This is my third blog in a handful of months that is essentially about people issues in a start-up, but I make no apology for that. I will, however, admit that a few years ago, before I had actually started a business, I was a sceptic on this subject. But that was then, this is now.
If you are to be successful in a start-up, you need some self-confidence. If you don’t think you’ve got it, you won’t succeed. This is however, different from being like an X Factor contestant who believes he or she has a world-beating singing voice but sounds like an animal in pain. To be successful, you also have to be realistic and understand the balance of risks you are taking. Understanding your strengths – and playing to them – is part of that equation.
But how do you understand your strengths? Here I must recommend the book Strengthsfinder 2.0 by Tom Rath published by Gallup. I also suggest you take the online test that comes free with it. In my 30 years in businesses large and small, I’ve come across numerous tests, but this one is the best of all.
For a couple of my strengths, it says I should partner with someone who has particular complementary strengths. My first business partner had these strengths and our company, SellerDeck, reached the FTSE 350 within four years of starting out. My latest business partner also has these strengths, so hopefully watch this space.
The abilities of the founders are by far the most important factor in a start-up situation. Get these right and you’re well on your way to success. Enjoy the ride.
Finding the right partner to help you start up your business more than doubles your chances of success.
First there’s resource. Your business will have more financial resources and a wider network of family and friends to help.
Then there are strengths and weaknesses. Very few of us have all of the talents needed to succeed in business. If you think this isn’t you, watch the X Factor for an object lesson in over-confidence in one’s own ability. With two people, you have a greater chance of covering all the things that matter.
Then, there’s morale. It’s hard to start a business, and with two there’s always one to cheer up and urge the other on.
Finally, growth is easier. The biggest first step in growth is usually recruiting your first employee. When there are two of you, the recruit only increases the wage bill by 50 per cent, which is much more manageable.
But there can be problems. Let me give you some real life examples. A friend of mine went into business with a partner and after several highly successful years, the relationship became strained to the point where both hated going to work.
My friend offered to buy out the partner, but with the relationship broken, the other party was uncooperative. Feeling desperate, my friend upped the price in an attempt to close the deal. Finally, all was agreed, but he had to put all of his assets on the line and take a loan from the other party. Unfortunately, the long period of wrangling had undermined the business. Unable to meet the loan repayments, my friend ended up losing everything – his job, his house and the business.
In another example, a different friend split from his business partner. The partner, again after much wrangling, took most of the existing business with an agreement to make payments on a percentage of sales. However, the business partner set up a subsidiary; made sales to the subsidiary at a highly discounted rate; then the subsidiary sold the products to the end customer. The result was the ex-partner effectively stole from my friend, although it was probably legal.
The problem with partners comes when you fall out. Of course, in the heat of enthusiastic start-up this seems a distant prospect, but it eventually happens in many cases. So I would offer two pieces of advice.
The first is to make sure your potential partner has integrity. If they don’t, were you to split, they will try to defraud you. I parted ways with my business partner. It wasn’t easy and it wasn’t a happy time. But because he had integrity, he didn’t try to “do me down”. In fact, despite the tensions, I still trust him.
A quick way to check if a potential partner has integrity is to ask them about the cleverest things they’ve done in business. If they boast about how they outsmarted (defrauded) other people, you can expect the same treatment if you ever seriously fall-out.
The second recommendation is to draft a “shotgun clause” between you. This allows, at any time, one partner to offer to buy out the other. The recipient of the offer can then choose to either sell or buy at that price, but they don’t have the right to refuse. This is a great way to get to a fair valuation of the business.
Despite the horror stories, partnership is still more than worth the risk. It’s better to have a problem sharing the pie, rather than have no pie, it just pays to take care. After all, you will probably spend more time with this person in the next few years then you will with your personal partner.