Tuesday, August 02, 2011

[Guest Post] A Business Startup Mistake I Will Not Make Again

The Social Network (Two-Disc Collector's Edition)I was watching “The Social Network” movie a few days ago. It’s like the 3rd or 4th time that I have seen it now and it is still fascinating to me. One reason probably is that Facebook and Mark Zuckerberg still have not fully cleared out all the “dead bodies” from the closet. There are still legal issues pending going back to when the Facebook was founded in Harvard. I often look at things from a business perspective and Mark Zuckerberg made a few mistakes that still need to be resolved – 7 years after Facebook was founded.



Earlier this year I had started a second business with some friends and things have not always been as I expected them to be. I already had some business experience under my belt since I started my own business back in 2002. My friends and now business partners did not have this advantage and while I was doing things the business way, they had a hard time to change their way of thinking, their mind set. For one not every person is made to be an entrepreneur and second it takes a while to switch from “employee thinking” to “business owner thinking”.

The Mistake

While legally everything was set and structured properly, from a management perspective I cannot say the same would be true. In regards to expertise and skills every part-owner of the new company was really good and on the same professional level and we started running the company in a similar way. That was a big mistake. Instead of 5 people running the company (even though we had divided the tasks into departments and everyone was responsible for their department) we should have done it totally differently. The right choice would have been to have 5 part-owners, but only one (maybe two) managers. Having 5 managers around fortunately did not cause overlapping conflicts of interest or so, but what happened was that some of the part-owners now put the “employee mind set” into place and transferred that perception of being a manager to execution (or lack of). But that did not work out. As mentioned, not everyone fully understood the business processes and what it means to be a business owner.

An employee goes home after a 9-5 job and sits on the couch watching TV. A business owner puts in additional 6-8 hours of hard work after already working 8-10 hours that day (including weekends). So, in our case this turned out to be me doing all the work and 4 other guys sitting around enjoying life as a potential business owner with a big pay check. You can see that this would not work. The whole thing did not become as apparent to me right away. After all, I still had my own business I worked for and I had expected a slower start for business #2 anyway. But after 6 weeks I realized what was happening and I started pushing things a bit more, but even with more detailed tasks assigned to everyone the lack of execution was horrible. Our “marketing partner” who wanted to use all his contacts and drive business was a total failure and so business development stalled from that side. This task, like many others, ended up in my court. I initiated several “come to Jesus” meetings and tried to put more structure and order into place, but after several attempts I could see that I was failing to accomplish my goals.

The Outcome

After month 5 of being in business with my friends I began shifting resources (=my time) back to my own business. I started communicating within the new business that this does not seem to work out and that we should consider termination and closing things down unless a significant change would happen. However, it was even difficult to get all 5 people into a room and so it took another month where I finally had everyone together for a final meeting. I was blunt and stepped up right away suggesting closing down business. Not one single voice was raised to reconsider and to try to improve things. Everyone agreed to terminate the company. I was actually shocked a little bit about this, but it was also kind of symptomatic for the situation of the last 6 months.

What I Learned

I know that statistics show that most new businesses fail within the first 12-24 months and I know that this business failure would fuel this statistic. I know which business mistakes were made. However, the good thing is that I learned quite a few things along the way that are now helping me with my own business. And I also do not consider my own actions and work for the new business as failure. Sometimes the circumstances we are in are just something hard to overcome. It is what we make out of it. While I am falling back to my own business my friends have nothing really to fall back to (well, their jobs as employees). It was our goal to start a business that will help us to live a better life, to have more fun working, and to retire in a little more comfort. I feel sad that this goal is not working out for everyone. Would I start another business with friends again? Yes, but the next time I know what mistakes were made the first and I won’t make the same again. The next time there will be one boss and not 5. The next time there will be a clearer management structure and the next time everyone involved will know upfront of what they get into.


Christoph Puetz is the author of this article. Christoph started his first business in 2002. He has published a book about how to start a web hosting business and also shares his knowledge about starting a small business and how to write a business plan at the Small Business Land website.

 
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