockholder.

2. Never take on a “partner” if you can hire the person instead. Giving someone an equity stake because you cannot afford to pay them a salary will turn out to be the most expensive hire you ever make.

3. The only justified reason to bring in an equity “partner” is that they bring in something that you cannot obtain in any other way, such as:
— Capital. But even this is chancy. Much better to use a line of credit, or sell shares to a handful of investors.
— Synergy. The two of you have a proven wonderful working relationship and have complementary skills. For example Doer and Rainmaker, or Creator and Implementer.
— Connections with customers or resources that will make you rich.
— Access to a market that you could not otherwise enter.

If you do get a “partner,” get your working agreement (“pre-nup”) drawn up by the most hard-harded, cynical lawyer you can find, so it will have contingencies for all the worst-case scenarios starry-eyed newbies never think of.

By the way, the only thing worse than seeking a “partner” for your start-up is bringing in an equity “partner” to your established business. I’ve never seen a single instance where this worked out. Instead, hire them as a consultant.

If you want to bring in an equity “partner” to get a capital infusion for rapid business growth, don’t sell them a stake in your existing business. Instead, have them become a shareholder in a new venture the two of you start, while you retain control of your original company. The new company can contract for services from your original company.

mvh

October 15, 2009

What are the leading indicators of business success?

Asked by John Cameron on LinkedIn

Good questions, John!
With the entrepreneurs and small business owners I work with, here are some of the personal success indicators I look for:

— Desire to be a manager and executive, not just a worker and detail person. (Many prefer just to keep working away.)
— Habit of stepping back and looking at the big picture regularly
— Planning, even in the face of uncertainty; then review their plan regularly, take corrective action, and update it as needed
— Willing to hire top quality people–even people smarter than they are
— Delegate as many things as they can to others, to free them up to focus on strategic issues
— Willing to invest in their own business; to take a risk; to hire a person they cannot afford right now, but who can help them break out
— Get support from peers and experts who have been where they want to go. Listen to and learn from these people, even when it’s uncomfortable.
— Continual learning: improving management skills, mastering new technologies, broadening industry knowledge

Note that these are about the individual, not the business concept or model. However, I also look for:

— A business model that promises profit margins adequate to pay them well, but also to fund growth, pay back investors, and provide a cushion for tough times.

Also, notice that I said nothing about working 24/7. I do not think that correlates well with business success.

I have a Business Viability Test that I use to assess business models. I haven’t yet included that in my e-tools, but I think I will.

October 8, 2009

Getting Past Procrastination

Inspired by a short article in BNET, “Why We’re Wired for Procrastination

Do you ever procrastinate? Stop kicking yourself! The linked BNET article says it’s not a moral failing; it’s just the way the brain is wired. Here are the first three “brain quirks” and the resulting “procrastination effects.” (There’s more detail in this Psychology Today article.)

  • Quirk 1: The brain is built to firstly minimize danger, before maximizing rewards.
    Procrastination Effect:
    We avoid tasks that threaten the self, and we discount future rewards in favor of immediate gratification.
  • Quirk 2: Too much uncertainty feels dangerous. It feels like possible pain so we avoid it.
    Procrastination Effect:
    Uncertainty — not knowing what to do next — is scary. Delaying a task becomes a way of coping with or avoiding that fear.
  • Quirk 3: Our conscious processing capacity is small, which makes us terrible at a lot of things, including predicting what might make us happy.
    Procrastination Effect
    : It’s difficult for us to set realistic goals — or stick to them.

Well, okay, procrastination is not a moral failing, but we still have to run a business, and get things done.

My clients are small business owners, and I see this behavior everyday in them (yes, and in myself). This springs up whenever they need to get out of their comfort zone and dive into the new, e.g.:

— Making marketing calls
— Expanding into a new niche
— Hiring a top level manager
— Investing in growth
— Preparing their business to sell
— And the #1 Procrastination Generator: Writing a book! Hey, many of us get frozen up trying to write a blog post!

So how do you counter procrastination? I was excited to note that the way I work with owners helps limit their procrastination due to these “brain quirks.” Here’s how: I put together groups of 10 owners. Each ongoing group meets half a day a month. The purpose is to tackle the challenges to growth you face, using the group as your problem-solving panel and sounding board. But these growth challenges are the very ones that generate the most procrastination, because you are forced outside your comfort zones. Thus a big part of what we do is have members set commitments, then report back to the group the following month.

Being held accountable by a group of peers you respect is a powerful force. As one woman said, “There’s no way I’ll go to the group and not have my commitments done! I’ll stay up till 2:00 am the night before if I have to.”

The 9th Circle in “Procrastination Hell” is reserved for people who write books. And business owners who write books are in the center of that circle. Running your business is a full-time job, and writing a book is a full-time job. The business pays you now; the book might pay you something way off in the future. The business gives you instant feedback on how you’re doing. The book? Will anyone ever read the dang thing? Writing a book–even a business how-to book–is complete self-exposure.

Thus writing a book scares the bejebbers out of people. (I’m saying this as a guy who’s published four books, and many workbooks.) I tell people a book takes two years to complete: 10% of the time writing; 90% agonizing over it.

An example: A consultant I’m working with has been writing a book about his field for the last couple of years. The early parts went really well, but the  closer he got to the end, the slower it got. He’s down to writing the lead ins for each chapter, and progress was zero. Every time he set aside time, something would come up. Paid client work! Can’t miss that. The wife needed his help. The dog had a problem. Etc.

We talk by phone 10 minutes a week, setting goals, then reporting how it went. Every time there was no progress, we problem-solved how to do better the next time.

Finally one week, he made a bit of progress. Elation! Congrats!

Then the next week, he reported that he had completed all the rest of the chapter summaries. “Once I got started, and generated some momentum, I just kept rolling,” he said.

Lessons:

1. Having a coach really helps. When I write my books, I hire a coach to keep me on track.

2. When you are stuck, find a way to get unstuck that will allow you to make a bit of progress.

3. Once the logjam is loosened, and you build some momentum, keep going. Stay on a roll as long as you can.

4. Strike while the iron is hot! When you feel a bit of inspiration, go for it RIGHT THEN. If you wait even 1/2 hour, it’s gone.

In my e-book “Recapture Your Time,” I have a section on getting creative things done while you’re running a business. Overcoming resistance. Carving out time for development. Finding your best creativity work style.

And I’m also doing an e-book on “Cash Flow From Your Creativity.” When will it be done? Depends on how well I practice what I’m preaching here. If you’re interested, bug me, then I’ll be more likely to get it done sooner.

mvh

October 5, 2009

How Can Small Business Compete for Top Talent with Large Corporations

(From question in wsj.com Small Business Forum)

Let me count the ways!

Small companies have many advantages in attracting top people. Here are a few. (I work with owner-run firms from 5 to 100 employees.)

— Shorter commute. One 50-person client just hired a COO for $120k who’d received a $150k offer from a corporation in the city. He opted for a local 10-minute bike commute over the hour+ daily grind each way. He figured the extra two hours a day added to his life was worth $30 grand a year.

— More opportunity. Another client hired a GM away from a much larger competitor. The guy saw that he’d reached the top where he was, and in the new job, he’d get to lead a major growth push. Big fish in a smaller pond.

— Less travel. Many professionals in their 40s and 50s switch to smaller, local firms because they’re tired of constant travel they’ve had in their corporate jobs.

— Flexibility. “Yes, we can bend your schedule around your kids’ soccer games.”

— More diverse opportunity. They see they’ll get to take on a much greater variety of projects and responsibilities.

— Get to work directly with the principals. Small companies may be headed by much more innovative and leading-edge people, and it’s a great opportunity to work with them.

— Less corporate bureaucracy and politics.

— Un-retired. Here’s a big growing trend: Senior people retire from the corporation, then go to work for smaller companies. They trade less money for lower stress and flexible hours. The oldest guy working with us is in his mid 70s.

Attracting top people is a marketing job. You must look at your company through their eyes, see what you offer that will attract them, and how you can make yourself more attractive. It’s about much more than just offering more money.

However, many small business owners discover that the people they’ve lured away from large organizations aren’t a good fit. These people may be accustomed to narrower duties, superiors telling them what to do (thus uncomfortable taking initiative), having a lot of support staff (thus not resourceful at getting things done). But by far the worst quality is exhibiting “employee mentality” rather than the “entrepreneur mentality” needed in a small, dynamic firm. And I’m talking about top-level managers!

So it’s essential to make sure that the “corporate escapees” you hire are comfortable in your small business culture.

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