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How Cofounders Can Prevent Their Relationship from Derailing

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When you start and grow a company with a cofounder, that person becomes your key relationship. There’s no more intimate relationship in business, and yet people often don’t think carefully in advance about how to make those partnerships work. That can be fatal for your venture since, according to Noam Wasserman, author of The Founder’s Dilemma, 65% of startups fail because of cofounder conflict.

Through my experience coaching founders and cofounders of fast-growing startups, I’ve discovered five key principles you can incorporate to prevent destructive antagonism with your cofounder before it happens and nourish this essential business relationship.

Create a Cofounder Prenup

Unlike a marriage prenuptial agreement or your founder’s agreement (which articulates arrangements like your equity split and the financial consequences if one of you leaves the business and should be drawn up by lawyers), the cofounder prenup is not legally binding. But just like a marriage prenup, it guides you and your cofounder through important topics that will affect your relationship and your company.

Some of the questions to ask each other include:

  • What are your top values and drivers? (For example, do you prioritize fairness, adventure, wealth, excellence, novelty? Is wealth or fame important to you?)
  • What are the words that describe the kind of culture you want to build?
  • What is your vision of the company for the long run? (Do you want to keep the business small and make sure you know all of your employees’ names, or do you want to build the biggest business you can? Do you hope to get acquired, stay private, or do an IPO?)
  • What’s your working style?
  • How do you tend to react to stress?

It might feel forced or awkward to go through these questions as you’re starting your business, but it’s much more painful to realize five years later that you were never on the same page. You will likely have different drivers and styles. But knowing what makes each of you tick will help you understand each other, appreciate each other, and help you resolve conflict more easily when it arises.

Clarify Your Roles — in Detail

It’s surprising to me how often cofounders don’t really clarify their own and each other’s roles and decision rights. They may choose titles — one is the CEO, and the other the CTO, for example — but they don’t get into the granular discussion of who’s responsible for what. That can work in the early days when the company is tiny and cofounders may make most of their decisions together. But if you keep doing that, you’ll quickly turn into a bottleneck since you’ll both get busy and the employees will have to wait for you to get together to discuss and agree.

Not only that, but if you haven’t fully clarified your own roles, that’s probably a signal that you’re not clarifying employees’ roles either. With this confusion in place, as your company scales and things should go faster, they’ll actually go slower.

I once coached two cofounders in a fast-growing startup. When I asked employees for 360-feedback for them, I found that the employees were confused about who to go to for what. Not only that, they were actually using this murkiness to game the system. “When I have a question on product,” one employee told me, “I ask Jana.* But if I don’t like her answer, I go to Andrew, because I’m pretty sure he’ll tell me something different.”

It’s important to look at the core functions and make sure you’re crystal clear on which cofounder has the final say on each of them to prevent confusion that wastes precious time.

Conduct Scenario Planning

Another good discussion to have sooner rather than later (and throughout your lives as cofounders) is what might happen in your journey together and each of your reactions to it. A good way to get at this is to ask each other, “What happens if..?”

Even though you can’t fully predict how you’ll feel in the future, covering scenarios before they happen helps each of you think and talk openly about how you might react to lay the groundwork for a good process and maintain your strong relationship, even during high-pressure, quick-turnaround decisions.

Some questions to ask are:

  • What happens if one of us wants to fire an employee who is the other one’s friend?
  • What happens if we have a severe disagreement over direction or strategy?
  • What happens if we get an acquisition offer and one of us wants to take it and the other doesn’t?
  • What happens if one of us (usually the CEO) starts to get a lot of attention from the press and the other doesn’t?
  • What happens if one of us wants to leave?

I once did this exercise with three cofounders, even though they were skeptical that it would help. We explored a number of scenarios, including the question about getting an acquisition offer, which they disagreed about. Six months later, the team actually did get an acquisition offer they weren’t aligned on. The cofounders had a very productive dialogue based on our prior discussions. Because they had “rehearsed” this possibility, they had a framework to use to approach this scenario in a constructive and efficient way.

Spend Unstructured Time Together

You already know you should have regular business meetings. But to make sure you’re continuing to build your relationship, make sure you spend unstructured time together, too.

Informal time lets you relax together and build and maintain your relationship. It builds trust, and trust is essential to making sure you work together, support each other’s decisions when you hear about them from others, and handle conflict.

Being together might be easy and normal in the early days, but as your company grows, you’ll have more employees, more initiatives, and more things needing your attention. You’ll also have more stress and more complicated, agonizing decisions to make. You’ll have, therefore, less time for your cofounder. Little things can build up if you don’t have unstructured time to sync up, share concerns, vent, and just remind each other why you decided to found the company together.

I work with two cofounders who live in different countries who have plenty of healthy disagreements that they usually resolve — unless they don’t make the time to talk every couple of weeks. If they don’t, small things build up, they misinterpret each other, and mature discussions turn into petty disagreements. Once we discovered this trend, they simply scheduled a non-cancelable, recurring call. It’s time consuming, but the damage to their relationship is more time consuming when they don’t talk.

Make the time to schedule meals together or do things you both enjoy. For example, a pair of cofounders I work with go to concerts together, and a group of four cofounders I coached went on regular hikes or bike rides. If you live in different places, make sure you travel to see each other in person regularly. Tend to your relationship as a preventative measure.

Hold “Conflict Meetings”

Many cofounders shy away from disagreement or any kind of conflict because it makes them or their cofounder uncomfortable. That prevents them from having essential straight talk with each other, and when there are thorny issues to work out, they haven’t built the muscles to constructively disagree and talk out the problems.

You have to prepare for inevitable conflict, and the way to do that is to practice. Put time on the calendar a few times a month to proactively bring up tough topics. At first this might be hard, since in the early days of your relationship, there may not be much to disagree about — but it will become critical later on.

I introduced two very conflict-averse cofounders to “conflict meetings.” I asked them how they felt about a set of topics to encourage them to raise some areas of disagreement. When we got to the topic of working in the office versus working remotely, they both confidently gave their answers at the same time — and completely disagreed. At first it was simply uncomfortable and they both clammed up. But as I reminded them that this was the purpose of conflict meetings, they were able to articulate their points of view. They didn’t leave that meeting with a decision, but they did leave with an experience of being able live through their disagreements. That was incredibly useful as their startup got bigger and they had more points of disagreement.

. . .

Your cofounder is the key person you turn to to help you manage the emotional ups and downs of your startup, and the success of your relationship is directly correlated to the success of your business. Using these tools to be proactive about caring for your partnership can help you keep it on track.

* Real names have been changed for privacy.

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Starting A Business

4 Tips for Starting an Industrial Business

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The industrial sector is a broad category that covers businesses involved in the manufacturing, production, and distribution of goods. Small industrial companies are growing across the country and there are many opportunities for entrepreneurs to get involved in this sector.

As with any type of business, there are certain things you need to do to set yourself up for success. Here are four tips for starting an industrial business:

photo credit: Pixabay

1. Do Your Research

Market research means figuring out who your target customers are and what they want or need. There are a number of different ways to do this, but some of the most common include surveys, interviews, focus groups, and observation.

Surveys can give you a good overview of customer opinions while interviews or focus groups can help you to delve deeper into specific issues. Observing potential customers in their natural environment can also be helpful in understanding their behavior and needs.

2. Choose the Right Niche

When it comes to starting an industrial business, one of the most important decisions you’ll make is choosing the right niche. There are a number of factors to consider when making this choice, and it’s important to do your research before settling on a particular industry.

First, you’ll need to identify the needs of your potential customer base, such as the products or services they need. Once you have a good understanding of the market, you can then start to narrow down your options. Consider the competition in each niche and decide which one offers the best opportunity for success. When making your final decision, it’s essential to choose a niche that you’re passionate about.

3. Create a Business Plan

In today’s competitive marketplace, it’s more important than ever to choose the right niche for your industrial business. When you specialize in a specific industry or type of product, you can better meet the needs of your target market and stand out from the competition. How do you know what niche is right for your business? Here are a few things to consider:

First, think about your strengths. What does your company do better than anyone else? What unique skills or experience do you bring to the table? Use these strengths to narrow down your focus and choose a niche that you’re passionate about.

Next, consider your target market. Who are you trying to reach with your products or services? What needs do they have that you can address? When you choose a target market and understand their needs, you’ll be better able to choose a niche that meets their demands.

Finally, don’t be afraid to experiment. Trying new things is essential for any business, so don’t be afraid to test out different niches to see what works best for you. By keeping these tips in mind, you can be sure to choose the right niche for your industrial business.

Engineers work with industrial printer

4. Optimize Your Processes

Through industrial control engineering, you will be able to identify opportunities for improvement and design solutions that achieve the desired results. In many cases, these solutions involve the use of automation and other advanced technologies.

By optimizing industrial business processes, industrial control engineers can help to improve efficiency and increase productivity. In addition, they can also help to improve safety conditions by reducing the potential for accidents. As industries continue to grow and become more complex, the demand for qualified industrial control engineers is likely to increase.

Endnote

With an increased demand for industrial operations and manufacturing, there has never been a better time to start an industrial business. By following these four tips, you can be sure to set your business up for success.

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How to Find the Right Business Coach — and Avoid the Wrong One

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At its best, business coaching can connect you with a mentor and supporter who helps you generate ideas, make plans and execute on them.

But at its worst, a business coaching offer can cost you time, energy and money — without much to show for it.

Here’s what to expect from a business coach, how to find a coach that suits you and how to spot red flags.

What a business coach can do

Business coaches draw on their professional experience to help you set and achieve your own business goals.

“I’m here to help you, and I’m here to raise your level of knowledge in whatever way I can,” says Gary Robinson, who chairs the Memphis, Tennessee, chapter of SCORE. SCORE offers free business mentoring for entrepreneurs nationwide.

Some ways a business coach or mentor might do this include:

  • Offering feedback on your ideas and suggesting new ones.

  • Giving you templates and other tools that help you make plans.

  • Connecting you with resources in your region or your industry.

  • Giving you deadlines and holding you accountable to them.

Some business coaches may also offer coursework or group training sessions on particular topics, like sales.

Working with a coach should help you identify opportunities you hadn’t seen before or develop new strategies for pursuing those opportunities, says Sophia Sunwoo, who coaches women and nonbinary entrepreneurs through Ascent Strategy, her New York City-based firm.

“[Coaches] don’t necessarily have to have all the answers,” Sunwoo says. “But they are the people that know how to maneuver and create a bunch of different thinking paths for their clients.”

What a business coach can’t do

A business coach isn’t the same as a consultant, whom you would hire to perform a specific task. A coach or mentor could look over your business plan, for example, but they wouldn’t write it for you.

“If you were to hire me as a consultant, you would expect me to roll up my sleeves and pitch in and work with you to get things done, and you would pay me for that,” Robinson says. Coaches, on the other hand, “try to show you how to do things so that you can do them [yourself].”

Business coaches are also not therapists, Sunwoo says. Entrepreneurship can be emotionally and mentally taxing, but it’s important that coaches refer clients to mental health professionals when necessary.

Business coaching red flags

If a business coaching opportunity “promises guaranteed income, large returns, or a ‘proven system,’ it’s likely a scam,” the Federal Trade Commission warned in a December 2020 notice.

In 2018, the FTC took legal action against My Online Business Education and Digital Altitude, which purported to help entrepreneurs start online businesses. The FTC alleged these companies charged participants more and more money to work through their programs, with few customers earning the promised returns.

In both cases, these operations paid settlements, and the FTC issued refunds to tens of thousands of their customers in 2021 and 2022.

To avoid offers like these, the FTC recommends that you:

  • Be wary of anyone who tries to upsell you right away or pressures you to make a quick decision.

  • Search for reviews of the person or organization online.

  • Research your coach’s background to see if they’ve accomplished as much as they say.

Sunwoo says to also be skeptical of one-size-fits-all solutions. A coach should customize their advice to your personality and skill set, not ask you to conform to theirs.

“The moment that a business coach pushes you to do something that is really not compatible with your personality or your beliefs or values,” Sunwoo says, “that’s a huge problem.”

How to find the right coach — maybe for free

Here’s how to find a coach that will be as helpful as possible.

Determine whether you need advice or to hire someone. A coach isn’t the right fit for every business owner. If you need hands-on help organizing your business finances, for instance, you may need a bookkeeping service or accountant. And take legal questions to an attorney.

Seek out the right expertise. A good coach should be aware of what they don’t know. If they’re not a good fit for your needs — whether that’s expertise in a particular industry or a specialized skill set, like marketing — they might be able to refer you to someone who’s a better fit.

Consider free options. There may be some in your city or region:

  • SCORE offers free in-person and virtual mentoring in all 50 states, plus Guam, Puerto Rico and other U.S. territories.

  • See if your city has a Small Business Development Center, Veterans Business Outreach Center or a Women’s Business Center. All are funded by the U.S. Small Business Administration and offer free training and advising for entrepreneurs.

  • Do an online search for city- or state-specific programs. Philadelphia, for example, offers a business coaching program designed for entrepreneurs who want to qualify for particular business loan programs. Business incubators often offer courses or coaching.

Make sure your coach is invested in you. They should take the time to learn about you, your business and its unique needs, then leverage their own experiences and creativity to help you.

“I’m on your team now,” Robinson says of his clients. “Let’s do this together and make this a success.”

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Are There SBA Loans for the Self-Employed?

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Many of the same SBA loans are available to both self-employed people and more formally structured businesses, such as limited liability companies and corporations. However, self-employed individuals, like sole proprietors and independent contractors, might face a higher barrier to entry for having limited credit history, inconsistent revenue or no collateral. If they can’t qualify for an SBA loan, other business financing options are available.

Who qualifies as self-employed?

Sole proprietors, independent contractors and partnerships all fall under the self-employed category. In these cases, there is no legal distinction between the business owner and the business itself. Sole proprietors, for example, are solely responsible for their business’s gains and losses, while LLCs and corporations are legally distinct from their owners. This distinction helps protect the owners’ personal assets if their business runs into legal or financial issues.

Are self-employed SBA loans hard to get?

While a sole proprietorship is much easier to set up than an LLC or corporation, lenders may be more hesitant to finance them for a few reasons:

  • Self-employed business owners are legally responsible, as individuals, for any debt and liabilities that their businesses take on. If someone sues their business, for instance, their personal assets — not just their business — could be at stake. This makes it riskier for lenders to finance them.

  • Sole proprietorships and independent contracting businesses may have lower revenue or less collateral to offer since they’re often a business of one. This could make it more difficult for them to prove that they can pay back the loan, plus interest. And it may require more paperwork.

  • Some banks set lending minimums that surpass what a self-employed business owner is looking for, either because the business owner doesn’t need that much funding or doesn’t qualify for it.

  • Since there is no legal distinction between the self-employed business owner and their business, they may lack business credit history. To establish business credit, you’ll want to register the business, obtain an employer identification number and open a separate business bank account and credit card to keep your business and personal finances separate.

SBA loans for the self-employed

SBA microloan: Best for small loans and more lenient requirements

Applying for an SBA microloan is a great option for self-employed business owners, especially if they’ve been turned down by traditional banks and don’t need more than $50,000 in funding. In fact, the average SBA microloan is around $13,000, according to the SBA. SBA microloans are administered by nonprofit, community-based organizations that can also help train applicants in business practices and management. And because the loans are small, the application process may be easier — applicants may have limited credit history and typically don’t need as high of a credit score as they do for an SBA 7(a) loan.

SBA 7(a) small loan: May not require collateral

Funds from the SBA’s most popular 7(a) lending program can be used for a variety of business-related purposes, such as working capital or purchasing equipment. While the maximum SBA 7(a) loan amount is $5 million, SBA 7(a) small loan amounts don’t exceed $350,000. And if the 7(a) small loan is for $25,000 or less, the SBA doesn’t require lenders to take collateral.

SBA Express loan: Best for quicker application process

SBA Express loans are a type of 7(a) loan for businesses that need quick financing and no more than $500,000. The SBA responds to these loan applications within 36 hours as opposed to the standard five to 10 days, which may speed up the process for borrowers working with non-SBA-delegated lenders. Additionally, borrowers might not have to fill out as much paperwork — the SBA only requires Form 1919. Beyond that, lenders use their own forms and procedures.

SBA loan alternatives

Online lenders

Self-employed business owners turned down for SBA or traditional bank loans may be able to qualify for financing with an online lender. These lenders offer options such as term loans and lines of credit, and they often process applications faster and have more lenient requirements. However, applicants should expect to pay significantly more in interest than they would with an SBA loan.

Business credit cards

Not only can business credit cards help build your business credit history and pay for everyday business purchases, but they can also help finance larger purchases (within your approved credit limit). And if you qualify for a credit card with a 0% introductory APR offer, you’ll have multiple months to pay off the balance interest-free. Just make sure you’re able to pay off your purchase before the intro offer ends and a variable APR sets in.

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