Tuesday, August 8, 2017

WITH BUSINESS YOUR BEGINNING MAKES OR BREAKS YOU

It had a promising start. The business tapped into the growing need of the now affluent middle aged, middle class to get healthy. It grew by word of mouth and had generated a loyal enough following that it had begun to show a positive cash flow.

Then the founders fell out.

Differences about how to run the business, the long term vision and of course how to share the spoils put paid to the dream.

So they have broken up. One of the founders swears that from here on now there will be no partnerships without written, formal agreements.

Business is not unlike pumping water out of a borehole. In the beginning with the airlock having grown in the pump the first pumps are hard, near impossible. But once the airlock has been worked out the pump lever can be worked by a child.

"The way we start our businesses, selecting partners, financing the business, demarcating roles and determining how the benefits from the business will be distributed – in the event that we start making money, often determine the long term viability of a business....

Ordinarily we see an opportunity, do some cursory brainstorming around the subject we the nearest person around and we jump in with both feet, our eyes firmly placed on the future pot of gold at the end of the rainbow.

Soon reality sets in.

In his book The Start up J-Curve, Howard Love says that the progress of a start up follows the trajectory of a J-curve. Soon after you start you descend into “the valley of death”, the market’s acceptance of the “revolutionary” product can at best be described as luke warm, the expected sales are not coming through and even if they do, the cash is not flowing because – as we quickly find out, no one pays cash.

This is where most businesses fail. “The valley of death” tests the resolve of the business owner or owners, disagreements erupt, some slink quietly off to do other things. Friendships have been shattered in the “valley of death”.

Coming out the other side only happens if the product has gained wide acceptance by the market and a business model – how the money will be made, has been established. There is no standard time frame for going through the “valley of death“ but all business experience it, whether the promoters are experienced or not.

Oftentimes a business succeeds because despite all external experiences it is able to hang on long enough to come out the other side. Not that problems are over once you have.

"At the start all the business promoters should seat around and really thrash out what their motives are, what their responsibilities will be, what each’s contribution will be – often a mixture of cash and some sweat equity and when and if, the cash taps start flowing how they will pay themselves....

The founders of health promotion business above, should have sat down, detailed all the above before going into business and they would have had a better chance of surviving.

Synergy – the sum of the whole is greater than the sum of the individual parts has been lost.
My money is on one over the other to survive and maybe even thrive in the long term. But I know neither of the break up businesses will be as good a concern as if they had not broken up. Reducing either’s chance of survival.

No doubt that to survive “the valley of death” it helps if you don’t do it alone. But there has to be a unity of purpose beyond greed, the desire for enrichment, to hold it together.

A plan to eventually sell the business – either in whole or partially as a way to get paid is a good motive. Delayed gratification will have to be exercised as the promoters of the business go about building the systems that will make it attractive to a future investor.

A deeply held philosophy or far reaching goal, shared by the promoters -- to alleviate poverty through financial services for instance, may be strong enough to not only ensure your business services the “valley of death” but ensure your partnership is not dashed upon the rocks of unfulfilled expectation.

Even for sole proprietors the time comes when you need to expand or grow out of the “valley of death” and the selection of partners would make or break your business.

A friend is in such a situation. He thinks he has the business model sorted out and now wants to scale up his operations. However he is careful to get only partners who can share his long term vision of the business.


Barring any desperate need for a huge chunk of cash soon, which wold see him stampeded into taking on the fast moneybags or selling the business altogether, I am confident he will find the right partners in due course.

No comments:

Post a Comment