Posts tagged: partners

Make sure you know what you want for your company or you will lose it: “I guarantee it”

By , July 13, 2013 9:45 am

A few weeks ago Men’s Warehouse founder, George Zimmer was fired from the company he founded. It turned out he wasn’t the majority shareholder of the company.  That led to his ouster.

No matter what kind of company you found, there are a few key points to ensure this doesn’t happen to you (unless you are just in it for a quick turnaround and flip, in which case that’s your exit strategy and what you strive for).

·         When raising money, remember, the probability of having to give up more than 50% to get the money is very high.  That means you’re giving up control.  Often the founder is parachuted out with lots of cash.  But if you want to build a company and maintain control, think carefully about the sources of your money. This is what is meant by “expensive” money.

·         When taking on partners or starting out with partners, make sure there is a strong contractual agreement in place that covers who is in control of what and to what degree.  Anything can happen, and the weird stuff often does – if your partner dies or gets divorced, you may wind up with an heir who knows or cares nothing about the business.  Then your problems really begin, especially if they don’t want to be bought out (or you can’t afford to buy them out).

·         Vision  = Control  as stated very clearly in the article link below.  If you want to see your vision flourish, make sure you maintain control of your company.

http://www.linkedin.com/today/post/article/20130625210053-25745675-the-lesson-from-george-zimmer-s-firing-keep-control?ref=email

·         If your company has a Board of Directors, remember one of their main functions is to determine whether or not to fire you (and your management team).  This is what happened at Men’s Warehouse. This is also why so many large corporations have a Board of Directors that is composed of cronies.

http://www.huffingtonpost.com/2013/06/26/george-zimmer-letter_n_3505699.html

 

Sandra Holtzman teaches CEO 035: Licensing.
She is the author of Lies Startups Tell Themselves to Avoid Marketing.

Equity Stakes in a Startup

By , June 22, 2013 9:05 am

Creating a new business structure around a partnership or multiple founders is one of the most single important aspects of starting a new business.  Like a business plan, your corporate structure, how you allocate shares, profits and control of the new business will help determine the fate of your company as well as the company culture (anywhere from hostile to win-win).  This is a relationship, or more accurately, a marriage (so the culture would be more like dysfunctional to loving).  Like a marriage, I highly recommend looking to the end of the company or partnership as you create the beginning – like a pre-nup.  Seriously.  Have everything worked out to cover the end and you will be good to go in the beginning.  Because you never know how the relationship(s), or company, will end – will you be bought out? Go public? Be taken over? Get investment? Change direction to one that not everyone wants to buy into? Dissolve? Will founders or partners or you have  a change of circumstances that lead to a desire to end the relationship?  Will someone die and you are suddenly stuck with a spouse as a partner? All this needs to be spelled out upfront, because once the horse has left the barn…well, you all know how that one ends.

When I speak to multiple stakeholders at the start of their company, I go around the room and point out a scenario where one person decides they want to take more control of the company – maybe because they feel they are doing more work, or contributing more value or whatever.  And ultimately that leads to someone else being screwed.  I’ve had co-founders come back to me later and tell me that the scenario I played out in the meeting was exactly what happened.  So protect yourself and your partners BEFORE YOU BEGIN.

George Deeb in Alley Watch provides some helpful hints and considerations that should be taken into account about how to split up equity in a startup.

http://www.alleywatch.com/2013/06/how-to-calculate-equity-split-between-founders-in-startups/?goback=.gde_56766_member_249711906

Sandra Holtzman teaches CEO 035: Licensing.
She is the author of Lies Startups Tell Themselves to Avoid Marketing.

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