What Makes a Good Partnership?

This week’s question for Forbes magazine’s America’s Most Promising Companies initiative is as follows:

What is the single
most important element of any business partnership?

You will most likely spend more time with your business partners than
with anyone else – even your family.  And it will be a relationship
that can be even more complicated to get out of than a marriage. Who you choose to be business partners with should be given as much consideration in a deal as what products you make or what markets you enter into. 

Dysfunctional partnerships are a major source of business failure. They suck energy and time away from building the business. They can often lead to the break-up of perfectly good businesses.

That being said, I think that if I have to pick one element as the most important it would be that you and your partner(s) share the same values, aspirations, and vision for the new venture.  This requires a careful and thoughtful discussion of critical business issues BEFORE the business is ever launched.

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. 

Here is just a sample of some of the issues you should discuss with potential business partners:
•    Do you share the same vision for the business? 
•    Do you share the same aspirations for the business in terms of its size?
•    Are you all going to make the same level of commitment of time to the business?
•    What are your work habits and work ethic?
•    How much time off to you plan to take each day, each week, each year?
•    How much money will you put into the business? And how much do you expect to get out of it?
•    Who will be the President of the company? What roles will the other partners play?
•    How strong is everyone’s credit rating? Can all partners help to guarantee a loan, if necessary?
•    What if one of you gets married and the new spouse gets a job offer in another city? Would you move away?
•    How will employees, customers, suppliers, etc. all be treated?

Business partnerships can be a successful experience for everyone involved.  But it takes open and honest communication and careful planning.

Are Entrepreneurs Born?

Here is my column from yesterday’s Tennessean:

I still get asked what seems like an age-old question: Are entrepreneurs born or made?

Let me start by making it clear that entrepreneurship is not in our genes. While some have tried to demonstrate that there is something innate that leads people to pursue entrepreneurial careers, there has never been a study that has found any link between our nature and entrepreneurial risk-taking.

Life experience is what drives people to pursue entrepreneurship. For some of us it comes from our family upbringing. I caught the entrepreneurial bug at an early age by being involved in family businesses. I was fortunate to be able to play a role in several family businesses ranging from a marina on the lake in Wisconsin to a corrugated box company my father started with a partner.

For others, entrepreneurship is the result of a career crisis — such as getting fired or laid off. As we are seeing in many people today, unemployment can be a powerful motivator. Many have no other option in the job market than trying to make it on their own.

For others, pursuing entrepreneurship may be the logical way out of a frustrating job or a career that is just not fulfilling.

Entrepreneurship can also be the result of an insatiable desire to pursue interests that develop throughout our lives. What starts out as a hobby or pastime can lead to a passion to pursue that interest full time.

A factor that we cannot ignore is the role of culture in forming entrepreneurs. As we see in so many studies, the culture in which we live is a powerful force in creating startups and fueling entrepreneurial economies.

Self-reliance, a dominant part of our culture for generations, has been attributed as a major force that leads so many Americans to become entrepreneurs.

Entrepreneurship is much more passion than personality. We are not born with passion. It comes from our experiences, our family, our work, our hobbies, those around us, the gifts we have been given and our culture.

Entrepreneurs feel that fire

I have learned over the years that I cannot make someone choose the entrepreneurial path in life. In fact, I really cannot even inspire someone to pursue a career in entrepreneurship if they are not already headed that way. The fire has to be in their belly.

Once in a while I have to stoke that fire, or help them see that the fire is there. And once they feel that entrepreneurial fire, my job becomes one of helping them have a better chance for success. By learning about the process of properly defining and aligning the opportunity, securing the necessary resources, planning the venture, and managing growth effectively, we can significantly increase someone’s chance of financial success as an entrepreneur.

So the answer to the question is that entrepreneurs are not born nor made. They are formed. Entrepreneurship is a career that comes out of our life experiences.

Reflections on Leadership

I will be giving a talk to our local chapter of Entrepreneurs Organization (EO) this Friday on leadership.  Preparing for this talk has been like a walk down memory lane.

Back when I studied business as an undergrad in the 1970s we recently moved away from what was known as the Trait Theory of leadership.  This view held that we could identify common traits of leaders and use them to predict future leaders.  Although this is a simplification, we got to the point were we concluded that successful leaders were tall white men with really good heads of hair.  I like to call it the Ward Cleaver theory of leadership.  All leaders looked a lot like the father in the old Leave it to Beaver television show.  For those of you too young to remember this show, we decided that effective leaders looked something like this:
ward cleaver.jpg

Of course we came to our senses and realized that we only considered people who look like this for leadership roles, which is why they all happened to have these traits.

The leadership theories that replaced trait theory were those that focused on what the best leaders do.

By the time I got to my MBA program the latest thinking was that effective leadership depended on the situation — the kind of jobs we supervised, the level of the people we were in charge of, the type of industry we were in, etc., etc.

When I got into my doctoral program, those who studied leaders were scratching their collective heads.  It seems that no theory of leadership that came along explained leadership fully, and some vestiges of all theories helped explain at least some part of leadership.

My mentor in grad school told us that it was like the theory of the blind men and the elephant.  Each one could only perceive the part of the elephant that he could touch, so each incorrectly described the elephant in its entirety. 
blind men and elephant.jpg

When I was in the private sector as an entrepreneur in the 1980s and 1990s, the focus shifted to how leaders were able to transform and support the people they worked with to achieve higher levels of performance.

So where are things today?

Heifetz, Grashow, and Linsky have an interesting view in the July-August 2009 Harvard Business Review.  Their view is that we will be facing a period of crisis for some time.  Leaders must be able to become adaptive.  More importantly, they need to create a “culture of interdependence” that focuses on adaptation.  They define leadership as a process that transcends any individual.  They conclude the following:

Achieving your highest and most noble aspirations for your organization may take more than a lifetime.  Your efforts may only begin this work.  But you can accomplish something worthwhile every day in the interactions you have with the people at work, with your family, and those you encounter by chance.  Adaptive leadership is a daily opportunity to mobilize the resources of people to thrive in a changing and challenging world.

I like this view, and think it captures the true meaning of integrity — not just in how we lead our organizations, but how we lead our lives day by day.  Good advice for these difficult and confusing times.

Franchising as an Option

Franchising is still a viable entry strategy even in the current economy.

The downside is that franchises take capital to launch, and capital is tight right now.  But if you have a bucket of money and are an accidental entrepreneur in search of a business, it may be a good option.

Make sure that you temper any projections to the current economic conditions.  Also, look for franchise opportunities that create value for the customer.  I believe that this will be the best business model for some time to come.

There are some sticky contracting issues with buying any franchise.  Make sure to work with an attorney who has experience with franchising.

But, beyond the contractual issues that arise in franchising, there are
some fundamental business and personal concerns that many franchisees
experience after it is too late.

One of the biggest sources of frustration among franchisees is that
they perceive that the value added from association with their
franchisor diminishes over time. A franchise will charge a significant
monthly percentage fee (this can average about 7% of sales) associated
with all that they offer in terms of systems, marketing, purchasing
power, and so forth. Over time, many franchisors realize that they can
be just, if not more effective on their own without paying the monthly
percentage of sales to the franchisor. This on-going monthly fee is
often glossed over by franchisees during start-up planning, as they
tend to think only about the initial fees and capital expenditures in
their planning.

Another concern expressed by franchisees is that with all of the
rules and standardized procedures, they tend to feel more like an
employee than a business owner. Those who try to break away from the
predetermined model and processes can face the wrath of the franchisor.
Larger franchisors have entire staff dedicated to franchisee
compliance.

A financial risk to consider is that many first time entrepreneurs
can only afford newer franchised concepts, since well established
franchises can cost hundreds of thousands of dollars to buy in. These
start-up franchisors can begin to experience their own growing pains.
Some don’t survive. In some cases they may take the franchisees down
with them.

It is critical to understand all of the ins and outs of franchising
as a general business strategy first. Then if the idea of a buying a
franchise still makes sense, do your homework on the company and its
concept. All franchise opportunities are not created equal.

Maureen Farrell at Forbes offers their top choices for franchises in this article.  These types of rankings can offer some good insight into the ins and outs of various business models.

“Boost Your Business” Semi-Finalists Announced

Twenty entrepreneurs have advanced
to the second stage of Forbes.com’s third annual “Boost Your Business”
editorial contest. Vote for the five companies most poised for
growth among the 20 semi-finalists at www.forbes.com/byb.  Their submissions, including self-recorded
30-second “elevator-pitch” videos, are available for review at www.forbes.com/byb.  Voting for this
round runs through September 30.  

Forget the Pitch, Make a Tweet

From Fast Company:

[N]ow there’s news Richard Branson is accepting “micropitches” via Twitter for new
startup ideas.

It’s all part of a new startup conference dubbed PerfectBusiness that the
billionaire entrepreneur is helping to get going, and it’s pretty simple. All
you have to do is Tweet your business idea to @PerfectBusiness and add the
hashtag #micropitch… which means your business idea has to be compressed down
to just 111 characters to fit into the available space of a Tweet. Winners will
get two tickets to the conference, airfare to L.A. included, and business
coaching to turn the Tweet into a meaningful, complete company plan. There’s
even the chance Branson and team will choose your idea and get some VC funding
on board.

(Thanks to Belmont alum Tyler Seymour, co-founder of Just Kidding Productions, for passing this along).