I did a podcast interview recently with Alex Bellinger of SmallBizPod fame. He asked me what advice I’d give to someone starting out in business now.
The biggest mistake I made when starting in business was to go 50/50 with somebody else. We both owned exactly half of the business as it seemed the fair and sensible thing to do at the time.
I told Alex that my advice to others starting out is to never, ever, ever go 50/50 with anyone – ever!
There has to be a boss – someone that’s in charge and can decide the way forward if a mutually agreeable decision can’t be made.
You may be going in to business with your best friend or a sibling, you may be fool enough to think you’ll always be able to resolve any disagreements. You’re wrong.
If the business is a success (and that’s what you’re both aiming for, right?) then there will be plenty of times when you disagree. Some times it may be over something trivial and one of you will just give in to the other. But the more successful the business and the longer it’s running for then the more likely these disagreements are to crop up – and the more you’ll each have to lose.
A few years ago, myself and my then business partner agreed we’d gone past the point of no return. The company was up a creek without a paddle and we couldn’t agree on a way forward. After intense negotiations he eventually agreed to sign over all his shares to me and walk away. It was a very gentlemanly thing for him to do, but it could very easily have gone the other way. We would have both been sitting there with half a company, and the other half owned by someone we couldn’t work with. It would have been game over for KashFlow before it had even really started.
I read in a Felix Dennis book about a “Mexican Shootout” clause you can have put into a shareholders agreement that would have instantly sorted out our problems.
Essentially, we would have both have had to put in an offer to buy the other person out – without knowing what the other person was going to offer. Whoever offers the most – wins.
Can it get any fairer than that?