partners 101

Barry Moltz describes partnerships as “marriage without the sex.” Partnerships in business can be one of the most difficult issues that entrepreneurs have to face, and yet very little is written about them, we usually just knowingly roll our eyes when we teach about them, and most entrepreneurs only worry about them when they have already become a complete disaster. I think that who is in or out of partnerships should have as much consideration in a business deals as what markets to enter into. Partnerships gone bad are a major source of business failure. They suck energy and time from doing business. They lead to the break-up of perfectly good businesses.
Rule One. Examine business partnerships (I am using the term loosely here as these can be common shareholders in any closely held business such as an S-Corp or LLC) like you would a marriage. I hesitate to use this analogy in today?s world of quicky marriages and quicky divorces. I mean a marriage that you really want to last a LONG time! Think it through very carefully. Talk with the potential partners about everything related and even unrelated to the business. Know their hopes and dreams, endearing characteristics and annoying habits, ethics and values, etc., etc., etc. You will spend more time with these folks that anyone else in your life and it will be a relationship that the law will make even more complicated to get out of than a marriage. So get it right in the first place! Entering into a business partnership on impulse or too casually is about as smart as entering into a marriage the same way. And it has about the same chances of success. No matter what, work with your attorney to create a shareholder agreement before you officially incorporate. Just as marriages can fall apart on the honeymoon, business partnerships can fall apart before the first sale is ever made.
Rule Two. If you are already in a partnership and it has problems, try to work it out openly and honestly. Do so with as little venom as possible. This requires that you remember three words: communication, communication, communication. And once you?ve got those three right, the next three words to remember are compromise, compromise, compromise. This is not a battle of the wills; it is your business and personal futures on the line. Check all egos at the door when dealing with troubled partnerships.
Rule Three. If the partnership is beyond hope of repair, get out as quickly as possible. The longer it takes, the more expensive it gets. And no matter what, it will be expensive. Shareholder agreements and essential and can create a potential path out of the morass, but it will still be a painful and expensive process. Count on that. As this article from Inc.com underscores, this is a tricky process even with a shareholder agreement.

Carnival of the Capitalists for 5/10/2004

Carnival of the Capitalists can be found at Clay Whittaker this week.
My favorites this week include Syergy Fest’s look at EBITDA (OK, so I’m really a numbers nerd at heart) and Goobage’s very provocative proposal of how to make our health care system capitalistic again (health care is my old stomping grounds from my entrepreneurial days, but his idea never came up in any of my industry meetings!!).
There are lots of other great posts again this week. Check it out!

Job Growth is looking robust

The Bureau of Labor Statistics released its data on the April employment this morning.
Highlights:
* Over 1.1 million payroll jobs have been created in the past 8 months.
* Manufacturing employment has increased for 3 consecutive months, adding 37,000 jobs over that period and reversing a trend of nearly 4 years of declines.
* Payroll employment was revised up by 29,000 jobs for March, reflecting an even stronger labor market than was earlier estimated.
* 867,000 jobs have been created this year alone.
* Initial jobless claims declined by 25,000 this week. Following more than a year of declines, weekly initial jobless claims are now at their lowest level since October 2000.
This link shows job creation, which has shown a net increase in jobs every month since last September.
This chart shows jobs are even stronger than many reports, as the household survey (which includes self-employed and start-up entrepreneurs) is also included. What is interesting in this chart is that both measures of employment are looking strong. Entrepreneurship is leading this economy, and it is now bringing more traditional jobs along with it.

So what’s my business worth?

People make the process of business valuation just too complex. It is really much simpler than most realize. The best way to think about the value of your business is to understand how a buyer will look at it. Simple idea, right? But in the days when we were looking at buying other people’s businesses I never ceased to be amazed by how convoluted some entrepreneur’s thinking was about the value of the business. One woman insisted to me that her business was worth $800,000 because that was how much more she needed to retire in the life style she had planned for herself. When I carefully explained to her that her business was only worth about $100,000 based on her cash flow. She became enraged, and said, “But I deserve that money!! I worked too hard to get anything less!!!”
Rodent Regatta offers a very clear picture of how a buyer thinks about valuation. Just as it is critical to “think like your customer” to be successful in growing a business and to think like an investor or banker when seeking funding, an entrepreneur must learn to think like a buyer when the time comes to exit the business through a sale. Unrealistic expectations lead to a dead end, not a successful exit.

Keep focused and overhead low as business growth heats up

A great example of in importance of keeping focused and grounded during growth can be found in this article in the StartupJournal. During growth entrepreneurs face a multiple of decisions, each of which has the potential to make or break the business. Also, the entrepreneur must struggle to build a company that has the systems and infrastucture to support growth without at the same time eating up all of its scarce cash.
When facing growth, remember that ultimately there is only one type of growth that matters: profits. Never just chase sales for the sake of more sales. Only grow your sales if they also grow your profits. Profits will not “just happen” as you get bigger and sell more. They must be planned for and engineered into your business.