Episode 066 – Starting a business with other people, candid things to discuss, separating business from friendship, excitement vs rationality, future planning and more
When setting out to start a business with other people, often excitement and motivation are the leading forces. Without a doubt these are important because often the startup phase requires immense energy to bring an idea into existence. However what is crucially missed in the midst of all this excitement is – are the people I am about to go into business with the right people?
The answer to this question is almost always – yes absolutely. After all, you don’t want to be the spoil sport that raises concerns whilst there are big dreams being discussed. But unless the question is considered internally and amongst your soon to be business partners with total transparency, everything that needs to be said will be left unsaid. Which if said 2-5 years down the line will be both expensive and heartbreaking.
To help avoid both the expense and heartbreak and instead thrive as a team for years to come, Dr Ro and Harminder discuss the following questions in this episode:
- How to select your business partners?
- What are the most important areas which create the biggest impact when selecting business partners?
- What important topics of discussions must be had before you kick start anything?
- Both Dr Ro and Harminder talk into their personal experiences when things have gone well and not so well.
- How to separate business from friendship?
- How to approach things rationally without losing the excitement of a new venture?
- When should you be having these candid conversations and why?
And much more in-between.
Go ahead and listen to this episode and set in motion a wonderful business based on sound business relationships from day one.
Harms: Hello it’s Harms here and welcome to another episode of the Seekardo show today is a Seekardo short and we’re talking about business.
Focusing on getting into business with somebody else or a group of people and why this is so relevant is because at that critical pivotal moment in your personal life, and in their group’s life there’s going to be a lot of excitement.
Ro we’ve been there before in the sense that we’ve been a part of the discussions whether it’s from an advisory basis, strategic or our own businesses and some have gone great.
Some have not gone so well or as well as we expected. What are the important or the most important things they should consider or the questions they should be asking themselves and the group around the table, to ensure that and this word comes up again and again in this podcast is that the communications are clear, transparent and there’s no confusion about the road ahead?
You’ve been in the scenario way more than myself and just to see in your mind, what’s the number one question that comes up.
Dr Ro: Welcome to the Seekardo show and this is a short look forward to sharing this one.
If you’re self-employed and you’re in business already this may not be as relevant, but if you said I’m looking to go into business with a few friends and we’re really excited and this is the crux here let’s try and differentiate between being excited in the idea of setting up a business with people that you know versus yes I’m excited, but what do I need to be considering?
It could be someone employed starting up a business with somebody else.
Someone already in business looking to merge and join with somebody else or it could be that you are already self-employed wanting to scale up to a business with other people. We’re talking about creating a new board, a new set of directors, not just about the business, but working with new people.
Harms: We’ve both experienced setting up our own companies independent of anybody else and also as part of a team, if we’re using the language directors, business partners.
We’ve both got the experience to bring to the table for somebody who is doing this the first time and who is excited and the reality is the excitement can mask or make people not consider certain questions.
Dr Ro: Let me take you back to 1998.
I would have been 22 years of age sat in a house in Thornton Heath in Croydon and I sat in the house of the parents of arguably my closest friend at that time and still one of my dearest friends as well.
He is four years older than me. He was a bit of a mentor during a difficult period when I went to university. He was a West Indian done his PhD really switched on I come in and I’m in my final year of university and he said, there are very few Asian and black people in our career that achieve a level of success you really need to focus on getting academics together because I messed around in the first couple years of university.
I didn’t have a father figure. He was that father figure, more like a big brother so we become really close and fast forward both finished PhDs, we’re in the industry now and at the top of what we do in the United Kingdom outside of maybe one or two other people who are twice our age we were literally being consultants inside our careers.
We said let’s set up on our own so we got to a point where we sat with an accountant who is a friend of the family and we chose this neutral ground for his parents house and he said right you we’re going into that room there. I was like yes we’ve sat there many times and he said when we sit in those chairs we’re not going to sit as Ro and Dev now.
You’re going to sit in that room as two people who are about to set up your own consultancy business together and that means the friendship stays at the door and you walk into that room and talk to each other based on your aspirations logically and any fears and concerns but on a personal level any financial things going on you’ve got to be candid about it here and you’ve got to talk about what you’re prepared to do in this business, as opposed to what you want to get from this business.
As long as you’re prepared to go in there I’m happy to act as your accountant. Bear in mind this was a long time ago Harms and you can imagine I’m this young 30 all excited and he was same and I can still remember, that conversation in a tiny little room in Thornton Heath, south London, 30 some years ago it just stuck in my mind because he really made it clear as he knew how close we were.
I think that the first thing is just because you know somebody as a friend that doesn’t mean to say that they’re appropriate for being a business partner.
That’s my biggest learning in all these years. You don’t go into business because your friends happen to be a bonus if you’ve got everything else aligned.
Harms: I would say how do we as friends who are excited going into a scenario separate that friendship but also how do we identify is this a friend who I can go into business with or are they a friend who I shouldn’t go into business with?
Dr Ro: Even as you ask that question, that was a great healthy relationship by the way we stayed business partners for many years and it was the property journey and my aspirations to go and continue to really speak because we both spoke, very gifted speakers in their own right and we had a great synergy.
But we parted company in business because my journey was different one we were consultants for many years. We travelled all over the world, these two young Western young Asian guys walking into boardrooms with some very senior people but also held our ground because our values, openness and honesty stood true.
Contrast that with a business partner 2008 who had known him for several years done charity work with him, went into a property development project and here is a contrast.
I was blind sided by the fact that even though I knew all this stuff because we were so close I didn’t see the signs of his bad financial spending habits, the fact that he was living off credit he wasn’t earning.
He was living this idealised lifestyle, betraying the public space and giving off an impression he was doing X, Y, and Z, but he was actually living on credit, he wasn’t physically earning the money to sustain that lifestyle but he was a business partner of ours and his credit issues caused us problems on a development which lost us time, but me lost me money because I had to then unwind it.
He just walked away and went into bankruptcy and then made these excuses about X, Y, and Z.
My point being I allowed the friendship to blindside me and muddy the waters and I didn’t keep asking the hard questions which was to do with money and transparency about financial situation, but also about if I was feeling uncomfortable about the certain way he was conducting himself I didn’t speak up.
We took on too many staff so the outgoing costs of the business started to scale up without the revenue coming to the business, but we had the capability of bringing it in but his overenthusiastic, exuberant and to say ego driven personality he figured that might attract interest.
The business wasn’t actually creating that revenue at that time, so it was very painful. I’m coming back again to anyone listening who happens to have even somebody remotely friendly with them separate the two.
The second thing to add to this is what do you know about the situation financially? Are they stable? Are they self-sufficient? Do they need this business to be instantly, financially producing a profit or actually are they able to put time into it and effort into it and money into it, which he did but I found out afterwards was from credit cards and not from his own earnings and how long is that sustainable?
Minimum of six to 12 months and that’s important. So I at that time had my property business, I was speaking so now we bring another business alongside that, that’s okay, he didn’t really have that I found afterwards I thought he did, but he didn’t.
So do your due diligence at whatever level you feel is comfortable enough for you to feel okay, not only are they enthusiastic and committed but actually financially they’re not going to create a burden for the business.
Harms: The big thing here which is coming to the surface and I’m the same in the scenario when it comes to my group of friends.
This doesn’t get discussed you love your friends, for whatever reason you love your friends, but it’s not because they make a certain amount of money, it’s not because they have credit in line, they live in a fancy house and drive a fancy car you love your friends because you have a connection with your friend.
But what doesn’t get discussed in relationships quite often is the finances and that plays such a big role and what else doesn’t get discussed often is work.
So when you start a business the realities of starting and running a business requires commitment, energy, rolling up your sleeves at times it requires you to step up as a group. It requires you to really dig deep at times because the way to really make a business a success is you keep overcoming the next challenge that drops in your lap.
Dr Ro: Harms is right.
I think to bring to the table a different level of conversation that you wouldn’t normally have had with people so rewinding first of all, can you separate friendship and business?
If you don’t think you can’t go into business with somebody because of that relationship by the way, we had a big fallout, and the result was we haven’t spoken to him in years and it shouldn’t be that way because there were lots of values that we were aligned with.
We have to check in, sometimes it’s actually valuable to seek advice or someone else’s thoughts.
Maybe going to someone’s entrepreneurial business space, I was talking to a couple at a property event and I was speaking about the values of your business and this couple came bounding up to me and said we had his huge aha we’re just about to go and put whole bunch of money into a lettings business with somebody else and from what you’ve talked about we realise that our values are not aligned with this other person and we realised it by the questions you’re asking like do you feel resistance?
Are they not so proactive when you talk about certain things?
Turns out this other chap was very focused on squeezing the business, tightening it down and getting as much profit out of it whereas they wanted to build a business that had great value, service to people had a great reputation became a brand that was recognised.
They liked him as he had a lot of capital but realised if they went into business with him he’d be like this all the time that came from me just bringing it into the open. They hadn’t even thought about their own values aligned with his versus the business.
Harms: I think you’ve answered the number one question which I think trumps any before we get into business logic and finances is do our values align?
Dr Ro: From your perspective how does it show up?
Harms: How I’ve seen it play out is how do two people or multiple groups of people want to grow the business? Are those characteristics in alignment?
From a personal perspective, as I think before joining forces it’s also important to discuss personal values. Personal values can be as simple as how do you as a person live your life based on what value, is it based on as crude as this sounds, is it based on material items or is it based on the security of your family?
Is it based on you and your family wanting a variety in life and what I mean by that is you may want to go travelling with your family.
Now if we’ve got two business partners, one wants to go travelling with their family for six months a year and the other says, I’ve got children and this allows the security to send them to the school.
That’s a complete misalignment.
On a personal level, we experienced this in one of our companies where one of the partners effectively moved to another country now to grow the business and to maintain a connection I know we live in this remote world, the way the business was growing in terms of its strategic direction that value didn’t align with that business strategic alignment.
Dr Ro: I think when that move happens you get distracted by other things, so it’s not to say that people can’t do it, but it’s can it still function?
So accountability is another question to bring to the table is how do we become accountable within the business? How do we measure that accountability?
If someone is travelling for six months of a year and they have kids and then there are three of us in the business all got kids, but solid and stable.
How do you measure that?
I look for where the possible cracks are now and you basically picture scenarios. Start to imagine situations that could come up that could throw a spanner in the works. To get there what do we have to do? How many hours do we have to put in?
Harms: This links back to a side question which is, you don’t necessarily have to expect everybody in the business as you’re forming it to be business kind of masters in their mind, understand how business works logistically, but I think there’s value in a conversation around are we all aligned in terms of how we see business?
Are we building a public listed company? Are we building a small to medium enterprise? Do we expect to have staff or virtual assistants?
The size of the business also comes into play.
Dr Ro: Are you married? Do you have kids?
In the event of your death do you still want your partner to be part of that business or do your business partners want to take over your part of the business and run it knowing that there’s still a benefit to your family?
It is very easy to focus on the physical product, the service which is where we’re comfortable, when we get uncomfortable is the management of course the operational side of it.
This is stuff that people just prefer to kick down, but under pressure when people haven’t slept maybe the business isn’t generating the revenue that it needs to straight away and all of a sudden those issues come to mind.
Then it becomes a fistfight that’s when friendships get damaged.
Harms: Businesses now that live online have to iterate and make changes on a rapid basis.
How this plays out on a human level, and I’ve personally seen in my business and with client businesses that we’ve serviced of the years is this kind of monopoly idea matrix where this is my idea we should try it and then six months down the line if it works fantastic, everybody shower me with praise.
I saved the business, I’m the one who got us the financial goals that we wanted to all achieve. Flip that scenario, they failed and now everyone is pointing the finger at them. This business is in this situation because of you, how does that play out?
What’s your kind of philosophy as a team and are people’s values aligned to accept that ideas either work or don’t work, but how do you respond to that?
Dr Ro: The key thing here is also how do people react under pressure?
Are they are block to the business? Do they have their own stuff going on? Are they open to change, open to being self-reflective, open to being also criticised but having critical feedback? But then if one person is very defensive in the business imagine if that was in the sales department.
Imagine you’ve got a really good back in business, good financial business someone is really good at the marketing but then you’ve got somebody there at the sales end and they haven’t quite got it right and it they’re resisting any change that’s like a block to the whole funnel because ultimately you bring people to the top of the business you open wide sales part of the funnel and then you get them through to the back end of your business.
What if the choking point is someone that has got an ego, pride, issues, stress going on in the background, the question to ask is under certain circumstances, how are we going to become accountable? Are we all open to being self-critical, but also taking feedback from other people?
Harms: We can identify that really early actually Ro, which is a really simple statement.
We talk about it in the realm of personal development and growth but does everybody around the table by default have a growth mindset?
I use that language, because that’s the kind of stuff painted in the Harvard business review, psychologists have worked on. Do the people that you’re about to go into business with by default have a growth mindset?
You haven’t got into the business, but can you see that play out in other areas of their life? Do they exercise? Are they constantly taking care of themselves physically? Are they reading, are they absorbing personal podcasts like this?
Those are all indications that somebody is constantly growing and improving by default. I think if you’ve got a group of people like that around you who’ve got values aligned you’ll be flying because everybody’s open to criticism, feedback because the purpose is to improve and create success as part of this business venture we started.
Dr Ro: If you fast forward 10 years even where is this business taking us?
How do you all want this to play out in the future? If you’ve got different ages in the business, have they all got different needs? Do they see this business running beyond their own life expectancy?
Another example is let’s say you make the money and the
Harms: The first hundred thousand pounds comes into the bank account and I say, I think we deserve to take 20 grand out each and I think we then should invest the rest into IT platform, that will be great. But Ro may say, I think we’re onto something here. Let’s invest more in marketing, let’s invest more in content marketing, let’s invest £50,000 there and actually let’s take £10,000 less so we can hire a few people to help the business grow as an example.
Dr Ro: Those two extremes, so the IT platform as an example explains the danger of that at an early stage.
Harms: It really depends on everyone’s understanding of where your business is as part of the business cycle.
Typically, a business will be in a growth stage or the consolidation stage. Both are valid in their own right, but both are only applicable depending on what stage your business is in. Say myself and Ro £100,000 comes into the bank we are in year one of the business, we haven’t established a brand yet we don’t really have enough marketing channels in play, we’re a growth business.
Now the danger is that if we invest in an IT platform before we’ve invested in new customers coming to the business or marketing channels, we could be investing in a platform that’s just sitting there idle.
Dr Ro: I know someone who had 120 K set up an IT platform for property investment based business and they hadn’t even re-established the overall model of the business, so it was a platform that then would have to morph into something else because they were still in the up curve.
He jumped too early with it and my god the amount of costs escalated versus your other suggestion, which is the other person puts it into marketing. It brings in new customers, increases revenue it also allows us to get more products out there, but also systematised our product offering.
The downside is if you go too quickly with that and we haven’t got at least some way of managing the customers and data then we might find ourselves in a situation where we haven’t got that information stored and we can’t manage them.
Harms: When you’re spending on marketing or IT or sales and you want to invest properly with high quality teams and people it’s not cheap.
That’s such an obvious scenario which happens amongst business owners a lot because somebody wants to do something maybe within their expertise or realm and somebody else says, no I want to do this.
Even coming down to earnings so one of the questions you kicked off with is what does everyone want to get out of this business?
Because if it’s pure cash you and I may as well split that £50,000, but if it’s we want to grow the business than actually, we need to agree in advance director salaries. It’s important to have the conversation at the start.
These scenarios are great because I expect the listeners who get the right team around them to go and build a business that makes a lot of money.
But as soon as that cash comes into the bank account by default we’re now going to create conflicts so the more clarity we get around when that first pound comes in what do we do with it? But this budget allows us to agree on some principles which is how the money must be spent when it comes in.
Dr Ro: There is another factor which is, are we as a business going to need to borrow money from the banks in a year?
Yeah the next phase is to grow to this level, get offices and borrow. If you do that and you just focus your business on cash and you keep taking it out and spending it. The banks don’t want to see that they want to see profit.
Now there are two conversations, one is about money coming in and spending it taking whatever versus loads of money coming in building the business, keeping it lean making it profitable so 12 to 18 months down the line our books, accounts and the banks say this is a really healthy business.
Harms: If you’ve set your structure correctly you’re protected personally, but the business now holds debt.
What is people’s appetite towards that? Because it could be the scenario where we do need to borrow money to actually achieve growth we need to hire staff because we’ve got a plan but we need the cash to double down on this plan, but if two people in the business says no, I’m not comfortable with borrowing and two are saying we need to borrow.
Again it needs to be discussed in advance.
Dr Ro: My last point is you don’t have to say yes, you can pause.
The minute you sign the dotted line now move to what I consider to be like an unconscious obligation.
You don’t have to obligate self yet, unless you get answers to these things for the sake of a day, month whatever it takes make sure you’re clear on those because the unwinding of a bad working business relationship I can tell you from experience doesn’t take months, it takes frigging years and it leaves that scar in you because you’ve had the experience and you learn from it. but why do you want to go through the same learning we went through with you, so we’re sharing with you don’t sign the dotted line unless you’re comfortable.
Harms: Final words from myself are certainly for the younger generation because this life in us is FOMO. We don’t want to miss out on what if my group of friends make loads of money and I don’t?
Just make sure the decision at the moment in time is not necessarily because of FOMO, this unconscious commitment, make it for the right reasons.
Do you align on a value basis because then when the rough times, and the great times it will feel seamless, it will feel like my business partners who weren’t friends now feel like friends because actually day-to-day our livelihoods are the same, aspirations are the same, the direction is the same.
That’s because the values are aligned and you discussed these well in advance.
Dr Ro: Don’t misunderstand, don’t misinterpret what we said earlier, which is about friendships because I think people in business if they’ve worked together long enough and they’ve developed a healthy business relationship friendships form, the good ones tend to learn how to separate the two conversations.
It’s so easy we’ve done it before.
We found ourselves in that space and we’ve learned to draw a line and not have those conversations. It is understanding the two roles you play in the same in theory when you’re in a job you don’t go home and then that job is integrated into your relationships.
Harms: That’s the Seekardo show for today. Have the conversation.
Have everything spoken written down, allow yourself and your new potential business partners to think on it, come back with just open feedback, any challenges, anything uncomfortable with everything we spoke about in this episode.
That’s myself and Ro signing off. We shall see you in the next episode.
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