Pouring the Foundation

Perhaps the most important decision you will make in a business is when you bring in the second person, either as a partner or as an investor. Done correctly, and your business will flourish; make a mistake, and the repercussions can haunt you for years.

Unfortunately, this fact is often ignored when selecting partners or investors. Quite understandable, when you consider that what’s being evaluated is the skills being offered or the amount of money versus equity being bartered. However, what is often overlooked is that few people have truly unique skills (although they may be unique in the particular combination, or availability) and that money is cheap.

Partners

There are a few reasons to have a partner in any business:

  • No one person has all the skills necessary to run a successful business, but with two people, you can get a lot closer to having all the needed skills
  • A partner can act as a sounding board for new ideas, and save you from chasing after non-profitable ideas while the money-maker is ignored

For the first point, you can solve this issue by hiring someone with the required skills. This on its own is not actually worth any equity in your business. (Note, you might give up equity instead of paying someone if you don’t have any money invested in the business which can be used to pay someone.)

The second point, however, is why you give up some ownership in the company. The partner is going to help you achieve success in your business. For that, you want someone who has a vested interest in your company, but also, you want someone you can work well with.

Investors

Like a partner, an investor, especially in the early stages of the business, brings more than just money to the table:

  • Cash, of course, is the reason you go looking for an investor
  • Experience is what comes along, with your investor becoming either a member of the board, or at least an adviser to your business

As I mentioned above, cash is cheap. If you have an okay credit rating, you can get a loan from the bank, not giving up any equity, but paying some interest instead. Alternatively, you can borrow money from family and friends to help get your business off the ground. For cash alone, there is little reason to give up any equity in your business.

Experience is different. A good investor will have experience running a company, and want to help you succeed. Of course, they’re also looking for a return on their investment, but a good angel will want to be involved, and you’ll want to listen to them. (That’s not to say that you will DO everything they suggest, but you should listen.)

Summary

As described, both founders and investors are there to provide suggestions and opinions. This being the case, you should be sure that the people you bring into your company are people you can work with. You need to be able to listen to them, and you need to be able to get along with them on a personal level.

If you do, you’ll find yourself with the advice and support that will help your business succeed.