Kauffman’s eVenturing site has put together a new collection of articles on buy-sell agreements. Clear buy-sell language needs to be a fundamental part of any shareholder/partnership agreement. Although you and your partners get along great as you set up your business, things can change. Partners may need to part ways for any number of reasons:
– One partner wants to retire
– One partner is just ready to go “in a new direction”
– Fundamental business disagreements
– Death or disability of a partner (Insurance can be an important tool for this situation)
What ever the reason, the rules of a partnership break-up require a clear understanding of how and under what circumstances the partner can leave, and what it will cost the remaining partners for his/her departure.
The collection at eVenturing includes a nice group of war stories, some how-to’s, and a few tools and techniques.
The best time to set up a buy-sell is when you start-up the business. And while it is never too late, the longer you wait the more complex and expensive it can get.
You and your partners should use the type of resources this site and others can provide to iron out how you want your agreement to look. Don’t just think about how and when a buyout might happen, but the valuation method to use as well. Think about how you want to be treated if you are the one to leave. Too many entrepreneurs assume that they will be the last one in the business and try to find ways to “stick it to the other partners” when they leave first. This is the classic situation where you should “do unto others as you would have them do unto you.”
Once you get a clear understanding between partners, then you should go to your attorney to get it formalized. It will cost you much more and not be as true to your wishes if you go to the attorney too soon. And never just completely defer this important agreement to your attorney to figure out. The attorney’s job should be just to put into legal language you and your partners’ understanding of what would be fair to all.
This is hard stuff to talk about, but I believe it is one of the most important things to plan for in your new business.
Classic Example of Arrogant Use of Eminent Domain
I have written in the past about the city of Richfield, Minnesota and their use of eminent domain to allow Best Buy to build a new world headquarters. At least two long time small businesses were driven off their own property in favor of Best Buy.
It seems the city fathers and mothers of Richfield are at it again. Now they are using eminent domain on more small businesses to make way for a Target store. From an op-ed piece from the Pioneer Press:
“Our business is location-driven,” says Marv Johnson, founder of Air Carego Shipping. “It’s essential that we be next to the airport.” But Richfield doesn’t see it that way. Its plans call for Target, Home Depot and other stores to push Johnson’s business out of the location it has been in for nearly 22 years — even though there are other Target and Home Depot stores less than five miles away.
This is a well written op-ed that I encourage you to read in full.
(Thanks to Rex Hammock for passing this along).
Good Time to be an Entrepreneur in Nashville
Change, uncertainly and chaos are an entrepreneurs best friends. There has been a lot of change and uncertainty in the music industry over the past few years. In spite of the industry giants’ best efforts to stop the changes taking place in how we will be buying and listening to music, we are in the middle of a transition in the industry that will rival the impact that radio had on music in the 1900s. A new report from Nielson SoundScan reported in today’s Tennessean shows the changes that are just beginning to take hold.
The good news was that overall sales of CDs, ringtones, albums and digital downloads passed the 1 billion mark in 2005, climbing 22% in terms of units sold thanks to the rapid expansion of digital offerings.
Sales of digital albums and tracks soared by triple-digit percentages last year, offering industry insiders a fresh plate of data on the impact of the paid download market.
Does it mean that the giants will go away? Probably not, but how they do business, who they do business with, and how much of the music business they will control in the future will change. There are lots of glum faces among the traditionalists on Music Row in Nashville. There world is changing forever and their business models are unraveling.
And there in lies the opportunities in this industry. A few home runs will be hit, but most the action will be in lots of singles and doubles hit by savvy entrepreneurs who will embrace the product and distribution changes that are taking place.
Right now the changes seem slow to the entrepreneurs I know. They are ready for the industry to embrace their new business models. Revolution in an industry takes time to get traction, but when it does, hand on because change and opportunity will explode.
I saw this as an entrepreneur in the health care industry in the 1980s. We knew managed care was coming and that it would completely change our industry. But of those of us who were early entrants into the new health care world, we felt like kids waiting for Christmas to arrive — it seemed to take forever. But when the day arrives, it is a joyful and even chaotic time.
Music industry entrepreneurs get ready. The next five to ten years are going to be a wild ride!
A Decade of Transition
The next decade may see an unprecedented transfer of business ownership. As reported in StartupJournal, the first baby boomer entrepreneurs turn 60 this year and many are looking to retire. The story takes an interesting perspective on exit planning. It is not just about the business and financial planning. A sixty year old today will likely live at least another twenty years, so these entrepreneurs need to think about planning their lives, as well.
Already having a doctorate (thanks to Jimmy Carter’s horrible management of the economy when I was getting my MBA in the late 1970s), my next step in life after we sold our business was relatively easy to decide. I say relatively, because my adrenalin was still pumping when we sold our business and I was ready to jump into another deal. Thanks to my wife. I slowed down and thought about my life and what I should do next.
Exit planning needs to focus a great deal on what you are going to do after you go through the exit.
Venture Capital is Back to Earth in Expectations
Many of us thought that venture capitalists were getting as unrealistic as many of the entrepreneurs’ plans that come across their desks. They had gotten to the point where they would only look at a “home run” plan that had the potential for 100% plus annual returns. But that is beginning to change. They are now willing to realize lower returns in exchange for fewer bad deals as seen today at Red Herring:
The percentage of projects that finished in the red, with the VCs getting back less than they invested, dropped. Of the 154 deals done during 2005, VCs were left holding the short end of the stick on 48, down from 62 investment failures out of the 183 deals done in 2004, according to the study by the National Venture Capital Association and Thomson Venture Economics.
Carnival of the Capitalists
The first COTC for 2006 can be found at Chocolate and Gold Coins.
Stay at Home Mom; Stay at Home Entrepreneur
I have seen a sharp increase in the percentage of young women entering our entrepreneurship programs. For those young adults between 18-25, family and parenthood are critical elements of how they plan to view their success in life. Many of them believe that they can create a better balance between their family and professional aspirations through entrepreneurship. Many young mothers are looking to home-based businesses to achieve the an ideal balance.
Any home-based business creates challenges in setting up boundaries between work and family. StartupJournal has a feature on a young mother who has found some simple rules to help make this balance work:
– Teaching the kids to respect the office and work time.
I like to call this the “Beaver Cleaver’s Dad Rule.” On the old Leave it to Beaver TV show Beaver’s Dad, Ward Cleaver, had this formal office in their home. The kids knew to only go in their when invited, and if they were invited it was usually because they were in trouble.
– Keeping office stuff in the office.
This rule applies to both the parent and the kids. The stay-at-home-parent needs to have clear boundaries between their “work place” and the rest of the home. The kids need to learn that all of the cool stuff in their parent’s office is not for their latest art project.
– Controlling the phone.
One of the cute things most three year olds do is to try to answer the phone. They learn by imitating their parents. When there is also a business phone in the home, this cute trick can lead to embarrassing moments. Using a dedicated cell phone for the business line that only the working parent controls is one way to help get around this issue.
– Maintaining a schedule.
Set clear hours for “going to work,” even if it is only in the next room.
– Managing client perceptions.
Eventually the kids will make enough noise to be heard over the phone. Let customers know that “home” is where you work up front.
– Staying motivated.
It is easy to get distracted when working at home. Playing with your spouse and the kids can sound like a lot more fun than the project you are working on. But, remember that your business is important for the family. It helps to pay the bills.
Here Comes the Sun
The recent, and temporary, spike in gasoline costs led to dire predictions from the American media and meaningless hearings from our politicians. As always, the free market took a different path. Entrepreneurs looked for new ideas created by the so-called crisis, for out of change and chaos comes new opportunity.
Red Herring reports that one sector that saw a lot of action in 2005 was solar power.
Within the U.S., orders are on the rise, however, leading to back orders and increased prices for solar panels. Some manufacturers report they have pre-sold their plant capacity.
Even with tight manufacturing capacity, analysts predict that sales of solar systems will triple by 2010.
Carnival of the Capitalists
Here is the last COTC of 2005. Enjoy!
Merry Christmas
A CHRISTMAS PRAYER
by Marty Robbins
Dear Lord I want to thank you
for what You’ve done for me
For all these many blessings
In a world that’s caught in grief and misery
No matter where I wander
I ‘m always in Your site
and so my thanks to You, My Lord
upon this Christmas Night
If all my prayers aren’t answered
then Lord, I understand
There’s others more deserving
Others Lord who need a helping hand
I pray you’ll guide and keep me
Ever near the light
And so My Deepest Thanks My Lord
Upon this Christmas Night.
I will be spending the next few days with family and friends as we celebrate Christmas. Have a blessed and merry Christmas.