As the romantic aphorism goes: “You have to kiss many frogs to get to your prince.” And the saying is also true for start-ups.
The business partnerships you make in the early days can be a detriment if you get them wrong, similar to a marriage that goes haywire. Lawyers need to get involved, money changes hands and someone always walks away with less than when they started.
Quite often, a company is started by an entrepreneur with a brilliant idea and requires not only hard cash capital injected into the business, but also the expertise of seasoned business minds. Often entrepreneurs will believe they only need the financial backing, but with the expectation set high from investors the stakes require a much more critical view as to how you will use the funds.
So how do you know when you have met ‘the one’?
My journey as an entrepreneur has been through many seasons that saw me align with people who seemed to have the same vision but couldn’t deliver, as well as those who got it and had the capacity to go the long haul.
Much like a romantic relationship, the honeymoon period covers a multitude of flaws and it’s that long-term association that truly unveils who belongs in your life (or your business) and who doesn’t.
I have been fortunate. While I’ve had to untie myself both legally and personally from those who just didn’t fit the overall vision, I have generally been successful in aligning with people who are not only passionate about my ideas, but can actually drive outcomes to see them executed.
My team is now strong, but that has taken years of ‘dating’ the wrong types (in a business sense — who has time for actual dating!)
Correlation between romantic dating and business partnerships
Drawing the correlation again between romantic dating and business partnerships, there are certain red flags that one must recognise early on, lest you waste time with the wrong people and potentially even see a loss in your company growth or assets simply because you ignored the red flags.
While there are many variables that create the components of a ‘wrong fit’ investor, it’s worth acknowledging the swing between both opportunistic investors and those who totally wish they could build with you, but simply don’t have the ability.
The player — opportunistic investors
Often seen in the dating world as a ‘player’, in business the opportunistic investor is likely to see your entrepreneurial naivety as a way to gain a great idea and let you do the legwork, but then they take most of the equity.
Some entrepreneurs are just so excited that someone else believes in their vision they accept ridiculously low valuations in exchange for funding that would not even last a 12-month strategy just to survive. While tempting, it is far better to bootstrap or self-fund as long as you can to avoid aligning with these kinds of investors.
Big vision, low ability investor
Then we have the ‘big vision low ability’ investor. They may not invest funds but offer the investment of sweat equity. Perhaps they either don’t have the resilience or the capacity to truly deliver what needs to happen. These people may be great in other areas of the business if they truly ‘get it’, but in regards to sweat equity, they will end up delivering very little. Over time, if the company advances, you are likely to feel somewhat bitter from the exchange. Vested equity helps mitigate some of this risk and most of us, including myself, have made this mistake early on.
Much like navigating personal relationships, there is no one-size-fits-all approach and what works at one stage of your life (or your company’s growth) may not work in three years’ time. I know that for my company, the skill sets needed to launch are so different to the skills needed to scale.
Ideally, we bring people in early on who can meet the different needs of the company. But our plans are not always linear and people change, so when it hasn’t worked out that way, like a personal relationship, it’s important to recognise the current state for what it is, and make the appropriate adjustments to do what is best for the health of your company.