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Starting a new venture: Getting down to business as company founder

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Editor’s note: Bill Warner writes “The Angel Connection” which is a regular feature in WRAL Local Tech Wire. LTW asked consultant Bill Warner to share advice for entrepreneurs seeking angel investors and/or venture capital investment. He is chairman of the Triangle Accredited Capital Forum, an angel investor network with over 100 members throughout the Southeast.

This is the second of a two-part article.

RESEARCH TRIANGLE PARK - Reahing the first business transition point means cash is in play.

The founder’s first jolt of harsh reality occurs at the time the company is financed. Whether it is a personal obligation to a family member who provides funding, debt that has to be personally guaranteed to a commercial bank, a grant requiring research results, or the obligation to shareholders taking private equity, the founder owes somebody something from the beginning.

Successful founders will handle this set of transactions by:

• Treating the financing partners with business respect
• Managing the money with appropriate professional judgment
• Keeping them informed of progress
• Visibly, and with thoughtful action, committing to the fulfillment of the obligation

Finding the right management team

If financing isn’t enough pressure, adding to that pressure is the selection of the management team. For the first time, the founders have to decide where they really belong in the company, based on their personal skills and abilities. The new members of the management team have to fill the gaps that the founders cannot fill. Quite often, the founders need an experienced CEO to run the company. Experienced executives need to be brought into to accomplish the first set of milestones whether they are product research, product development, marketing introduction, early sales or manufacturing operations. Therefore, management team selection is not a one-time event. It has to be done throughout the life of the company. This is a difficult task for founders, and should be facilitated by experienced business executives. The keys to making the right selections are:

• Accurately and honestly assessing the skills and abilities of the current team; thereby determining what additional executive skills that are needed
• Openly admitting where help is needed by leaving no problem without thorough consideration
• Crisply defining the roles and responsibilities for the new members of the team
• Rigorously and intelligently selecting the people to fill the positions

Business growth and maturity

As a business matures, many things can happen to cause a founder to change their involvement in the company. Typical examples of this are: realizing the founder is not contributing or is a disruptive force, the founder in not required for future success when the company’s business direction changes, additional funding dilutes the founder to a minority shareholder, personnel conflicts occur that require the founder to leave the business, or the company is put up for sale. These are difficult times for the founder and have to be dealt with from the point of view of what is best for the shareholders of the company. When personal issues creep into the discussions, these situations can become very debilitating and actually destroy the company in its tracks. To successfully pull through these issues:

• The founder has to put the needs of the business ahead of personal issues; it’s all about business
• As when the founder had great business advice when starting the company, listen to trusted business advisors through these issues as well
• Be a constructive participant in doing what has to be done, embracing the change and making the transition successful
• Continue to support the vision of the business and be role model for the entire team by leading the way for necessary change

Business exit

Dealing with the sale or merger of the company is equally as difficult, and the founder has to be deal with it in the same manner. The sale is a final departing point and represents the day the founder’s company reaches adulthood. Lots of questions arise about selling or not selling the business: the right price, who stays, who goes, and many more gut wrenching questions. Getting cold feet is the last thing you want to have happen on either side of the transaction. Before a founder even entertains a sale or merger they must:

• Know what they want in the transaction and what the “walk away” terms are
• Think through and accept the implications of the transaction once the deal is signed
• Negotiate in good faith and from a clearly communicated set of deal principles
• Again, lead the way to making the transition successful

Exhibit mature business behavior

All potential alliance partners of a company, whether they provide funding, development, marketing, sales or operations, will want to see the right business and personal behavior of the founder before they proceed. If a founder shows inappropriate behavior, the best of deals will be cut off very quickly. If the founder exhibits mature behavior, in the most difficult of business situations, the partnership will benefit and the company will be on a path to success.

About the author: Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.

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