Flying Solo

If you’re the “solopreneur”, the entrepreneur with no partners, you have a few huge advantages. There’s no consensus when it comes to decision making, you just make the decision and move on. Your vision for the business is the only vision. If that changes, there’s no one to convince. Having a solo vision and consistent decision making can be a very good thing for your customers and future employees.

There are two relatively sizable disadvantages to being a solo entrepreneur though. First and foremost, it’s next to impossible to be an expert in all of the areas required to run many businesses, so you’re likely limited in the types of businesses you can run (especially in the beginning when it’s going to be just you). The other disadvantage is that you don’t have to run your decisions by anyone. Emotions or bias or short-sightedness can come in to play without you even realizing it.

A Single Partner

Once you introduce a partner in to the equation everything changes. You now have to come to a consensus on decisions, which can be both good and bad as we’ve already covered. It will be a pain sometimes to have to discuss something for hours that seems like a slam-dunk decision in your mind, but that pain can be offset by the many bad decisions that you’re talked out of.

You also now have the advantage of having another person around so that you don’t have to do it all. You (hopefully) have complimentary skillsets, so now the developer doesn’t need to do the marketing, or the accountant doesn’t need to do the customer service. You’ll most certainly be wearing multiple hats, but at least you will be able to offload a few of your weak areas to someone else who can do them better.

The primary disadvantage of a two-man team from what I’ve seen is that there can end up being a me vs. him attitude. Everything should be split 50/50 but it never is. Often times both partners will think that they’re doing the majority of the work. It’s kind of like a bad marriage. And if that happens, each party starts to think “I could just be doing this by myself with none of the headaches and make twice the money”.

Two Partners

So once you introduce that third person in to the mix, you solve all of the problems…right? Yes and no.

Having three brings some huge added benefits.  You now have one more person who offers a complimentary skillset to yours.  With a team of three, you should each only have one or two core functions within the business, and they should be the core functions in which each person is strongest.

You also now have that third person to help mediate disputes.  I’ve seen firsthand that having a neutral party when there’s a one-on-one dispute can do wonders for calming everyone down and providing the proper focus.  Of course, this third person can also team up with one of the other partners so that every single meeting can be a two vs. one ordeal.

With three you also start to introduce multiple lines of communications.  It’s harder to schedule meetings or even to find a time when everyone is available for a group Skype chat.  And once you’re in said meeting or chat, you have to now come to a three-way consensus, which can sometimes take a lot longer than you feel like it should.

Three or More Partners

Once you hit a team of four you run in to what I call “the combination problem”.  You remember combinations from the probability section of middle-school math class right?

From the above link:

The number of ways (or combinations) in which r objects can be selected from a set of n objects, where repetition is not allowed, is denoted by:

What does this have to do with business partners you ask?  Well, you can use this to determine the number of relationships in the group.  If we use C(n,r) as our notation, you can calculate the number of relationships amongst business partners with C(x,2) where x is the number of partners on the team.

For instance, on a three person team, C(3,2) = 3.  This makes sense.  At Pure Adapt we have Mike, Greg, and I.  For us to be successful, I need to have a positive relationship with both Mike and Greg (2), and Greg and Mike need to have a positive relationship with each other (1), for a total of 3 relationships.

Three relationships is manageable.  However, once you hit a four person team, you end up with C(4,2) = 6.  That’s much less manageable.  Each one of those relationships needs to be positive for your team to be on the same page.  There can’t be any bitterness or bad blood on any of those six lines of communication or your done for.  In all six cases, the people need to be able to work together and solve a problem.

This is where, to me, any gain that you get from added perspective or skills, is entirely offset by the unlikelihood that this large number of relationships will exist in perfect harmony.  Need more than three? Hire someone part-time or full-time, or outsource the work to a contractor, or automate it, or don’t do it quite yet until you can afford to do one of those things.

Thinking about a team of five?  C(5,2) = 10.  A team of six? C(6,2) = 15.  Talk about complex!  Good luck finding a place to eat dinner together, yet alone making a business decision.

My Experiences

To some extent, I’ve had experience in each of these situations.  From January 2006 – December 2006 I worked solo on SportsLizard, iPrioritize, and doing SEO and web development as a consultant.  From December 2006 – December 2010 Pure Adapt was a four person team.  From December 2010 to the present, we’ve been a three man team.  And while I haven’t been in a two person partnership, I’ve known many who have been.   So I think my perspective comes from a very real place.  It’s based upon what I’ve experienced and what I’ve discussed with countless other business owners over the years.

If I Was Starting Out…

I’d go one of two ways depending on the type of business I was starting.  As you can probably already tell, there’s no way I’d ever start a business with three or more partners again.  It’s far too complex because of the combination problem.

If I was starting something small, a “lifestyle” business that I envisioned keeping small (maybe an employee or two, lots of outsourcing and automation), I’d probably go at it solo.  I’d offset the negatives by having a board of advisers.  I’d give them each a little stock.  I’d find a way to meet with them all regularly, either in person or virtually, sometimes as a group and sometimes solo.  It wouldn’t be perfect, but it sure could work for me.

If I was starting something that I had big visions for, a “sky-is-the-limit” type of idea, I would take on partner(s), preferably two partners.  I thoroughly enjoy my current situation.  To me, the three person team is the perfect balance of upside and downside. It takes the right group of guys, but if it works it can be immensely fun and rewarding.  I am grateful that I don’t have to worry too much about accounting or inventory management because my partners have those “departments” under control, which allows me to focus on development and other projects that I enjoy more.  Plus, to me, achieving things is always more fun when you do it as part of a team.

I was thinking a lot about this the other day. What factors go in to making a “balanced” decision? What I came up with was what I’ve decided to call the CAG model:

Customers – what are our customers saying? Are they complaining? Are they asking for a feature?  Are we getting a lot of emails that could be reduced by improving how we do something?

Analytics – what does the data say?  Are we losing customers? Are customers searching our site for something we don’t have? Are our conversion rates lower than they should be?

Gut – what do we think is the best for the short term and long term health of the business? Can we maintain whatever we create?  Are we creating more problems than we’re solving? Is there something else that’s more important to us? Does this decision help or hurt potential future initiatives?  How does this affect our current and future employees?

Not all decisions we make are weighted 1/3 each, but for most big decisions we’re giving quite a bit of weight to all of the above. For instance, it’s rare that we make a decision solely based upon our gut without investigating the other two.

This is probably one of the best reasons I’ve found for having partners.  There’s no way that I could make sound business decisions by myself at anywhere near the consistency that we do as a team.

Generally the person who brings up the idea has the most jaded perspective. If I deal with a ticked off customer and I see a way to fix a problem, I’m likely going to prioritize it higher than Greg or Mike might.  Their job is to ask questions like “how often do we see this problem?” and “is this more or less important than fixing other problems?”  Generally we’re able to come to a consensus pretty quickly, and if we aren’t there’s always an action item – say to collect more data or run a test – that will help us revisit the situation in the near future and make a good decision.

This process isn’t rocket science. I’m sure most good businesses do something similar, either consciously or subconsciously. Yet I think it’s critically important in helping us maximize our upside and minimize our downside when it comes to making most business decisions.

2010 Review

I’m really amazed by what we accomplish every year. At times it seems like things are moving slow, but when I take a look back I can’t say I’m disappointed in the least. Some of the highlights:

• We started the year by closing Tastefully Driven, our Amazon store, and stopped shipping internationally
• We launched the Ask a Professional Detailer Blog on Detailed Image, managed by Todd, which had a major impact on our growth
• We hired our first full time employee
• We built and launched LockerPulse
• We had our record year in terms of revenue and profitability

Those are just the highlights that come to mind. We had a lot of other little “wins”. The more I run a business, the more I realize just how hard it is, and therefore I’m that much more appreciative of what we’ve built.

Changes to Our Team

Over the holidays George decided to leave the company. We’re thankful for all of his years of hard work, and of course we’re all still good friends and wish him the best in his future endeavors. I’ve always maintained that business relationships are like entering a marriage that’s guaranteed to end in divorce. There are just too many variables in life to expect a group of partners to run a business forever and ever.

Our lawyer was adamant from the start about the importance of having a rock solid operating agreement. Thankfully, we were smart enough to heed his advice. We reviewed and updated it yearly, the most recent update being in mid-December, a few weeks before George made his decision. Given that almost everything related to a partner leaving (either due to choice, being forced out, death, or disability) was clearly outlined, there wasn’t much to “negotiate” and therefore there wasn’t much to stress about (or potentially fight about). From a legal standpoint the transition was able to happen in a matter of days instead of dragging out over months or years, which is always best for all parties involved.

There’s definitely a lesson to be learned in all of this. Once you become bigger than a one-man shop, it’s absolutely in your best interest to sit down with a good lawyer and draw up an operating agreement, and then review it annually. No questions asked. For the few thousand dollars you’ll spend over the years you get a piece of mind that’s priceless.

New Warehouse Lease

After some uncertainty, we’re staying put in our warehouse for another three years. Greg did a great job negotiating the new lease. Essentially we wanted to continue our existing lease, but also wanted a new heating system put in. Our oil heaters are ridiculously old so they’re expensive to maintain and horribly inefficient, and oil itself is expensive. We’ve been having problems since when we first moved in. After some back and forth we came to an agreement. They are scheduled to begin work on a propane/electric hybrid system in the next week or two.

I think our general consensus is that we’ll be looking for a new place to move after this lease is up, which means that by this time in 2013 we’ll probably be looking. Not only will we likely need more physical space for our products, we’ll also likely need some “real” office space, and I think we’ll all be ready to have a little nicer, cleaner, more modern place. Obviously things could change, but that’s the thought right now.

What I Expect in 2011

While the past few years have been largely about new development projects – the new Detailed Image cart in 2009 and LockerPulse in 2010 – and about becoming more lean and efficient. There likely won’t be any new sites in 2011, and the operations are pretty well optimized. We also have a great team in place, from our owners to our employees and contractors, so I don’t foresee much change there either.

This year is all about growing what we have. We’ve all had to work a little harder recently and pick up some new roles and responsibilities, but we’ve still managed to push ahead full force with our plans. For DI, there are a lot of marketing initiatives we weren’t able to get to in the past. There are also a lot of things we want to do with all of the data we’ve accumulated over the years (think: a more targeted and customized shopping experience). For LP, we have a lot of great features planned, and I hope to build on some of our recent momentum and be aggressively marketing the site in the coming months. I fully expect it to be a significant source of revenue for us by year’s end.

We’re all looking forward to a fun, innovative, and prosperous 2011!

…And I’m sure there will be some more surprises mixed in as well

In my What Startups Are Really Like essay I touched on this a bit:

How do you find good partners? When I gave my two presentations at James Madison University, I got this question from both groups. My partners and I were lucky. We all went to the same elementary school together. Growing up, we all knew each others’ brothers and sisters and cousins. We weren’t best friends and we didn’t all stay in touch through college, but when we came back together there was a level of comfort in knowing each person’s background.

Most people don’t find partners like this. The way that most successful partners come together is by working together. If you’re looking for a partner and you’re in college, look at your fellow classmates. Who have you worked well with? Who has complimentary skills to you? Entrepreneurship classes or clubs where you start a mini-business in college are also great places to find partners. The important thing is that you actually work together before committing. Lots of people – and I mean almost everyone – are bullshitters. You can weed out the bullshitters pretty quickly when you do real work together.

I can’t emphasize enough how important it is to work with your partners in some capacity prior to partnering with them. Even though we knew each other, my partners and I worked on a few web projects together in 2006 prior to coming together and incorporating in December of that year. You have to know how people work to know if you can work with them. Do they do what they say they’ll do in a timely manner? Are they actually good at what they do? Do you enjoy working with them? There are a bunch more questions like that, and they can only be answered by doing real work together.

In my opinion, college is the best place for finding partners. The college environment does a great job of putting you in groups with people you barely know, with the pressure to get something done in a very short amount of time, that is important to each and every one of you (if you care about your grades, that is). And you likely work with several groups per semester, every semester, so you have a lot to compare against.

This can happen in the working world, but the opposite can too. If you’ve worked with someone for years and you like them personally you might not be so good at objectively evaluating their talent. Then again, if you work great with someone for years and you plan on starting a business in a similar industry, work might be the perfect place to meet your partner.

I’ve also seen people come together after one partner hires the other partner. A great example is the web developer who sees potential in a clients project. The client enjoys working with the developer. They can successfully transition into partners because they already work well together.

Another way to protect yourself is to start your business part-time. There are many reasons why this is a good idea, but it also protects you from being “all in” with your new partner. If things fizzle out and don’t go to plan, you’ve still got your full-time job to lean back on while you lick your wounds and decide your next move.

In addition, sitting down with a good lawyer and drawing up a rock solid partnership agreement that protects all parties will take a lot of the stress off and prevent potential issues down the road.

Any way you slice it though, if you try before you buy, your chances of a failed business and a nasty divorce go way down.

We haven’t had any disagreements yet about the long term vision of the company, but if we do our system will ensure that we openly discuss it.  Conversely, in a company with poor communication you grow frustrated over the small things and very well may be pushing the company in completely different directions.

We spend roughly 10 hours per week together as a four person team.  The rest of the time we’re working remotely, much like a completely virtual company.

Remote Communication

• Skype – since we stopped working with clients, we actually don’t use Skype much at all for phone calls.  We primarily use it as an instant messaging system.  It’s not perfect, but it gets the job done when you have to ask a quick question that needs an immediate reply.
• Phone – yup, we actually pick up the phone and call each other.  Quite frequently actually.  It’s amazing how much better the result from a 5 minute phone call compared to a 20 minute IM conversation…not to mention the constant distraction of the IMs popping up over that 20 minutes.
• Micro Blog - to avoid said constant interruptions that instant messaging can pose, we created an internal micro blog that enables us to post status updates for the others to read.  The posts display on our Google Personalized Start Page so everyone generally sees the posts within 24 hours.  It works great for things that don’t need responses but are good to share – shipments updates, minor programming fixes, news about our competitors, etc.  This essentially eliminated the need for email in our regular communication.

In Person Communication

• Monday meetings – Monday is the only day that we all work together in the warehouse.  Since Mondays are generally busy, Monday meetings are usually used to bring up quick points of discussion or to plan for our longer Thursday meetings.  More important than the meeting time is just the fact that we get to spend ~6 hours working together as a group.
• Thursday meetings – on Thursday nights we meet at someone’s house and have longer meetings over dinner.  These meetings are to discuss strategy like new programming projects, vendor/inventory issues, or big sales that we’ll be running.  Once every few months we hold these meetings over a really nice dinner to celebrate what we’ve accomplished recently.  Those nights are great for bonding.  Plus it’s just nice to get out and have some fun sometimes instead of the constant stream of problems that we normally discuss.
• Numbers meetings - about once per quarter we have these meetings where we do an exhaustive review of our accounting numbers.  Generally these meetings are where we discuss bigger picture stuff like raises, expansion, and future goals.

All in all, the system we’ve evolved into seems to work pretty well.  I think the important thing to remember when starting a new company is that there is no one “right” way to communicate.  Each business has it’s own unique set of constraints that should guide the forms of communication.   Given the infinite combination of modern technology available (much of it at no cost), the only real barrier to solid communication is an unwillingness to try something new.  Well, that and having people that actually desire to work together.