Looking At Partnerships – Part One

lapssTHEY BRING DIFFERENT STRENGTHS TO THE PARTY, COVER YOUR PHONES, AND GIVE YOU someone to talk to over coffee. Sometimes you marry them. Sometimes you divorce. As you’ll see, creating a lasting partnership takes a lot more than saying “I do.”

** The advantages of joining forces with someone are obvious: A partnership offers more security than going it alone, in the form of increased social support, combined assets and talents, and doubled networking possibilities. For entrepreneurs, partnerships offer a solution to some of the vexing problems of sole proprietorship: They allow duties to be divided up, create more opportunities for sales calls and servicing accounts, and free up more time for personal and social obligations, not to mention vacations. Even if you’re not ready to take on a full-time partner, many business owners are discovering the benefits of forming transient partnerships on a project-by-project basis. **

On top of all this, there is also a special allure to partnerships. They offer the ultimate business fantasy that of turning a friendship’s easy back-and-forth into a fulfilling and profitable career. Indeed, if a partnership works out–as in the now fabled tale of young Steven Jobs and Steve Wozniak creating Apple Computer in a family garage the synergy of two sets of talents yoked together can be virtually unstoppable. ** Unfortunately, this fantasy can also be dangerous to a partnership’s health. It may dissuade potential partners from doing crucial and necessary planning, and it may even hinder clear communications. High emotional expectations may delude partners and then, when the veil lifts, spark anger and recriminations. For all of these reasons, it pays to know what makes a partnership work, from the legal, the practical, and the personal points of view.

Communication, Meltdown

It’s a sad story but a common one. There were once three partners, men who’d spent 25 years working for the same corporation. Eventually it occurred to them that they could do much better for themselves if they formed a partnership. “It was a good match, on paper,” says Peter Wylie, Ph.D, a psychologist who, with his partner, Mardy Grothe, Ph.D, specializes in counseling partnerships and businesses. “It looked like each of them had some special ability: One had the money to invest, another had tremendous analytical ability, the third guy had good organizational, CEO-type skills.”

The three went into their new business with a philosophy like that of the Three Musketeers: All for one and one for all. But the way they set things up, they created a structural imbalance that soon seemed like a fatal flaw. The firm, which specialized in civil engineering projects, “got its revenues from fees generated individually by each of the three members,” says Wylie. “The better job you did, the better off the firm.” The analytical and the CEO-type partners both established good track records early on; not so the money man, whose capital had been essential to launching the venture.

Wylie continues: “The analytical guy felt his skills were worth a lot more than he was being renumerated for, yet he was the low man on the totem pole. He got pissed as hell at the guy who put up the money, whom he thought of as a lightweight.”

In any business, the question of fairness is always a tender one and must be addressed carefully. But with these partners, communication was not a priority. Having neglected at the outset to discuss their differences, let alone how they would handle changes in their contributions, the partners allowed the atmosphere to thicken with anger. “They didn’t talk about it effectively until it was too late,” says Wylie. “When they did, it was clear that in the opinion of the money guy, he was getting pushed out. Feeling cornered, he went into streetfighter mode. He closed off discussion, would only talk through lawyers. He said, ‘If you want me out, you’re going to have to offer me an unbelievably good package.'”

The long, drawn out battle effectively wrecked the business all three had worked so hard to create.

The moral of their story applies to all partnerships:

1. Anticipate and plan for change in the partnership’s structure and relationships. Going in with a Pollyanna-ish approach to basic issues, such as how changing individual contributions relate to income and equity distribution, is asking for trouble. When someone says, “We’ll cross that bridge when we come to it,” they’re essentially saying they’ll be burning that bridge.

2. Communication is as important as a balance sheet. Any unpleasantness that isn’t quickly derused has the potential to turn into acrimony. Partners have to deal with each other every day. They don’t have the multiple social and professional relationships of an office environment to buffer them from the people they are irritated with. That’s why partners must get along.

A Lifetime of Partnerships

No one knows these morals better than Ron, who agreed to speak candidly on the condition that his identity be concealed. Ron, like many entrepreneurs, has been involved in various types of partnerships as a way of incubating future businesses. He has built a network of partners and discovered their value early in his career. His first partnership, in the summer after college, was with four fellow alumni. “There was nothing in writing between us. One guy turned out to be a crook and ran off with the money. I lost a fair amount of the cash I’d laid out in expenses.”

Ron went to work in an office but bore no ill will toward the friend who’d originally gotten him involved in the venture. “In fact, I’ve been in and out of partnerships with him over the last 20 years,” he says, laughing. His next partnership was with another friend who was about to start work within a large government agency. “I thought there was a potential market for a book explaining how to get contracts through the agency. I said, ‘I don’t know how long you’ll remain there, but will you consider writing a book with me when you move on?’ Four years later he did.”

This time, Ron suggested a written agreement: simply a one-paragraph note that stipulated a 60/40 split in his partner’s favor. The book was eventually sold and it did well enough to inspire a sequel. Again a one-paragraph note was enough to unite the team, with a 50/50 split this time. “A good partnership strengthened the friendship,” he says.

Now a seasoned entrepreneur with a number of partnerships under his belt, Ron launched a company with several partners, none of whom would be involved full-time. When the investor group requested a chief operating officer, Ron suggested an old friend, “who’d just been reorganized out of a job.” The board approved, and the only minor glitch was the friend’s nitpicking over the terms of an employment contract.

Six months later, Ron began to doubt whether his friend was cut out to be an entrepreneur. “He’d come in at nine and leave at five.” Then, after having started a division that hadn’t turned a profit in two years, one day the man presented the board with a fait accompli. As Ron tells it, “He decided to spin off the division and sell it for a dollar in exchange for taking a job with the company he was selling to.” Ron took him to court. “Of course the friendship was irreparably torn apart.”

Ron has since gone on to many other successful partnerships. He’s seen enough to recognize what does and doesn’t work for him. “A lack of communication and a lack of trust destroyed our relationship,” he says, citing the friend’s excessively legalistic approach to his employment contract as a tip-off. “If he’d told us he was in trouble, that his division wasn’t going to work out, that he couldn’t live on his salary, we would have given the division to him for a dollar. The fact that he didn’t tell us was crucial.”

Making It Work

Ron’s experiences illustrate valuable lessons for anyone thinking of forming a partnership–not the least of which is the importance of communication. Wylie, coauthor with Grothe of Can This Partnership Be Saved? (Upstart), suggests that before you form a partnership, you and your potential partner should thoroughly investigate and discuss your business-to-be. Ideally, a series of get-togethers will reveal your expectations of each other, your financial needs, and your long-term plans, but if they don’t, then you should make a point of bringing them up. You should even broach the subject of how you intend to break up the partnership, even though you may have no intention now of doing so. (When else will you be as calm, as unemotional, as at the beginning?)

You should also weigh your and your partner’s talents, working styles, and characters. Don’t search for similar qualities; look for complementary ones. One common shape of partnerships is for one partner to handle the sales and marketing while the other creates the product or service. For instance, Steve Jobs was Apple’s “Mr. Outside,” with boundless energy for marketing and sales, whereas Steve Wozniak was “Mr. Inside,” happiest figuring out new designs and applications.

Many partnerships simply divide the duties more or less on the basis of who likes to do what. Ben Cohen of Ben & Jerry’s Ice Cream enjoyed talking to the press and helped create their public relations image; Jerry Greenfield stayed in the background, working on management issues. Both, however, created flavors and brainstormed ideas.

A definite aim for a good partnerhsip is that it should absorb and use the various talents of the two (or more) people involved. However, there should always be a clear and mutual agreement on the value of everybody’s contributions: Making the morning coffee is not the same as making cold calls. Trouble usually begins with perception: say, when “Mr. Outside” in sales feels he’s pulling more weight than shy and retiring “Mr. Inside,” who merely creates the product. This perception can be true or way off base. But if a system that bases compensation on measurable contributions isn’t addressed at the onset of the partnership agreement, it will be difficult (and probably perceived as unfair) to institute one afterward.

The Relationship

In his years of counseling, Wylie feels that men, in particular, have the most trouble adjusting to partnerships. “Most men do not see the relationship as being as tremendously important as it is,” he says. “Most just think in terms of how much the other person will bring to the party. They don’t think of trust, personality, and style.” Wylie thinks this is a legacy from the male corporate environment, where feelings are always subordinate to executing orders. Men who get along fine in this crisp, military-style chain of command may find a partnership unsettling. “You’re going to be spending 10 to 12 hours a day together,” says Wylie. “In many respects you’re getting married to each other. Once the honeymoon is over, the day-to-day business of running the show, the little things you didn’t realize about each other, can become tremendous irritants. You either work them out or they destroy you. And both your livelihoods are at stake.”

Unlike a corporation, where executives are expected to swallow their anger and get on with the job, partnerships bear the added expectation of being better than the daily grind of working for someone else. “Your relationship with your partner is going to have a tremendous bearing on how much fun and satisfaction you’ll have, not just on your success.”

Classic Incorporation Mistakes

cimAs AN ACCOUNTANT AND WRITER, I HAD ALWAYS OPERated as a sole proprietor. But recently I incorporated a piece of my business–writing computer books. You might not think that writing books warrants incorporation, but most computer publishers offer contracts with stringent warranties against errors. Therefore, I needed incorporation so that my financial liabilities in any book publishing ventures would be limited.

In the past I had worked with attorneys to set up large corporations, but my computer book-writing venture was the first time I’d arranged a small-business corporation. Unfortunately, along the way I made some mistakes. When I talked with several entrepreneur friends, however, I learned I wasn’t alone. Opportunities for error are ample when you incorporate a small business. Here’s what I learned not to do from my own experience and that of other entrepreneurs I talked with.

1. Start without a budget. This omission sounds obvious, but it’s too easy for the incorporation process to get expensive very quickly. In fact, it may be that you won’t want to incorporate once you consider the total costs. In my case, total attorney fees at the outset looked to be somewhere between $800 and $1,000. I chipped Continue Reading »

Why Guarantees Can Ignite Your Sales Process

wgciyBack in the 1890s, when John Wanamaker first promised a money-back guarantee on every item sold in his department stores, he had no idea what a powerful business tool he’d developed. His aim was to help the public feel protected from the wide assortment of snake-oil salesmen of the day. Today, quality consultant and former Harvard professor Christopher W.L. Hart preaches a similar strategy, transforming that simple promise into a vital business technique called the extraordinary guarantee. This time around, Hart has shown that the guarantee can have a huge impact on service companies—helping to deliver excellence and win customer loyalty. While Wanamaker’s guarantee reduced the customer’s sense of risk, Hart’s extraordinary guarantee is intended for the company. By promising customer satisfaction, the strategy not only helps to pinpoint what it is clients want, but it forces a company to recognize its operational shortcomings. It’s a form of self-motivation, causing the business to stand behind its performance.

At first, these sound like tall claims. But with the right guarantee–properly implemented-you’ll quickly target systemic problems, build marketing clout, create enormous customer loyalty, and boost your bottom line.

Put Your Company to the Test

Although any business with a guarantee gains a tremendous advantage over its competitors, service companies benefit the most from such an offering–because for them customer satisfaction is the product. Traditionally, measuring satisfaction has been difficult. For example, how would you gauge the defects in a public relations or marketing campaign? Usually, the client’s response is the most important yardstick of quality, and there’s no better device to measure satisfaction than with a guarantee program. Because of this and the following reasons, it’s time to put your company to the test.

First, a strong guarantee will help your business break out of the sea of muddy mediocrity and into the limelight by differentiating itself. Second, it guards against the occasional tendency to take on too many accounts in relation to available resources. And last, it reduces the temptation to overpromise during the sales process.

There is one caveat, however: Certain service businesses should shy away from payout policies, otherwise known as 100 percent money-back guarantees. Ventures that are financially dependent on a few large customers, for instance, could be quickly forced into bankruptcy by such a promise. But there are scores of alternatives that offer the customer something the entrepreneur can control. For example, an airline that constantly pays out on a guarantee because of bad-weather delays might find other innovative ways to keep customers happy, such as providing special snacks, extra drinks, or allowing free use of airline telephones. The best rule of thumb when implementing a guarantee is to carefully weigh your costs against the exceptional benefits.

Picking Your Promise

Guarantees come in two forms: explicit and implicit. When a company offers an explicit guarantee, it clearly states what it’s promising and what it will do if it fails to keep up its end of the bargain. An implicit guarantee leaves these elements unstated. That’s not to say it’s weaker; indeed, an implicit guarantee can be the stronger of the two types. But first, the explicit.

Specific guarantees. Fortunately, a guarantee doesn’t have to offer complete satisfaction to be extraordinary. Specific guarantees spell out certain elements of your product or service you specifically stand behind. If some other element fails, you are not obligated to compensate the customer for it.

This type of guarantee has the added advantage of highlighting your product’s strengths. carpeting manufacturers, for instance, often offer guarantees against staining or fading. And knowing that the world traveler image is one that highly appeals to its customers, Rolex guarantees free servicing of its watches in major international cities.

Although it’s difficult to measure the elements of a service since they are often provided under adverse conditions (such as in crowded restaurants or traffic jams), Domino’s Pizza built a system that hurdled such details. Some of its franchises used to promise to deliver a pizza within 30 minutes or else the customer ate for free. Federal Express is another example: Its assurance that packages will be delivered by 10:30 a.m. the next business day continues to inspire client confidence.

In fact, the ability of a specific guarantee to call attention to a company’s strong points is so beneficial that some businesses actually offer a money-back guarantee but disguise it as a specific. For instance, Florsheim gives purchasers 30 days to return shoes for a full refund if they find them uncomfortable; but discomfort is so subjective that the company is essentially giving an unconditional guarantee phrased so as to stress the company’s confidence in the comfort of its product.

Limited-scope guarantees. Some entrepreneurs find it too risky to offer a specific guarantee, especially for business owners whose ability to meet certain criteria is truly at the mercy of uncontrollable events. But there are other ways of limiting risks so that a guarantee can be extraordinary without being foolhardy. One solution is to require the customer to meet preset conditions, thereby taking the burden off the company. The pest control service Prism, for example, is famous for its guarantee to completely eliminate roaches–for good. The catch: Customers have to religiously follow the maintenance routines laid out for them. If they stray from the instructions, the guarantee is void.

Another risk-free tool is the replacement-only guarantee, which offers customers a product or service of the same type rather than a cash refund. The cost to you is far less than any other form of guarantee, and it prevents the client from taking the money and running to a competitor. In essence, replacement-only forces people to give the company a second chance. Take Scrubadub Car Wash. It promises to wash its patrons cars again and again until they’re satisfied the car is immaculate.

Even less risky than the replacement-only is the repair-only guarantee, in which a company will continue to fix a product until the customer is smiling. Jaguar, for instance, added consumer convenience to the solution by providing a free loaner car to any owner whose car is being repaired. Similarly, service firms can give a no-fee-until guarantee, in which the bill is withheld until a certain performance requirement is met. This device offers added protection: If customers are dissatisfied, they can’t simply ask for their money back and flee. Instead, they’re forced to give the company more time to make good on its promise.

Unconventional payouts. An entrepreneur who wishes to make his company name stand out without taking wild, costly risks can become creative with the payout offering, which works like a money-market fund. Here the idea is to guarantee the amount of money a customer will make, promising to pay the difference between the guaranteed amount and the actual earnings. Sotheby’s art auction house, for example, guarantees that if an item sells for less than the company said it would, then Sotheby’s will make up the shortfall.

Some marketers add a personal touch by avoiding straight financial compensation. The insurance company Empire of America buys lunch for customers who have to wait in line more than five minutes. And First Union National Bank of Charlotte, North Carolina, delivers a dozen roses to clients victimized by bank errors.

Other organizations, recognizing that their customers’ highest priority is to satisfy their own clients, offer pass-through guarantees, in which the customer’s customer is the beneficiary. Prism pest control tells restaurants and hotels that it will pay for the meal or room of any patron who spots a roach; it also sends that person an apology letter.

Faced with such a wide variety of payouts, you may despair over selecting the one that’s most appropriate for your type of business. Actually, you don’t have to choose–just leave the choice to the customer. A number of consulting firms, for example, have given their clients the option of either getting part of their money back to reflect their degree of dissatisfaction (a sliding-scale guarantee) or letting the firm work on the project for free until the customer is satisfied.

Implicit guarantees.

Offering a guarantee does not mean you have to specify a payout–or any other element of the promise–to make your clients feel protected. When your offer is implicit, the guarantee isn’t expressly stated, but customers feel they can count on you anyway. For example, Nordstrom department store is known for its willingness to compensate dissatisfied shoppers. Yet nowhere in its promotional materials does the company specifically say that it offers any sort of guarantee. Businesses that inspire patrons to feel an implicit promise are in an enviable position.

With an implicit, you also don’t have to worry about the guarantee appearing as marketing hype. Instead, it’s perceived by customers as simply doing what’s right. A case in point: Flyaway Avian Averting Systems, a service that prevents birds from roosting on rooftops, withholds its invoices until the customer reports that the birds are gone for good. The company doesn’t appraise clients of the policy ahead of time, but it does depend on them telling other potential customers about their satisfaction. And Child Development Products, a mailorder toy company, authorizes its telephone operators to provide refunds of up to $25-although it never brags of its policy.

The implicit guarantee is perceived as a classy way to impart an image of reliability. Unfortunately, such a promise has to be earned through instance after instance of making good on customer dissatisfaction. Thus the implicit guarantee might best be viewed as part of a later stage in a firm’s quality evolution.

A company can also ease itself into an implicit guarantee by offering an explicit one that covers a portion of its service and having an implicit in place to cover the remainder. The implicit then acts as a safety net, catching customers before they leave the system and compensating them to restore their satisfaction.

Once you’ve finally selected the type of guarantee that best suits your business, a well-designed program must be put into place. Just remember, even the best plan is likely to be an unmitigated disaster if your company doesn’t move fast enough to boost its quality to the level of performance promised. Achieving quality in concert with the guarantee is your biggest challenge as an entrepreneur.

Look Before You Leap

By asking the following questions before launching your guarantee campaign, you’ll create a custom-designed plan that best suits your customers.

What is my company’s track record? If the business does not already have an established history of going to great lengths to satisfy customers, consider a guarantee that defines exactly what’s being promised.

How costly will it be to communicate the guarantee? A company that has many painless opportunities to prove itself has a better chance of succeeding than a company that has only one or two. For example, a restaurant can easily communicate satisfaction by “comping” meals for inconvenienced clients; a wedding caterer, however, may end up waiving a substantial portion of its annual income before word spreads that it will do whatever it takes to satisfy customers.

Can I afford to wait for the benefits? Start-ups or companies needing an immediate marketing boost should avoid offering an implied guarantee and simply state exactly what it’s promising.

Is my service measurable? If your customers can only pass judgment using entirely subjective standards, turn to more unconventional forms of compensation.

What are the uncontrollables? Some companies are subject to too many elements to permit the consideration of a money-back guarantee. But many service companies succeed by restricting the guarantee to predictable elements, such as eliminating waits or becoming more courteous to customers.

Would my business be susceptible to unreasonable triggerings? Uncontrollable triggerings can be painful–especially for service firms. But the gain may be worth the pain. One consultant who offered an unconditional guarantee, for example, was told by a client that he should have provided a full, formal report at the end of the project– despite the client having agreed to a summary report to hold down costs. The entrepreneur responded with a full report at no extra cost. Since then, the same customer has returned with several larger assignments.

What is important to my customers? Survey clients to identify one or two key elements that push theft hot buttons. For example, vacationers tremble at the thought of lousy weather. So Holiday Inn of the Cayman Islands guarantees scuba diving customers that if it’s rainy, the excursion is free.

What’s my company best at? Consider offering a guarantee based on your company’s strongest characteristics. Take Delta Hotels: It beefed up its front-desk coverage to the point where it promised one-minute check-in or a free room.

Are there elements of my service or product that need emphasizing? Remember guarantees work because they promise something unexpected.

Is my service well defined? Even companies whose results can be nearly impossible to assess find something on which to focus. It ranges from meeting deadlines to helping clients reach a level of profitability.

Environmentally Friendly Products Keep Shooting The Lights Out

blop

IN 2014 AMERICANS SPENT $510.1 BILLION ON PRODUCTS that were perceived to be eco-safe; gross sales for 2015 are expected to hit $621.5 billion. These figures are no surprise given that consumers are weighing the environmental impact of their everyday products and practices against new greener alternatives.

The government’s pro stand on conservation and preservation is also a key issue. With an ear to the earth and an eye on the future, the following three entrepreneurs are growing successful companies from the seeds of environmental concern. Their stories may generate the spark you need to start your own eco-friendly business.

Jane Klimek, Eco Tech Inc. After learning that many companies don’t bother to reformat disks after one-time installation on their computer networks but, instead, opt to store them indefinitely or simply throw them away, Jane Klimek saw a niche.

Klimek, 36, launched Eco Tech in 1992 to Continue Reading »

Don’t Let The Isolation Of A Home Business Affect You

hbayI AM KNOWN BY A THOUSAND NAMES-CONSULTANT, freelancer, outsource cadet, New Age techno-geek, Lamarr–actually, those are just five. But they all say the same thing–when all the other wage slaves are rushing out of the house to catch the 8:02, I’m pouring my second cup of Belgian Waffle Mist International Blend coffee and checking out who’s on Regis & Kathie Lee. Although this may sound idyllic, you’re probably unaware that watching daytime TV—even just long enough to ascertain that Montel’s guests are “Love-Addicted Finnish-American Meter Maids” is proof you’re legally insane in at least three states.

Many years ago, I worked in a normal office in a normal high-rise building in a normal faceless American downtown. I was a stressed-out, caffeine-slurping, shredded-nerve encrusted jangle of raw meat. But I was normal…compos mentis…one of the guys. I was sane.

Then I snared that first client. Ah, how I rejoiced. I didn’t see the spiral-eyed golem hovering above the contract, salivating on my signature, and cackling away like an Amway rep. I was innocent. Naive. I went skipping out of my Continue Reading »

Eight Ways To Keep Your Business From Going Under

ybguWhat do you do when your business is floundering? Sometimes you’ re too busy battening down the hatches to see the larger picture. We contacted small-business specialists and came up with these steps to help you keep your business afloat.

1. Find new ways to get money. If you’ve exhausted all the possibilities, “seek out the alternatives–second traditional mortgages, credit cards, friends, and family,” says William Wetzel, director of the Center for Venture Research at the University of New Hampshire in Durham. Other sources: an investor specializing in companies too small or new to interest venture capitalists, and accountants and lawyers working with small businesses. They’ll help you find local clubs or networks.

2. Rethink the capital you’ve got. Many businesses Continue Reading »