AS YOU’VE SEEN IN THE preceding chapters, the Startup phase of the entrepreneurial experience involves acquisition. You have to acquire the skills, knowledge, training, and information necessary to position your startup for success; you have to acquire the buy-in and support of financial backers, mentors, friends, and family members through a well-crafted business plan; and, of course, you have to acquire basic funding, along with the physical space, systems, and supplies necessary to conduct your business. Now we need to talk about one final—and very important—acquisition you’ll need to take care of in order to launch your new venture: partners and other human resources. As you’ve seen in every preceding chapter of this book, no entrepreneur is an island. In order to ensure the success of your new business or operation, you’ll need to find the right partners and employees to help you bring your entrepreneurial vision to life.
In my own Startup phase, I had a very clear idea of what partners and employees I’d need to bring on board. First, I needed a graphic designer to create the first catalog for my new company. To fill that role, I turned to a college classmate from Northern Illinois University who was currently working as a print designer. She graduated from the art program at NIU and was a classic overachiever—a workaholic, always taking on multiple projects simultaneously and then juggling them expertly toward a successful conclusion. In other words, she was a perfect candidate for my startup.
I offered the designer sweat equity in lieu of cash to get the catalog done, and told her that she could work flexible hours around her current job, just as I was doing. She didn’t hesitate when I ran the project past her. She had already started an independent design firm on the side, and she looked upon my offer as an opportunity to develop my company into one of her premiere clients. In fact, I believe she always thought of me as her client, rather than her partner. Her entrepreneurial dreams were focused on her business, not mine. But that was perfectly okay with me; I had a designer, and I couldn’t have asked for a better one. To get the first catalog out the door, we decided that I would create the entire catalog layout, the product mix, and pricing. I also would obtain copy and images from publishers, and then funnel that raw information to her.
Next, I contacted Betsy Horlock, a product manager who had worked with me at Educational Resources. She left the company after her second child’s birth to focus on her young family, and I had recently heard that she was looking for some part-time work. Betsy knew the business, and she would be a great extra pair of hands. Since she was home during the day, she could be the home base for the company and answer phone calls while I was working at Educational Resources. I approached Betsy with the same offer I’d made to our graphic designer, and she quickly accepted. At that point, I had two partners and was ready to work on two more. That was when I hit my first personnel snag.
In chapter 7, I described my unsuccessful attempts to recruit two high-performing colleagues at Educational Resources to join me in my (still very much a secret) new company. As you saw in that chapter, those recruitment efforts failed as a result of my decision to self-fund my new venture, rather than take on debt. Where Betsy and my graphic designer were willing to work for equity, the two well-established and highly paid executives I’d hoped to bring over to my new business simply weren’t willing to forego a salary for an unspecified period of time while my own business developed financial “legs.” They believed my idea would work, but they needed more than a future promise in order to justify the immediate financial sacrifices necessary to join my startup.
Most startups face similar issues. Startups need great talent in order to propel their new business ahead in the marketplace. At the same time, by their very nature, few startups have the financial resources necessary to lure established talent into their fold. As you’ll learn in this chapter, the power of the entrepreneur can sometimes be a persuasive recruiting tool, but it’s a tool you have to use carefully when recruiting partners and key personnel. No level of whipped-up enthusiasm can substitute for skill, talent, and a commitment to succeed, and those are essential qualities in your Startup phase personnel. This chapter also includes a navigational heads-up about some other common partnering pitfalls for startups, along with solid ideas for forming strong, useful partnerships that will help guide you through the sometimes stormy weather ahead.
I’m also going to use this chapter to tell you about how I sailed on to the end of my own Startup phase. As you’ll discover, I had plenty of learning opportunities during this time. I hope that by sharing them with you here, I can help you avoid problems and find real solutions as you bring on partners, employees, and other human resources necessary to get your own organization on its feet, functioning, and ready to enter a healthy and productive Running phase.
Going into business with one or more people is a great idea if your talents, experiences, resources, or knowledge bases complement each other and meet the needs of the business idea. Partners help ease the burden of running a business in terms of workload, investment, risk, and sharing the inherent mental pressures. But while partnering can be one of the best decisions you make in your business, bringing in the wrong partners can be very damaging to your startup and its chances for ongoing success.
During the course of sharing mutual entrepreneurial passions, people can get intoxicated with new ideas. As you’ve seen in previous chapters, entrepreneurs have that effect on people. The lure of entrepreneurialism is an attraction that can pull anyone off his or her previously chosen pathway, but what happens if participation represents a temporary detour, rather than a true commitment to stay the course?
An anxious entrepreneur searching for assistance can do a great job of selling his or her idea to anyone who will listen. But some of those people may sign up for the ride, with no real intention of ever actually getting into the car. The perils of blind enthusiasm are particularly challenging for bootstrapping entrepreneurs who don’t have the funds to pay salaries and are willing to exchange equity in return for labor. Partners may come on board and ride the planning wave, then suddenly bail when it’s commitment time. This can severely derail or set back the entrepreneur’s launch plans.
In order to make the most of your own recruitment efforts, and to avoid the problems of “morning after” partnering regrets and eventual split-ups, I recommend that you take care to avoid the following four types of candidates when recruiting partners for your startup:
Bear in mind that these four “worst partners ever” types are generalizations that many successful entrepreneurial partners contradict. In the end, you’ll need to carefully vet and choose your own partner candidates, and you may decide that the right choices for you include someone who is very similar to you in experience and outlook, or who has no financial safety net, or who hasn’t had an opportunity to prove her ability to juggle 14 different jobs without ever dropping the ball. It’s okay to break my rules, as long as you fully understand why you’re doing so. When you know what you’re looking for in a partner, and what potential shortcomings or issues you need to be aware of, you’re in a position to make the decision that’s best for your new organization based on your own assessment, judgment, and needs.
For example, I had one other sweat equity partner in my own startup, and that was my wife Lisa. She agreed to be responsible for all of the administrative and accounting work in my new business. In many ways, Lisa was the accidental entrepreneur, the one partner I drafted from within the ranks of my close family relationships, who proved that there really are exceptions to my own rules. I couldn’t have made a better choice. Not only was Lisa fantastic at her work in my business, but she was also an unfailing source of moral support and encouragement. Lisa was invaluable in her ability to help me get through some of the most difficult times of a very difficult period. She unfailingly encouraged me to go for it, and she never stopped being supportive of my dreams.
Here’s another confession: she could have fallen into the overly committed partner problem as well. Lisa had a full-time job outside of my new business. She would most often start her work for me around 10 p.m., after our daughter was put to bed and all other household duties were done. I’m not trying to confuse you with this seemingly conflicting information about choosing strong partners. But I do want to show you the value of carefully considering the qualifications—and potential drawbacks—of anyone you’re considering partnering with in your entrepreneurial enterprise. The four types I’ve outlined above are those that you’re most likely to encounter and consider in your search for partners; don’t fall into the trap of accepting partners who your research and instincts tell you won’t work, but who seem too good (or too difficult) to refuse. Use careful consideration, and weigh all potential outcomes before making your choices.
The strength of your partnerships will never matter more than they will during the Startup phase of your business. In launching my new venture, which I had decided to name Technology Resource Center, Inc., or TRC, I had to wear many hats—as did my partners. A somewhat controlled chaos developed in my life as I started building the new business (in Betsy’s basement) during the early morning and night, while continuing to report to work at Educational Resources by day. There were clear priorities at TRC, and getting out the catalog was first among them. I handled most tasks on my own or through Betsy and Lisa in order to avoid any extra expenses. Every part of the company was starting to come together.
Our office space, however, continued to be dicey. Betsy’s townhouse basement was unfinished and lighted with just a few ceiling-mounted bulbs on pull strings. I brought in a couple of mismatched lamps and an old desk, while Betsy provided an additional desk and a few secondhand dining room chairs. About 25 feet away from our desks were the washer and dryer. We tried to plan outbound calls between rinse cycles, so we could hear over the roar of the machines. Still, it was great having Betsy available during the day to provide our customers with a human contact rather than voice mail. Around 5 a.m. each weekday morning, I would arrive at Betsy’s townhouse and let myself in with the key she provided. The Horlock family would still be sleeping as I silently made my way to the basement. Can you imagine that routine in your house? Again, I had selected a great partner.
Occasionally, when Betsy wasn’t available, my father-in-law, Frank Rubino, would make the drive to her townhome to answer calls. A small business owner himself, Frank understood the startup struggle. He had no idea how to answer questions being asked about the technology products we sold, but he was there to take messages. Frank’s assistance was invaluable and helped to establish a level of customer service that I maintained throughout my time running the business. No voice mail—we answered the phone when our customers called.
Within months of our decision to form the company, I had already started producing the layout of the catalog and submitting pages to our graphic designer. Betsy and I were working with publishers on the side to secure co-op funds to cover the cost of the catalog. I had set aside $30,000 of my money to invest in the business, but I needed those co-op funds to make my own investment last as long as possible. Life was crazy working two jobs, but deep down inside I loved it. As the deadline for our print date approached, however, the excitement began to deteriorate into stress. I was targeting the catalog to hit the 1996 summer buying season, which was the peak buying period for higher education. The catalog would include over 100 pages, which meant acquiring and producing hundreds of high-resolution images and copy. I also had vendor relationships to establish and price points to determine. I was used to tackling these jobs with a fully trained team of eight people working in an established company with existing relationships. Now, the responsibility seemed immense. Our graphic designer was stressing too, even though her entire professional life was built around deadlines. This one was going to be tough for all of us.
Communication technologies were still relatively new at that time, and we couldn’t exchange the huge graphic files for our catalog digitally. In order to get things done, I had to get up at 4 a.m. and drive 25 miles to Betsy’s house to do what work I could squeeze in before putting in my 8-to-5 day at Educational Resources. Then, it was back to Betsy’s for more work, and off to our designer’s house, 22 miles away, to drop off the new layouts and pick up completed drafts before making my final trek home. In other words, I had some serious windshield time.
I was stressing out, and it showed. One early morning I made a reverse commute to pick up finished pages at the designer’s house for editing prior to starting my regular workday. On the way back to Educational Resources, while making a turn, I struck a two-foot-high concrete median dividing the highway. I don’t know how it happened—I was either asleep or deep in thought about what needed to get done. No one was hurt, but I knew that was sheer luck. Another time, I was forced to call the paramedics to our house at midnight, because I was certain I was having a heart attack. I was reaching the breaking point.
Fortunately, our working partnership at TRC helped keep all of us going. As my partners and I coached each other through this hectic time, some outside client partnerships also stepped in to help ease the pressure. TRC was already starting to fulfill customer orders given to us by publishers who were unwilling or unable to process orders directly from schools. I had a great relationship with the one publishing representative who selected TRC for all of his direct educational orders. The deal was a windfall, and it was also a testament to the importance of forming strong alliances and outside relationships. Those early orders helped us create our first internal operational procedures for purchasing products, packaging them, and shipping them out. Best of all, these early orders were high margin and provided a much-needed revenue stream. We were growing, along with our new company—and our partnership.
Unfortunately, between the hectic pace of starting the company and being extremely frugal, I failed to get a legal agreement signed by my partners outlining our verbal agreement. Although I did go to a lawyer to draft our corporate bylaws, issue stock certificates, and handle related details, I failed to finalize the actual employee stock agreement. To this day, I don’t understand how I neglected this. Sure, I knew that I needed to ask the people I’d brought on board to sign off on an agreement. And yes, I realized that I hadn’t done that up-front. I always intended to do it later. I knew my partners well, and we had developed a strong, well-coordinated working team. But we still should have had a written partnership agreement. I put together a draft but never saw it through, and how I made that mistake is beyond me. And yes, as you’ll learn later in this book, my oversight would come back to haunt me.
The key to forming and keeping a successful partnership is to establish methods that eliminate problems from occurring or mitigate their effects should they occur. The only secure way of doing that is by forming a solid partnership agreement up-front. Agreements can take all forms, and (obviously) you need to consult a lawyer to create a partnership agreement that works for you and your partners. But here are some general guidelines that you, as an entrepreneur, should consider:
The point I’m trying to make is that partners are people, and people are unpredictable. If you are the one driving your idea with your passion, don’t expect your partners to share your level of commitment.
PREPARE FOR EARLY DEPARTURES
Think long term as you assess your partners at the very beginning of your business conception. Lots of people will get caught up in the excitement of a new venture. After all, it touches upon a dream shared by many—that of owning their own business. As an entrepreneur, you’ll speak of your business prospect with excitement and energy, and that excitement will hook into the imagination of those around you. You can expect that people will want to jump on board and hitch a ride, but you can’t allow them to leave you with the risk while they attach themselves solely to the opportunity.
Your challenge is to motivate your employees and partners about your venture, but always stay grounded and remember that no one cares about your dream as much as you do. In the early months or years of your Startup phase, people will lose their excitement about the potential for the future your business holds. Be prepared to lose them. Do your best to build redundant systems and information, document procedures, and become intimately familiar with all aspects of your business. Plan for where you can find replacements for talent that walks out the door so you don’t skip a beat or allow the momentum of your business to stall. Above all, protect your equity. Have a shareholder agreement drafted by an experienced lawyer who understands your motives and direction.
The IT industry was very small and tight knit, and publishers were beginning to talk about the Jeff Weber at Educational Resources and the Jeff Weber at Technology Resource Center, Inc. One day I was called to the carpet by the Human Resource Director at Educational Resources, who quickly laid out for me the (very accurate) details she had heard about my new company. How do I handle this?, I thought. My initial panic was triggered by the knowledge that I might be fired, but my gut-level fear actually was rooted in the idea of having to commit fully to TRC. I was passionate about my new business and my partners, but I really didn’t want to lose the security of a steady job and paycheck. So I spun the story that “yes, this company exists, but Betsy Horlock is running it, and I’m merely her consultant.” While I told myself that this wasn’t completely a lie, I realized that soon I was going to have to make a decision about my fate, or someone else would.
My own all-encompassing goal at this point was to finish the catalog; I had little time or energy left to focus on the details of launching the company. In fact, after crashing the car, calling the paramedics, and nearly being fired, I was actually ready to call it quits. I was running out of the steam I would need to create the business post-catalog. I was exhausted and stressed, and didn’t have anything really to show for all the hard work and time I had invested over the past several months. I decided that I would just complete the catalog, mail it, and then call it quits. I could say with confidence that I had tried to make my entrepreneurial dream a reality, but it just didn’t work out. All I would be out would be a few thousand dollars and my time, but life would be back to normal. I wanted to get back to normal.
Happily, I can tell you now that my return to “normal” never happened. Eventually, the catalog layout was finished and off to the presses. At that moment, the slate of worry and fatigue was wiped clean, and all of the stress, frustration, and doubt washed away from our partnership. The catalog was a hit from day one. The phone rang, and purchase orders arrived via mail and fax. We were legitimate, on the street, and people were buying from us with confidence. Those first orders from our publishing client partners had helped us refine our logistics, and our operation was working smoothly. It was time to get focused on this company and start navigating it through the end of its Startup phase.
While my business and the strength of my partnerships was growing, the one element missing from this successful startup equation was me. I was still working two jobs, still waiting for the “perfect” time to jump in with both feet. I thought that once sales were up to my current salary, I could leave my position at Educational Resources and go full-time with TRC . . . a nice, smooth transition. My Risk Box was preventing me from taking that momentary financial step backward to invest in what was to come. The Risk Box was saying, “Successful people don’t work in basements on old rickety chairs” and “Successful people sure as heck make more money than what you’re bringing home from this venture.” But my barrier was mental, not budgetary.
The company was alive and thriving, but it needed my full commitment to really succeed. Lisa and I spent our sixth wedding anniversary dinner discussing just how far we had come in our lives, and then the topic turned to those things I really wanted to accomplish professionally. Lisa truly is my best friend, main supporter, and constant cheerleader. Now, she was also my business partner. At that anniversary dinner, she firmly said to me, without hesitation, “Go in and quit!” That statement blasted through the walls of my Risk Box. I gave my notice the next day sending my life into a completely new and exciting direction. It seemed as if all the stress and anxiety immediately lifted when I quit and started to report to Betsy’s basement full-time. The fact that I was fully committed to TRC would make all the difference in its growth.
I know now that my situation wasn’t unique. Many entrepreneurial ideas never come to fruition or fail to survive past their first year as a result of moonlighting. Instead of devoting all of their time and effort to a new business, entrepreneurial moonlighters keep one foot placed comfortably in their old job. I’m not encouraging anyone to rush and quit the day job. Rather, careful observation and planning is needed to know when the time is right to strike out on your own full-time. The Risk Box will continually pull you back in as long as you keep a foot inside that wall. Only when you step all the way through will you realize your full potential and allow your business the greatest opportunity to thrive. If you find yourself trying to “offshore” the work of managing your entrepreneurial startup to others while you wait to jump in at the most opportune moment, you need to seriously consider how strongly committed you are to making your new venture a success. You can’t leave the business of running your business up to others for long, at least not if you want it to survive and thrive in a tough marketplace. No matter how many good, committed partners you may have, you need to take the helm, and that will require your full-time commitment.
As we moved further along in our startup, I hired our first employee: Chris Skrzypchak, a college student from nearby Judson College in Elgin. What this kid must have thought about us when he started! But he soon became intoxicated with TRC’s mission and growth. He had a visible entrepreneurial passion of his own, and he really identified with what we were doing. He became a very loyal and valuable employee who stayed with us seven years after his graduation.
TRC was outgrowing its surroundings, and it was clear to me that it was time to legitimize this baby of ours by getting some office space. In nine months we had grown to a point where cash flow was predictable enough to cover the monthly rent. One of my greatest days at TRC was moving out of my partner Betsy’s basement and into our modest office space. Signing that two-year lease was a big deal for me and my partners. I was confident the business would continue to succeed. In fact, I was more concerned that the business would fail if we did not make this move. Our new location was in a retail strip mall in West Dundee with a video store and dry cleaner as our neighbors. There were no office partitions to provide privacy for the four desks we started out with. It was simply a long, rectangular space that was bare of everything except the necessities to run our business. As you saw earlier in the chapter, my skills as a frugal-preneur helped fill that space, and the next, with the furniture we needed—and could afford.
That first permanent location wouldn’t last long, all thanks to the efforts of another outside partner—of sorts. Less than six months after TRC moved into its offices, my landlord asked if I would like more space. Ladi, as he liked to go by because his full Ukrainian name was difficult to pronounce, was a colorful personality and an entrepreneur in his own right who owned the entire mall. I thought his proposal was nuts. We had picked up one additional employee and didn’t see space issues on the horizon. Perhaps Ladi had a greater vision for me than I did at the time; he suggested we move down four doors to a double unit that would be vacant the next month. After some deliberation, coercion, and soul searching, my partners and I agreed. We took the double unit, which lent itself to the phrase “If you build it, they will come.” We quickly started adding employees to fill our expanded space.
I’ve heard it said that goldfish only grow to the size of their tanks, and I think the same truth applies to business. If your organization is in a confined physical space, its growth is going to be stunted, too; a large space will encourage quicker growth. Call it psychology or a self-fulfilling prophecy at work, but I believe it’s true. A growing company should acquire adequate space to expand. Moving into your own dedicated space will be one of the defining moments of your own experience as an entrepreneur. Seeing your sign on the door and stepping back and looking at this business you created from scratch is an amazing experience—just one of many you will encounter as you prepare to move beyond the Startup phase of your journey.
Those early years were fun as we achieved phenomenal sales growth year over year. Employees were continually being added, and the office was abuzz. Customers were developing a deep loyalty to our company, thanks to its exceptional customer service and focus on their business needs and processes. Everyone who worked at TRC understood our mission, and all of us were excited to be a part of a startup.
I was always self-conscious of our appearance to new hires, as we were a business-to-business operation, located in a neighborhood retail consumer strip mall, in offices that certainly weren’t lavish. This was the dot-com age, and I couldn’t compete with these physical facilities and in-office perks the IT startups were using to attract and retain employees. It took a long time for me to realize that none of these things mattered to my employees—they were attracted to the entrepreneurial passion of our work. The power of that passion also helped attract another important partner to my new business—someone who would become my right-hand man, as well as an equity partner.
Sam DeSoto walked into our new office space only a few weeks after our arrival in 1997. Sam had been one of my product managers at Educational Resources. Sam had been silently observing our progress at TRC from basement to storefront. We exchanged a few emails, and he dropped in one day to see what we had going. We talked for a while about his plans and about my vision for TRC. I let him know, right up-front, that I wanted him to lead our sales team.
Thankfully, the powers of the entrepreneur had an impact on Sam. Instead of seeing a half-filled office space in a strip mall, he saw opportunity. He saw success. Sam took the position and made the commitment to ride it through to the end. Sam became my number-two person at TRC, and our skills sets and approach to forward thinking complemented each other. I could count on him to question, push, and challenge me, and that’s an important function for every principal partner.
As you move from being the driving force behind a startup to being the leader of a thriving full-scale operation, you have to be very careful to avoid “yes-men” (of either sex). They don’t belong in any environment, let alone an entrepreneurial one. If you see a yes-man developing among your workforce, challenge that person to change or leave the company. The last thing you need is to work with someone whose only contribution is to mimic your ideas and opinions. That type of employee or partner offers nothing to your business, and as you begin running a stable organization, you need to make sure that everyone around you brings their own talents, skills, ideas, and innovations to the table.
It’s important to have people around you that push your limits, like Sam and Ladi did for me. Even though you are a leader, you don’t want others on your team to continually look to you for directions about their next move. If you find that situation developing, do something to change it; otherwise, you may never leave your comfort zone. As a leader, you will have to foster an environment of feedback and commentary, and create an open forum for suggestions if you want to encourage strong thinking and decision making throughout your organization. Entrepreneurs get stale as a result of their isolation, and the stagnation of that “lonely at the top” existence encourages them to fall into a routine, rather than to continually innovate and improve the organization. Don’t let all of the thinking in your business get pushed onto you; everyone on your team needs to understand that they are respected—even required—to present their own ideas and make their own decisions, in order to grow the startup into a more competent and vibrant organization.
As an entrepreneur, you will have a vision for your company that will extend far beyond its actual image during startup, and it will be your burning desire to get to that ultimate vision as fast as possible. In doing so, you will find yourself evangelizing your business to anyone who will listen. In the early days of the Startup phase, many of your partners and employees will act almost like followers of a cult-like leader, and they will be devout in their role of achieving your vision. But as you move to the end of that phase, you will need to redirect the power of your passion to take your organization to the next level.
The charisma of the entrepreneur and my belief in the future that my company could create for all of us were powerful tools that helped me harness the greatest resources for TRC and drive the company onward to become a fully operational business that could truly realize my vision. With the addition of Sam and my other new human resources, along with my expansive new office space, I left the Startup phase of my entrepreneurial experience with TRC. It had been an intense ride; from those first moments of sharing my idea with my wife and other new partners, to drawing up my first business plan and finding the human and physical resources to help me bring it to life, I had transformed my entrepreneurial idea from a dream into a reality. Now came the difficult challenge of running the business. In the next part of this book, we’ll explore the hard and exciting work of the Running phase. There, I’ll share more of my experiences and hard-won lessons to help prepare you for the long ride ahead, as you make your own transition from entrepreneurial upstart to seasoned business leader.