The Entrepreneurial Mind

StartupJournal highlights two entrepreneurs, Barbara Meade and Carla Cohen, who thought they had their exit plan in place for their bookstore.

"As they reached their mid-60s, they wanted to make sure their business would thrive into the future. Since neither had children interested in taking over the store, four years ago they hired a younger entrepreneur, Danny Gainsburg, with the understanding he would eventually buy them out."

But, their plans soon came unraveled as their employees rebelled against the transition. There story is an informative case study on the challenges of the exit process.

I remind entrepreneurs to keep a few things in mind regarding exits:

- The first offer is rarely the one that works. Don't get too excited and don't spend the money until it is actually in the bank. Half of all business sales that actually make it to closing actually complete the sale, and a very large percentage fail long before that point.

- Staff will always get anxious during an exit no matter how well it is planned. The process is disruptive and can become quite chaotic. Keep it as quiet and low key as you can for as long as you can. Avoid making a highly visible long term transition.

- Twenty years can be short-term for exit planning. Don't wait twenty years to start your planning like the entrepreneurs did in the StartupJournal profile.

- Involve your accountants and lawyers throughout the process. It will be expensive, but it is worth the costs given the risks of making any missteps.

- Integrate the needs of your important stakeholders into your planning. But, in the end remember that it is your business you are exiting.

For more tips on exit planning see my earlier post on this topic.

Posted by Jeff Cornwall at 05:53 AM | Permalink | Comments (2) | TrackBacks (1)

Anita at Small Business Trends has a great post on how independent coffee shops are more effective at listening to their customers. This is not only a good practice for coffee shop entrepreneurs like Jason at A Thought Over Coffee, but all small businesses. The ability to think like their customers is a key competitive advantage entrepreneurs have over their large corporate competitors since they are so much closer to their customers day-to-day as they run their businesses.

Posted by Jeff Cornwall at 05:47 AM | Permalink | Comments (1) | TrackBacks (1)

Here is Part II of this week's COTC.

Posted by Jeff Cornwall at 06:37 AM | Permalink

Angel funded was way up in 2004, which is good news for the entrepreneurial economic recovery. Angels are credited with supporting more total economic development than venture capitalists. Inc.com reports on the details of this study.

"Angel funding for start-ups grew 20% in 2004 and helped create 141,200 new jobs, according to the Center for Venture Research at the University of New Hampshire, in Durham, N.H.

"The total investment by angel investors rose to $22.5 billion last year compared to $18.1 billion in 2003. The volume of angel investments was 16 times more than the number of venture capital investments, and the number of entrepreneurial ventures that received angel funding in 2004 increased 24% to 48,000."

Posted by Jeff Cornwall at 05:53 AM | Permalink

The battle over copyrights that is now before the Supreme Court has far reaching implications beyond the litigants in the case. It could shape the competitive environment for years to come in the entertainment industry.

As seen in this article from Red Herring, many fear that this could stifle innovation and entrepreneurship in the industry.

"The case has provoked a flurry of briefs from interested parties, including such diverse groups as computer science professors and professional musicians. Intel filed a brief this month saying that Hollywood is trying to force technology companies to accurately predict how consumers will use their technology-an impossible task, opening tech companies to endless litigation. Other groups, including the National Venture Capital Association, pointed to the technological importance of file-sharing over peer-to-peer networks.

"Mark Cuban, billionaire entrepreneur and president of HDNet, recently wrote in his blog that he would finance Grokster’s defense. 'If Grokster loses, technological innovation might not die, but it will have such a significant price tag associated with it, it will be the domain of the big corporations only,' he wrote."

Stay tuned....

Posted by Jeff Cornwall at 05:48 AM | Permalink

StartupJournal reports that the SBA is looking into the definition what is a small business.

"By U.S. government standards, a sheep farmer is one, so long as her business pulls in no more than $750,000 a year. So is a residential remodeler, though he can make up to $28.5 million. A fish and seafood wholesaler gets small status if the company employs fewer than 100 workers while a telecommunications reseller is allowed up to 1,500 employees and can have unlimited revenue."

Congress is not real interested in this change, as the current policy allows them to micro-manage yet another part of our economy.

Think I am exaggerating? Check out the official list the SBA puts out on what constitutes a "small" business. It currently runs about 42 pages.......

Posted by Jeff Cornwall at 05:49 AM | Permalink

Sometimes angel investors really do come out of the blue just like angels as seen in this article from the San Diego Union Tribune. Amylin Pharmaceuticals was saved by an investment made by a self-made entrepreneur turned angel investor, Allen Andersson, who believed in this company because its new drug could help his own daughter.

The company is working on its second major drug and Andersson is doing more deals due to the success they had together. A great story and well worth a read.

Thanks to Ben Cunningham for passing this along.

Posted by Jeff Cornwall at 05:34 AM | Permalink

From time to time I have written about the importance of vacations or just time off for entrepreneurs. Judy Artunian at the NFIB web site offers their take on this topic.

"More often than not, the entrepreneurs who could stand to gain the most from taking a two-week vacation are often the ones who can't bear to be away from their business for more than two days. If you're having trouble breaking away for that leisurely trip to the Bahamas or to your brother's lakefront cabin, it might be time to re-orient your thinking about vacations."

She says it can be good for your company, good for your employees and good for your ability to deal with the stresses your venture keeps sending your way.

And as I also recommend, she says to make sure to really take time off.

"Eighty percent of small-business owners check e-mail or voice mail while they're on vacation, according to the results of a recent survey conducted jointly by Thomas Industrial Network and the U. S. Small Business Administration; try not to be one of them. Too much checking in will dilute the regenerative powers of a vacation. Urge your staff to call you if they need help with a matter that can't wait until you return, but stress to them that you need this time to decompress from the pressures of work."

Before one vacation I told my staff that they should only call me if the office burns down (completely) or if someone would die if they didn't contact me before I got back. (I still got two calls, but neither had anything to do with a fire or a potential death.....).

Posted by Jeff Cornwall at 05:05 AM | Permalink | TrackBacks (1)

Jason at A Thought Over Coffee sheds some light on the chaos that can be a part of the start-up of a new venture, especially when it also involves moving half way across the country.

Posted by Jeff Cornwall at 05:01 AM | Permalink

COTC will be presented in two parts this week. Find Part I here. Part II will be posted on Wednesday.

Posted by Jeff Cornwall at 06:43 PM | Permalink

Pathfinder Therapeutics Inc. is a medical device company founded by a group of six clinical and academic professors from Vanderbilt and Washington Universities located in Nashville, TN.

"PTI's mission is to develop innovative image-guided therapeutic applications that allow physicians to perform more efficient, accurate procedures and improve patient outcomes. Our vision includes the continuing development of a commercial image-guided surgical software platform on which we can build many innovative therapeutic applications can be researched, developed, evaluated in clinical trials, and cleared for sale by the FDA. As the founders have continued to do as scholars in presenting their academic research, we will always act with the utmost integrity and honesty in dealing with all of their stakeholders."

The first commercial application under development by PTI is a image-guided liver surgical system. They currently have a working prototype of this system.

Image-guided surgery essentially describes using preoperatively acquired medical images as an interactive roadmap during a surgical procedure. Extensive phantom, animal and limited clinical experiments have been performed with the system and the results published in peer-reviewed academic journals. The working system will continue to be utilized in preliminary clinical investigations for liver applications over the next year. The goal in the first year of operations is to develop a clinical prototype that is ready for evaluation in a full-scale efficacy FDA clinical trial.

Dr. James Stefansic, the company's COO, is the only founder working currently full-time for the business. Jim is doing this while also completing an MBA from Belmont's Massey Graduate School. "It has been difficult to juggle all of my responsibilities, but fortunately there is some overlap between my work at Pathfinder and some class projects. I am certainly applying what I've learned in my courses from Belmont over the last three years. I am pleasantly surprised at how much my coursework transcends into the real world of business."

The goal for PTI is to position it as an acquisition target, preferably to a large medical device company. They will most likely need to initiate sales and marketing channels before this occurs. Once the initial product has been sold to a larger company, the founders of PTI plan to develop other image-guided therapy applications from their software platform.

Jim has had to make adjustments during his transition from a university to their new venture's start-up. "It is challenging to work with faculty members at Vanderbilt who were once on my dissertation committee. The setting is totally different and our roles have changed, but we all have respect for each other and the talents we bring to the table. I would not have quit my safe job at Vanderbilt to do this if I didn't trust everyone involved, especially our President Bob Galloway. It is very exciting to take something that was once a project in the lab and bring it to the market as a medical device that can really improve people's lives."

One of the biggest adjestments for Jim has been the pace of his new life as an entrepreneur. "Most definitely is it related to the speed at which things move. Research can be a slow, tedious process and there are usually no hard deadlines in place that constrain your time to achieve a breakthrough result. With Pathfinder, however, our investors have the right to know developments on a week-by-week basis, and this is always in the back of my mind as we plan for the future. I still have freedom in doing my job, but it is certainly a different kind of freedom."

Posted by Jeff Cornwall at 05:55 AM | Permalink

16th century Russian Icon. Christus Rex

Posted by Jeff Cornwall at 01:25 PM | Permalink

Rob has an interesting post at BusinessPundit on the emotional toll of being an entrepreneur.

On the recommendation of by brother (and former business partner) Tom, I am reading a novel that really captures the emotional side of entrepreneurship. The Coffee Trader, by David Liss is set in the 1600s in Amsterdam, but the emotional roller coaster ride suffered by the main character, entrepreneur Miguel Lienzo, will hit home for almost any entrepreneur today.

Posted by Jeff Cornwall at 07:09 AM | Permalink

Bizjournals.com tells the story of the Westbrook family artisanal masonry business called QuarryHouse. A lesson to learn from this business is how they have approached growth. They have taken it slowly and conservatively, and it has paid off.

"Westbrook discovered that unexpected business issues cropped up after his company broke the million-dollar revenue benchmark. Westbrook had to relinquish the role of field supervisor and take a strong lead in business roles. Even more pressing issues came in the form of cash flow and payroll, as the company found itself paying employees without having been paid for the jobs they did."

This transition takes place for almost every growing business, and it usually happens around $1-2 million in sales. Things start to happen that are symptomatic of growing pains that, without attention, can doom a business to failure. Bankers will tell you that this growth period is probably the most dangerous period for the survival of a small business.

"Today, Westbrook sounds like a seasoned financial manger: 'Learn to grow and survive on the profits you earn. You can't get into too much trouble if you stick with that.'"

Indeed, and growth should be focused on those profits, not on sales. Growing sales is irrelevant if they don't also grow your profits.

"His three-prong approach to meeting a goal of $15 million to $20 million in revenue in five years includes continuing to emphasize training and continuing to reinvest in the company....QuarryHouse has had never had outside investment, but as it approaches revenue of $6.5 million, Westbrook is in talks with banks about adding outside capital to the mix. Said Westbrook, 'They've done all the numbers and I don't believe we're done growing. There is a lot of work yet for us to look at.'"

No outside money until they hit $6.5 million in sales? Now that is prudent growth.

Posted by Jeff Cornwall at 06:54 AM | Permalink

The Social Security and Medicare Trustees released their 2005 report today on the future of this program. As reported by the Congressional Joint Economic Committee:

"The major findings are that the 75-year unfunded liability of Social Security increased from $3.7 trillion in 2004 to $4.0 trillion in present value today. The present value unfunded liability over an infinite horizon increased by $700 billion from $10.4 trillion in 2004 to $11.1 trillion today.

"The dates of insolvency and perpetual annual deficits have moved closer, and the cost of doing nothing to fix the system is massive."

Social Security an entitlement that has grown way beyond its original intent and original scope. Minor fixes around the edges or higher taxes are not a solution. Even partial privatization is not a permanent solution, as it is too little and still keeps the federal government in control.

In 2041 I will be older than my father is today. He is in his 80s and is still an active entrepreneur. When social security was set up, the average life span of Americans was less than the age at which the program started providing benefits. We live so much longer and are so much healthier that it is insane to use the same rules as we did decades ago.

A 65 year old at the dawn of the Social Security program is equivalent to an 80 year old today. Put it another way: Do you think that when the program first started anyone would have supported benefits starting at age 50? Of course not, but that is the same liability that we are creating by not changing the current system.

If we simply ratchet the age up to meet current life expectancies we will create a system that meets its original intent and will be solvent forever at a fraction of the current tax rates. Let individual Americans and their families take care of the rest.

Can we do this immediately? No. But we can over the next fifteen years increase the age of eligibility for Social Security by one year per year, still meet our moral obligations, and pull this program back to what its authors had in mind.

Posted by Jeff Cornwall at 01:59 PM | Permalink

Accidental Verbosity has a wonderful follow-up to my post on friends as partners from a few days ago.

Posted by Jeff Cornwall at 01:54 PM | Permalink

I found it more than a little ironic when I came across this post at Cafe Hayek about Harvard (via Coyote Blog). It seems the student culture at Harvard is not very enamored with free enterprise even though their school gets ranked consistently high for their entrepreneurship programs, the latest being a top 25 by Entrepreneur magazine. It seems that student leaders are not pleased with one of their classmates who is marketing a maid service to fellow Harvard students. Not egalitarian enough, so it seems....

Posted by Jeff Cornwall at 07:49 AM | Permalink

At some point every new entrepreneur has to address the question of how much to charge for their product or service. For many entrepreneurs this is one of the most agonizing decisions they have to make during their start-up. For most, they fear charging too much and scaring customers away. Many go so far as to almost seem to be apologizing to the market for having the gall to actually try to compete. They end up charging significantly below what the market may be willing to pay.

There is a good article at NFIB on pricing strategies for new businesses. It offers a simple approach that helps take some of the guess work out of pricing. Do your homework of what the market is charging. Make sure that what you charge covers all of your costs, including overhead. An operating margin of 50% to cover overhead is a good rule of thumb. And finally, build profit into your pricing strategy. Making money is your goal, and you can only create profit if you charge enough.

My only additional advice is to keep your business strategy in mind. If you truly have a safe niche that no other business is competing within, you can charge a little more. However, make sure you really have a niche, as many who think they do are really just offering a variation on a theme. This strategy involves trying to differentiate your product or service to gain existing market share from others, which requires meeting or slightly beating existing market prices.

Remember, pricing your product or service is part science and part art. Gather data about the market, but also follow your intuition about what your customers will pay based on your business strategy.

Posted by Jeff Cornwall at 07:17 AM | Permalink | TrackBacks (1)

Inc.com released the results of a survey they conducted of the Inc 500 (fastest growing private companies that self-report data for their rankings). There are some interesting findings:

- 59% said that Bernie Ebbers deserved 10 or more years in prison

- 62% said that the U.S. will lead the world in entrepreneurship in 15 years

Do the other 35% want higher federal taxes?

Posted by Jeff Cornwall at 07:04 AM | Permalink

From the Congressional Joint Economic Committee:

"The Federal Reserve's monetary policymaking committee announced today that it is increasing its target for overnight interest rates from 2.50% to 2.75%, a move that was widely anticipated.

* The Fed views risks of substantial increases or decreases in inflation over the next few quarters as roughly balanced. Similarly, risks of substantial increases or decreases in economic growth are also seen as balanced.

* The Fed mentioned that pressures on inflation have picked up in recent months."

Posted by Jeff Cornwall at 02:04 PM | Permalink

VCs in Silicon Valley question the latest technology rankings from the World Economic Forum, according to Red Herring.

"Singapore finished first in the report, which ranked 'networked readiness.' Iceland, Finland, Denmark, and Sweden moved into the second, third, fourth, and sixth spots, respectively.

"'Those rankings don't make sense,' said Warren Weiss, general partner at Foundation Capital, a Menlo Park, California, firm that invests almost exclusively in America and whose portfolio companies sell globally. 'The United States is still the number-one place you want to sell and market your IT products.'"

Posted by Jeff Cornwall at 06:03 AM | Permalink

Wilson Ng posted excepts from a speech he gave to the Junior Achievement of the Phillipines at his blog site bizdrivenlife.net. Some very motivational thoughts for tomorrow's leaders.

Posted by Jeff Cornwall at 05:39 AM | Permalink

National Dialogue on Entrepreneurship examines displaced workers choosing entrepreneurial strategies as a solution for their unemployment.

"North Carolina's New Opportunities for Workers (NOW) program, which provides entrepreneurship training to displaced workers, is one recent example of such an effort. These strategies make sense according to a new survey of unemployed Americans by Right Management Consultants, a Philadelphia based career transition firm. Overall, 44% of the unemployed consider self-employment. Only 10% actually take the leap, a percentage equivalent to the levels of entrepreneurial activity found in the general US population. Another interesting survey finding concerns the age of those with this interest. Older workers (aged 61 plus) have the highest levels of interest in self-employment while younger workers (aged 21-30) have the lowest interest levels. These findings run contrary to other research that shows that entrepreneurial activity is most prevalent among those between the ages of 25-44."

Posted by Jeff Cornwall at 05:34 AM | Permalink

For the second year, NFIB and Dell will be honoring small businesses that represent a spirit of innovation in applying information technology in their business practices to improve the customer experience with their NFIB/Dell Small Business Excellence in Customer Experience Award.

A profile of last year's winners can be found here.

If you are an owner, president or chief executive of a small company with 100 employees or less that has driven a significant change or developed a competitive advantage in delivering superior customer value and experience, we want to hear your story. In addition, we want you to share customer testimonials to show how technology has helped you improve customer relationships.

NFIB is now accepting applications for the 2005 awards.

The winner receives:

- One-year NFIB membership

Posted by Jeff Cornwall at 05:12 AM | Permalink

Carnival of the Capitalists is up at Beyond the Brands.

Posted by Jeff Cornwall at 06:19 AM | Permalink

For the second straight year our Entrepreneurship Program here at Belmont University was ranked a Top 10 Entrepreneurship Emphasis Program by Entrepreneur magazine. Thanks to the faculty, staff, students, alumni, community partners, and our administration for helping us to continue our efforts to build our Entrepreneurship Program.

Some of the other schools in the Top Ten Entrepreneurship Emphasis category this year include Purdue University, Drexel University, and Loyola Marymount University. Some of the schools in the second tier of this category include University of Alabama at Birmingham, Arizona State University, Fordham University, George Washington University, James Madison University, Oregon State University, and Pepperdine University.

Posted by Jeff Cornwall at 05:56 AM | Permalink

Bergen Cathedral Interiors, founded by Stephen Bergen and David McCracken (both Belmont alumni), is a Nashville-based Christian company serving churches and architects with the highest quality pews and custom furniture, pew refinishing and restoration, stained glass, auditorium seating, and carpeting available.

Like many start-up ventures, the genesis of Bergen Cathedral Interiors came from a set of unanticipated events that created an opportunity. Stephen Bergen had been working with a small, out of state business that had decided to withdraw most of their operation from Tennessee. It turned out to be a blessing in disguise. The vendors Stephen had been working with wanted him to continue representing their products and services in Tennessee. So it made perfect sense for Stephen to start a company based on the relationships and experience he had been developing over the previous eight years.

But the opportunity proved to be even larger than Stephen first thought, as his suppliers were willing to consider an expanded territory beyond Tennessee. So Stephen decided to bring on a partner, David McCraken. Because they had been friends for over fifteen years, David already knew what was going on with Stephen's work. The two discussed their situations and realized they had a great opportunity to build a Christian company together, working with top suppliers to serve architects and churches.

During their start-up, Bergen Cathedral Interiors faced the challenge that came from the transformation of Stephen's existing relationships through his old employer into the new business they were creating. His former employer left him with clients whose projects Stephen had to see through. At the same time, he and David had to develop their common vision for their new company, draft and redraft their business plan, get David up to speed on their market, products and services, learn new software tools and assure their plans would be compatible with the vendors whose products and services they would represent.

Drafting the business plan proved to be very important in determining the nature and quality of the company Stephen and David wanted to build. It has also proven to be way to get feedback from their suppliers. "After we presented it to our main supplier, they asked us to make our presentation a second time so their project managers could learn the perspective of their sales reps. They immediately told all their other sales reps that they wanted to see a business plan from them, too. That was very gratifying, because we immediately knew we were on the right track."

David said that they have found strong support, from business advice to leads for new projects, from many of the people who have learned about their new venture. "Almost anyone who is successful can look back on their own professional development and identify people who were glad to help them early on. And folks who have experienced the entrepreneurial process are normally very glad to help others when they get the opportunity."

They also turned to trusted friends and family and asked them to serve on an advisory board. "This is a great way to have the benefit of wise counsel from others who have business experience, and it builds a certain level of accountability as we know we must report the results of our progress to this group."

Stephen wanted to build Bergen Cathedral Interiors based on their shared values. "My values as a Christian have made it extremely easy to define the structure and goals of what I want this business to be. I just put myself in potential clients' shoes and ask, 'How would I expect to be treated?'"

From his previous experience in the worship market, one of Stephen's biggest surprises has been how foreign the concept of "do unto others" actually can be, even among companies serving churches.

David said that he and Stephen realized how important it is to get to know their suppliers on a level that goes beyond products and services to assure that they genuinely share their values. "If we partner with a company that relies on using the language of faith only to close a sale, the churches and committee members and other Christians with whom we are working will pick up on this as being inauthentic. It could cause not only a lost sale, but also a negative impact on our reputation."

Stephen and David have recognized the importance of working on their partnership as well as their new business. Stephen said that they did not rush into their start-up. They carefully and thoroughly discussed expectations. They then worked with their attorney (and a long-time mutual friend) to help walk them through the legal issues of their business start-up. Because all three are friends, their operating agreement will not only be strong from a legal standpoint, but also will be drafted to reflect the great value that Stephen and David place on their friendship.

Posted by Jeff Cornwall at 05:40 AM | Permalink

Please get any postings for next week's Carnival of the Capitalists submitted by no later than 3:00 p.m. Sunday!

Posted by Jeff Cornwall at 10:16 AM | Permalink

Today I am guest hosting at BusinessPundit. Please visit my post on executing your values in the day-to-day activities of your business at Rob's site.

Posted by Jeff Cornwall at 05:18 AM | Permalink

I just finished several weeks of teaching about bootstrapping to my students. I wrapped up the unit with a visit from Charles Hagood, co-founder of The Access Group, which was the feature of a recent Entrepreneurial Showcase at this site. Charles shared his advice on being a successful bootstrapper:

1. Cash is King. Enough said!

2. Sometimes Less is More. Having fewer resources can force a business to be more flexible and more resourceful. For example, Southwest Airline's business model grew out of the limited number of planes that they had to work with during their start-up.

3. Keep Your Priorities in Order. Never compromise your ethical principles, even when money it tight.

4. Enjoy the Ride. Love what you do in your business and enjoy each day. That will make the lean times easier to take.

5. Cut Costs, Not Quality. Focus your money on customers when money is scarce.

6. Impress Your Customers, Not Yourselves. Don't waste money competing internally over who has the best stuff. Invest it in your customers and in your product.

7. If You Have $1 Left in the Bank, Spend in on Marketing. Even when the market is not buying your product stay in front of them so they will remember you when things pick up.

8. Always Look Bigger and Tougher Than You Are. See my post from earlier today for ideas on this.

9. Continuously Reassess Your Business for Wasteful Spending.

Posted by Jeff Cornwall at 11:57 AM | Permalink | TrackBacks (1)

Jeffrey Moses at NFIB.com offers seven tips at to entrepreneurs for looking more professional, and they are all part of a good bootstrapper's tool kit. Each recommendation is relatively inexpensive, but offers good value in terms of its impact. And each of these ideas can make your business look larger and more well established to your potential customers.

- Set up a first-class voicemail system.

- Dress the part.

Posted by Jeff Cornwall at 05:34 AM | Permalink | TrackBacks (1)

Inc.com reports that the health care crisis may soon become an even greater issue for small businesses

"As the national debate over health care continues, many state governments like those in California and Arizona have stepped in to try and force some solutions for its uninsured population. As politicians debate topics like state-run universal coverage, small-business owners everywhere have tuned in to see how they might be affected.

"That's why states like California, which has more than six million uninsured residents, are considering mandated health care programs. Members of California's state assembly are currently debating the merits of its proposed Universal Health Act that would require Californians to obtain health care coverage similar to how motorists have to obtain auto insurance."

And who would be responsible for making sure that people have this coverage? Employers of all sizes, of course, including even the smallest businesses. This approach would effectively shut down growth among small employers and force many to shed workers from their payroll.

Posted by Jeff Cornwall at 05:20 AM | Permalink

I have written several posts about the challenges of being in business with family. Another situation with its own set of issues is going into business with a friend. I see this happen time and time again with young entrepreneurs. Three buddies sitting in their dorm, at a coffee shop, or in a bar decide it would be a cool idea to go into business together. While it is important to know and trust your partner, many friendships have other baggage that can create real problems, particularly in times of trouble in the business or as the business grows.

Startup Journal has an article on friends as partners in which the author asserts that it is the "easiest way to start a business enterprise....(and) also one of the easiest ways to end a friendship."

When I see friends in my office who want to start a business together, one of the first things I say to them is that they have to be prepared for the fact that the odds are pretty good that they will no longer be such good friends in a couple of years. There is also a chance that they can become better friends, but it is at best a coin toss as to which way it will go. Of course, that speech usually falls on deaf ears since that would never happen to them.

It even gets more complicated when three or four friends go into business. Alliances begin to form from the beginning that undermine the foundation of trust in the overall partnership.

So who do you go into business with if not friends. Well, the friendship may not be the problem in and of itself. In fact, I think it is necessary to be friends with your partners to have any chance in the long run. But there needs to be more to it than that. It is a necessary condition, but not a sufficient one. It is like a marriage; love is never enough by itself to insure long term success.

Friendship should be the foundation, but here are other issues to explore before "tying the knot":

- Do your share the same vision for the business?

- Do you share the same aspirations for the business? Does one want to build an empire while the other create a simple lifestyle kind of business?

- What are your work habits and work ethic? Are they compatible enough to keep the partnership feeling fair to all the partners?

- How much time off to you plan to take each day, each week, each year?

- How much money will you put into the business?

- How much do you expect to get out of it?

- Who will be the President of the company? What roles will the other friends play?

- How will decisions be made?

- What is everyone's credit rating? Can all 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?

- What are your core values and how do you want to see them play out day-to-day in the business?

- How will employees, customers, suppliers, etc. all be treated?

- What will you consider to be real success in this business?

There are probably countless other questions to talk about, but this is a start. Talk. Talk some more. Listen to your gut if you don't like the answers you hear from potential partners. Go in with your eyes wide open rather than with stars in your eyes.

Partners should be friends, but friends to not always make good partners.

Posted by Jeff Cornwall at 06:09 AM | Permalink | TrackBacks (2)

Small Business Trends has a guest post by John Wyckoff on the growing economic power of China.

"Here's what I suggest you consider. There's no way any industrial nation can complete with a country whose workers average 61- cents per hour and whose engineers (who were educated in this country), work for the equivalent of $100 a week. With so many American manufacturers partnering with Chinese makers in order to control costs, the Chinese makers are gaining the advantage of technology given to them by their partners."

This trend may prove to be the real test of our changing economic paradigm in America as some fear. But, as long as we lead in entrepreneurship and innovation, and let our free markets work, there will be new markets for us to pioneer.

Posted by Jeff Cornwall at 05:59 AM | Permalink

The SEC announced on Monday a one year grace period for small and medium public companies to comply with parts of the Sarbanes-Oxley Act. But, this only postpones the horrific problems created by this act for small businesses outlined in my post on this legislation yesterday. Compliance may run $500,000 a year form even small public businesses. This law needs a permanent fix, not just a delay.

Posted by Jeff Cornwall at 06:28 AM | Permalink

When we started our health care business I had no experience in that industry. Now normally that is not advisable. However, there are ways to overcome a lack of experience.

I had two partners who were very experienced in health care, so that helped quite a bit. But, I also tried to learn as much as I could from those who worked in our business. In fact, when one of our facility managers had to be let go, I was the only person who could possibly step in and run the business until we could find a replacement. Luckily, I had spent time with the staff and had built a certain level of trust. They took me under their wings and helped me make it through a very difficult time in our business. I learned so many important lessons during those few weeks about the health care business from working side-by-side with our staff as they cared for our patients. It made me a much more effective leader as our company began to grow.

On a similar vein, Bizjournal has a story about an entrepreneur who bought a plumbing business without ever having worked in that industry.

"As the new owner of Superior Mechanical Inc., a local commercial plumbing company, Richard Drennen had ambition and energy aplenty. What he lacked at the time of the 1999 purchase was knowledge of plumbing - commercial or residential.

"In the ensuing months, he labored on the work site alongside his employees, resolving any credibility concerns they might have had."

Knowledge and experience of the type of business you are starting or buying are certainly important to have. But, a lack of either, or of both, can be overcome.

Posted by Jeff Cornwall at 06:06 AM | Permalink