12 Entrepreneurs Share Tips For Hiring Your First Employee

Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

It’s time to hire my first employee. With no prior hiring experience, what’s your best advice for me?

1. Don’t Hire a “Mini Me” 

Brittany HodakWhen hiring a first employee, it can be tempting to look for a “mini me.” Don’t. Every employe  is critical in a small business. It’s much better to hire someone with complementary strengths and interests than someone who is like yourself but a few years more junior. Look for a candidate who enjoys the things you hate and excel at areas that intimidate you. Then, empower them to succeed. – Brittany HodakZinePak 

 

2. Imagine How You Would Feel If You Had to Report to the New Hire 

Shawn PoratI like to imagine what it would feel like if I had to report to my first hire. When I interviewed my  first employee and started thinking about reporting to them, I immediately realized they were not a good fit. The communication and leadership skills were lacking. I’ve used this test for every interview going forward, and it has protected me from many bad hires. – Shawn PoratScorely 

 

3. Outsource or Ask Your Friends in That Industry 

Michael HsuIf you are not hiring core production employees, you may not know what you are looking for. In this case, consider outsourcing because while it “feels” like it’s more expensive, it is almost always cheaper due to existing expertise. Otherwise, ask your friends who are in the industry for help. When I was hiring a developer, I called up all my buddies in the industry for advice on what to look for. – Michael HsuDeepSky 

 

4. Put Candidates on a Probationary Period 

 Firas KittanehSet a 30-, 45- or 60-day probationary period for new hires so that you can vet them on the job. It’s increasingly difficult to filter candidates out based purely on their resume and a couple of interviews because many have become well-trained at selling themselves. However, few will succeed on the job, so using a “trial” period will allow you to hire them on a contract basis and limit your risk. – Firas KittanehAmerisleep 

 

5. Hire Slow 

Bill LyonsYou’re not going to eliminate bad hires all together, but the best way to avoid them is to not attract them in the first place. Spend time on the basics: background checks and real reference checks, but also implement real behavioral assessments that are tailored to the performance-driven culture you want to create. The best thing that works for us is multiple interviews, job shadowing and auditions. – Bill LyonsRevestor 

 

6. Consider Contract and Part-Time Work 

John RoodDon’t forget that there are plenty of good people who are looking for part-time work, either because they are freelance or to supplement their income. By hiring someone part time, you take less of a hit on your cash flow. As a bonus, you get great experience managing a team without all the pressure of full-time employment. – John RoodNext Step Test Preparation 

 

7. Don’t Settle for the First Person Who Lands in Your Lap 

Peggy ShellHave a plan, be consistent, and stick with it. With people falling onto your lap or low-hanging fruit from referrals, you’ll be tempted to hire people who are “good enough.” You don’t have to settle. Follow a process that is well thought out and aligns with the job description you have worked hard on. Hiring takes time, but don’t let that inconvenience you from learning throughout this process. – Peggy ShellCreative Alignments 

 

8. Prepare and Be Honest 

Maren HoganIt is absolutely key to know what you need. Many first time hiring managers hire people just like them. Don’t interview desperate (which means you should make your first hire slightly before you need them), and listen when someone tells you who they are the first time. For example, I send an email to all potential candidates explaining exactly what to expect. It weeds out any shaky candidates. – Maren HoganRed Branch Media 

 

9. Hire Attitude and Train Talent 

Douglas HutchingsThe first employee is going to help set the culture for the many more to come. Everyone will need training to get up to speed, so hire for attitude. By definition, you are probably doing something that has never been done before, so you need someone who is passionate to be a part of your vision. The wrong attitude will be contagious to everyone who comes next and that is extremely hard to fix. – Douglas HutchingsPicasolar 

 

10. Understand That Job Descriptions Are Perfect, Humans Are Not 

Eric MathewsIt is important to realize that when you write a job description, you are creating in your mind a perfect, idealized version of a candidate. That candidate doesn’t exist in real life. During the selection process, know that you aren’t compromising on the idealized version of the candidate; more so, you are determining if there is a net benefit to your organization from adding the candidate. – Eric MathewsStart Co. 

 

11. Test Real Skills, Not Just Credentials 

Anthony PezzottiIt’s easy to default to a resume when deciding if a candidate would be a good fit; however, successful business owners will test real skills during the interview process to ensure they are solid on the team. This process can range from an on-the-spot test to a quick homework assignment. These tasks will help set the tone for the position and weed out any unfit applicants. – Anthony PezzottiKnowzo.com 

 

12. Prioritize People Who Have Done Their Own Things 

Adam SteeleAlmost everyone I’ve hired has had a side project or something of significance that they were doing before I hired them. The barrier of entry to doing something interesting and putting it in front of thousands of people is low enough that most people should be able to talk about personal projects that have received attention. These are people who have the will to work and experience with feedback. – Adam SteeleThe Magistrate 

10 Mistakes Entrepreneurs Make When Hiring Their First Employees

Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses. 

What’s one mistake entrepreneurs can easily make when hiring their first employees?

1. Hiring Friends/Family Without Experience 

Amber AndersonIt’s easy when you first get started to think about hiring the people who are closest to you — like friends and family. But your first few hires are critical to your success. You want to make sure you hire team members who have the skills you need to fill the gaps in your company. In the long run, hiring someone you know who is not prepared can impact your relationship and your bottom line. 

– Amber AndersonMORE 

2. Going Cheap 

Diego OrjuelaYour first employee is a very big expense for a small company. Typically, we want to hire for the size of our company and employ someone who is not very costly to hire. But this first hire is critical. It will define the early stages of your business and should not be brought in based on what salary you are willing to pay. Bring in someone with experience, with talent. A good hire will prove invaluable. 

– Diego OrjuelaCables & Sensors, LLC 

3. Hiring Someone Just to Fix a Problem 

Joey KercherThe biggest mistake I have made is just hiring someone to fix a problem. The problem starts with the entrepreneur. If you do not have a process or roadmap to fix the issue, hiring someone to attempt to fix it will cost you more in the long run. Ensure you understand what the problem is, and ensure you give proper training to make sure they will be successful as they grow with your company. 

– Joey KercherAir Fresh Marketing 

4. Hiring Employees Who Are Just Like You 

Brian LischerWe tend to gravitate towards like-minded personalities in our lives, but I’ve found it’s best to keep this tendency in check when hiring. There’s nothing worse than ending up with a conference room full of clones (even if those clones are all highly skilled at their positions). A lack of diversity in personalities stifles creativity and is a nightmare to manage. 

– Brian LischerIgnyte 

5. Not Having a Well-Defined Role 

John RoodEarly in my business I had a vague thought that I had too much work and should hire someone. I hired a smart young professional. However, we quickly ran into problems; I hadn’t thoroughly thought through exactly what she would do. My mistake was hiring before I had thoroughly defined the role and responsibilities, so I didn’t have the right framework for finding the right fit. 

– John RoodNext Step Test Preparation 

6. Hiring Too Fast 

Duran InciHiring too fast without properly vetting potential hires. Let’s face it, fast growth forces us to hire quickly, but better vetting of candidates can prevent problems down the line. Slow down and put greater emphasis on really hiring the right people for your business needs. Find out what kind of expertise you need and hire them first; they will have the greatest impact initially. 

– Duran InciOptimum7 

7. Skipping Background Checks 

Zach BinderHiring first employees may be a casual process, so there may be no background checks or in-depth checking on them. This is a huge mistake. There needs to be a formal process for ensuring you are hiring the right kind of people, especially if you have trade secrets or a disruptive idea and you don’t want anything stolen. 

– Zach BinderRanklab 

8. Not Having An Employee Proprietary Information and Inventions Agreement 

Doug BendIt is crucial that anyone who does work for your company signs an Employee Proprietary Information and Inventions Agreement. The agreement makes it clear that the work they do for the company belongs to the company. Investors will want to see the agreements in place, and it is the best way to protect yourself from showing your company’s secret sauce only to have the hire set up a competing company. 

– Doug BendBend Law Group, PC 

9. Hiring an Employee Who Doesn’t See the Founder’s Vision 

Piyush JainYou should make sure that your first employee understands your vision and can grow into it. If he/she is willing to grow with the vision, then they will drive it without worrying too much about the salary and efforts. Your first employee will become an inspirational figure for your other employees. When I hired my first employee, I communicated my vision to him and he has been with me since 2009. 

– Piyush JainSIMpalm 

10. Not Building ‘a Team’ 

Adam SteeleIt’s important that the first set of people you hire be able to work closely together. Your first employees will play a large part in your company culture, and you need them to be people that work well with and play off of one another. Hire your first set of employees with an eye toward building a functioning team. 

– Adam SteeleThe Magistrate 

9 Ways Knowing How You Think Will Help Your Company

Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

How has understanding whether you’re a “big picture” thinker or a “detail-oriented” thinker helped you move your business forward?

1. Make a Conscious Effort to Incorporate the Other Mindset 

Leila LewisWhen you understand what type of mindset you naturally approach business with, you can then make a conscious effort to incorporate the other mindset and/or seek out team members to help. For example, if you’re naturally a big-picture person, set aside time in your schedule to work on the details or assign a detail-oriented person on your team to help bring the big picture to life.

– Leila LewisBe Inspired PR 

2. Understand Past Successes and Failures 

Charles BogoianRealizing that I’m more of a detail-oriented thinker has allowed me to better understand and evaluate why certain business decisions I’ve made have worked and, more importantly, why others have not. I have been able to avoid repeating mistakes because of this and our customers have recognized the growth of our business over time.

– Charles BogoianKenai Sports, LLC 

3. Talk Through Big Decisions With Colleagues 

Justin BlanchardI tend to be a detail-oriented thinker. When I decide on a goal, my efforts go toward achieving it. I don’t spend much time re-assessing whether it was the right goal in the first place. I’ve learned it’s beneficial to take a step back every now and then to reconsider, and to talk to colleagues who might see something I don’t. Talking has often helped me see “big-picture” issues with my approach.

– Justin BlanchardServerMania Inc. 

4. Reevaluate Decisions and Opinions 

Roger LeeUnderstand what type of lens you use to see the world and what the alternative is so that you can be more rigorous when reevaluating your own actions. Asking myself, “Do I think this only because I’m a detail-oriented thinker?” and “What would a big-picture thinker do in this scenario?” expands my options and helps me arrive at an optimal solution, not just the one that I’m comfortable with.

– Roger LeeCaptain401 

5. Distinguish Between Working “In” or “On” Your Business 

Kristopher Jones (1)The difference between being a detail-oriented or big-picture thinker really comes down to the critical distinction between working “in” or “on” your business. Details matter most when you are working in your business — the day-to-day stuff like meeting payroll, hiring new employees and selling stuff. In contrast, the big picture is working on your business, like future goals and opportunities.

– Kristopher JonesLSEO.com 

6. Surround Yourself With Different Thinkers 

Mitch GordonI’m definitely a big-picture thinker, and that’s not always a good thing. I tend to miss important details along the path to success. Realizing that I need to surround myself with detail-oriented people has been a huge part of the success of Go Overseas. We have three co-founders and our strengths are well balanced. We’ve also grown to more deeply appreciate the value each of us brings to the table.

– Mitch GordonGo Overseas 

7. Focus on Strengths and Delegate to Others 

Daisy JingThis realization allows me to delegate better knowing that detail-oriented tasks should be given to someone else. It also allows me to better decide what task I should spend more time on and to whom I should give a task to. My business moves forward as my strengths complement my team’s individual strengths. As a big-picture thinker, I allow the details to come from my team.

– Daisy JingBanish 

8. Find the Right Team 

Michael GleasonAs a former physicist, there is a duality in nature that I find everywhere in business. Both big-picture and detail-oriented thinkers are key to driving an organization. The difficult part was understanding my strengths — based on conservation laws — and recruiting complementary executives to create a holistic team.

– Michael GleasonConsumer Brands, LLC 

 

9. Train at Both 

Ross ResnickYou actually have to be both. No matter which one you think you are, you have to train yourself to be a big-picture thinker and a detail-oriented thinker. Otherwise, you’re either going to be stuck on the little things or you’re going to be in the clouds.

– Ross ResnickRoaming Hunger

How to Invest In Your Talents, Build Your SaaS Team, and Tell Your Startup Story w/ Kristian Andersen

Powderkeg Podcast with Kristian Andersen, Partner at High Alpha

In this episode you’ll learn from Kristian Andersen, serial entrepreneur, investor, and Partner at Venture Studio High Alpha:

  • Kristian Andersen SaaS LeadershipWhy geography is not a factor in the success of your start up. (6:30)
  • Why developing your narrative can mean the difference between success and failure. (22:00)
  • What separates the winners from the losers in terms of mindset.  (27:30)
  • The importance of gratitude. (32:00)
  • How to hire A players into your company. (37:00)


Show notes for this episode are also available on the Powder Keg Podcast Website Here >>

Links and Resources Mentioned in this Episode:

Key Business Leaders:

Startup Books:

Key Entrepreneurship and Leadership Quotes:

“Really, really good entrepreneurs are fundamentally really, really good story tellers.”

“Investing in people is a really, really quick way to effectively build your own brand.”

“Talent is the atomic unit of success.”

Powderkeg Podcast Transcript:

KRISTIAN ANDERSEN and MATT HUNCKLER

 

Matt: You have been very integral in helping several different start up and technology communities connect, grow and nurture that progress along the way; and much of that has been through your work with Studio Science – formerly KA+A. And I have been lucky enough to work with you on a handful of projects, several projects, over the years, with different tech companies and fast-growing agencies; and I remember… do you remember the first time we met?

Kristian: I’m embarrassed to tell you that I don’t recall the first time we met. We’ve known each other a long time.

Matt: We have known each other a long time.

Kristian: So I can certainly cite some more pivotal interactions, but tell me: what was the first time we met?

Matt: So I mean obviously I remember this better because I was a nobody at the time.

Kristian: Well, we were almost certainly both nobodies at the time.

Matt: Definitely not true. You still had the same swagger that you have today, and it was clear that you knew your stuff; and I definitely remember that, because I had just sold my company down in Bloomington doing what you do on a large scale, on a very small scale for small companies. And so I listened very intently when I first met you.

Kristian: Was it BlueLock?

Matt: It was with Brian Wolff.

Kristian: Brian Wolff, yeah, right.

Matt: So Brian, who’s an investor in Gravity Ventures with you, was my mentor; and we were able to meet up with you at your old Broad Ripple office, in the corner office.

Kristian: Back in the hood, yeah.

Matt: Yeah. Max Yoder welcomed me as the intern.

Kristian: That’s a pretty good person to have meet you for sure.

Matt: Absolutely; who of course we hired in to do Orr Fellowship a year later. So a lot of connections happened in KA+A.

Kristian: Yeah. He was the big one though. That was a coo for the Orr Fellowship…

Matt: Absolutely.

Kristian: To get Max, and it was a coo for us to get him. He walked in as a wet-behind-the-year, kind of junior. It was interesting; he applied for a design internship position, and was not studying design. We actually couldn’t find any relevant skills that he had that were applicable to our business, but you know, some people just make that big an impact; and he walked out and I said we’ve got to figure out a way to make a place for him.

Matt: Yeah? Absolutely.

Kristian: It was a good decision too.

Matt: I’m glad you did. I don’t think I would have… I wouldn’t have known him prior to the Orr Fellowship hiring process if that wasn’t the case. Same with Cruse

Kristian: Yeah?

Matt: Cruise was an Orr Fellow of that class.

Kristian: Yeah, that was an exceptional vintage.

Matt: Yes.

Kristian: Yeah.

Matt: But that was the year that I met you, and you certainly made an impression on me at that meeting and in the following meeting, which of course was over oysters at Bruges; which is kind of your… it will always stick out in my mind. It was the first time I ever had oysters.

Kristian: Were they mussels or oysters?

Matt: Mussels, of course they were mussels.

Kristian: I just want to represent the brand.

Matt: Way to represent the brand. All right, that’s good. That’s good. Well, you know, one of the things that I immediately noticed about you was what a passion for entrepreneurship you have; and not just here in Indianapolis, but all over the country and all over the world – which is where a lot of your clients are now, is pretty much all over the place. So you’ve built up over the last – what, 11, 12 years with Studio Science?

Kristian: I’m kind of like an ageing movie star at this point. The foreigners, right? We’re not, there’s conflicting reports on when the actual launch date was, but yeah, we’ve been at this for really over 13 years.

Matt: So why is it important, or why do you have such a passion for entrepreneurship and people starting companies outside of Silicon Valley, and outside of New York?

Kristian: Yeah, I mean my passion really isn’t limited to folks that are doing it outside of those geographies, right?

Matt: Sure.

Kristian: I happen to have a deep affection and a lot of respect for folks that are doing it in those geographies as well. I think what I find interesting about entrepreneurship in kind of less visible locales, is that it’s a slightly different game, right? And I’ve always had a penchant for the underdog, I guess. It might stem from a diminutive stature; that’s what my mom says. I’m not sure, but it’s… growing up in Arkansas, which is a really kind of unbalanced, pretty economically repressed and depressed state, right? So it comes in as a solid 49 typically on most meaningful measures of economic vitality. Yet even in a state that, you know, is much maligned for being kind of behind the times, you look at certain pockets of a place like that – and it’s certainly not unique to Arkansas. How you explain the rise of, you know, the largest retailer in the world, right? How do you explain the rise of one of the largest transportation logistics companies?

Matt: Which is Walmart and…?

Kristian: Walmart, JD Hines, Tyson Chicken.

Matt: Yeah.

Kristian: You know, and Dillard’s Department Stores, Acxiom, which was really kind of the original big data company, right?

Matt: Yep.

Kristian: Came out of Little Rock. And out of really, kind of the most unlikely places – and actually you obviously see that around the world – that necessity is the mother of invention, right? And that success is not limited to zip code, right? But I think most people, specifically kind of aspiring entrepreneurs and people who are still kind of trying to feel their way through kind of their personal ambition levels, feel that they have to move, they have to go somewhere else, they have to locate to what has historically been thought of as the center of power, in order to build a big, meaningful business; and the truth of the matter is that’s not true, and I would argue that it’s never been true. I would say it’s less true today than ever. You know, technology has been such a great democratizer in terms of locale; but kind of observing this and being kind of an amateur student of economic development – specifically outside of kind of tier one cities – it dawned on me that there are really, really big opportunities. I mean in the finance world they would call maybe arbitrage opportunities, right?

Matt: Yes.

Kristian: And rather it be Indiana, or parts of Ohio, or Kentucky, or Oregon; I mean pick your state, right? Not all of California is Northern California, right?

Matt: Absolutely.

Kristian: There’s a lot of areas in the rest of that state that this is true for as well. I really wanted to help carry the torch and tell the story about the power of entrepreneurship, and how it can transform communities, and the economic development prospects of kind of historically depressed economies.

Matt: Well, you’re doing a really good job of carrying the torch here in Indianapolis; and one of the recent articles that you’re quoted in quoted you as saying: ‘We used to feel like we had to apologize for being located in Indianapolis, and that’s not the case anymore.’

Kristian: Yeah.

Matt: Do you talk a little bit about that?

Kristian: Yeah, we say now we think of it as a competitive advantage, right?

Matt: Absolutely.

Kristian: And you know, it’s important to kind of separation the kind of ra ra cheerleading from fact, right? Because there is a dynamic where you do have to kind of fake it till you make it a little bit. You have to do that as a person. My dad used to always say, you know, ‘act as if’. Right? You know, dress for the job you want, right? And there is some of that that is true for individuals, cities, states, and you know, countries, right?

Matt: Is there an entrepreneur that has done that well, that you can think of?

Kristian: Uh, probably all of them. You know what I mean?

Matt: Yeah. Absolutely.

Kristian: Because really, really good entrepreneurs – and I’ve strayed away from your initial question – but really, really good entrepreneurs are fundamentally really, really good story tellers.

Matt: Yes.

Kristian: Right? And it doesn’t mean that they’re telling stories that aren’t true, it means that they are telling the most interesting, most compelling, most articulate story possible. So is there an example of an entrepreneur who faked it till they made it?

Matt: That really stands out to you?

Kristian: Well, the question would be give me an example of a really successful entrepreneur that did not do that? And that’s when I’d have to go do some homework.

Matt: Sure.

Kristian: Right? You know, as a general rule, they’re phenomenal story tellers, and they’re having to make a silk purse out of sows ears in most cases, right? They don’t have enough money, they didn’t necessarily go to the right school, or have the right degree. They’re trying to sell a vision for a product that doesn’t exist yet to customers they haven’t found yet. Right? So, no, I think that is actually a critical – and I’m making a very clear distinction between lying and being a good story teller, and being able to cast vision, and being able to get people to follow you. Lying I have zero tolerance for; but telling a good story, being able to craft a vision and articulate that well, and get potential customers or employees or investors excited is an absolutely critical skill. And at the state level – if you look at a state like Indiana – you can’t literally start with nothing. Right? You have to have some raw material, whether it be your brain or deep pocketbooks, or as, you know, Peter Thiel talks about, you’ve got to know a secret that very few other people know. You’ve got to have one or more of those things to really spin things up, and in Indiana we were really blessed by having all the normal stuff; highly educated, you know, workforce, the good old-fashioned – not myth – but kind of fact of the Midwestern work ethic.

Matt: Yep.

Kristian: And a number of businesses that had created kind of micro clusters for us to take advantage of from an entrepreneurial perspective, and that’s why when today I say we used to have to kind of explain away why we’re based in Indi, today we lead with that because in so many parts of the country now this particular city is recognized certainly as being a hotbed of marketing technology. Right? And it’s not limited purely to marketing tech, but certainly that’s kind of the sharp end of the spear.

Matt: Sure.

Kristian: We’ve had a lot of success. Certainly a lot of that owed to ExactTarget, but it really transcends ExactTarget, as you know. Many companies before put a dent in the universe here, including Interactive Intelligence and Software Artistry.

Matt: Aprimo.

Kristian: Aprimo, and so on and so forth. And through that we’ve built such a dynamic base of talent, managerial expertise, a large hiring base; it’s why just over the course of the past few months a number of companies that are headquartered out of state have begun opening offices – a pretty rapid clip here, right? To take advantage of that arbitrage.

Matt: Yeah, absolutely. Well, it kind of goes to the point of sort of branding your city, and being able to get everyone behind a single message. And sort of that vision casting aspect of entrepreneurship – you’re going to probably cringe when I say this word – is a little bit of developing a personal brand.

Kristian: Yeah. I do cringe a little bit when you say it, yeah. I know exactly what you mean.

Matt: I knew it would, but you know, I don’t know what other phrase… Until you come up with a better phrase than personal branding, you know, I do think that the personal brand of an entrepreneur is very important, and clearly impacts the way the company is branded. Can you talk a little bit about what you coach entrepreneurs – whether they’re young or not – but first time entrepreneurs, as they’re going about vision casting and building their pitch deck, and going out there raising money or building prototypes; what are some of the things that you frequently encourage entrepreneurs, or course correct with entrepreneurs, around branding their start up?

Kristian: Yeah. Well you know, the irony is one of the things that will kind of damage your career early on – if you’re wanting to position yourself as an entrepreneur company building – is to spend too much time and effort trying to figure out how to brand yourself as an entrepreneur or a company building. Right? It’s always… used to be a turn off. Now, the older I get the more empathy I have; but it always struck me as interesting or odd when a 22-year old walk handed me their business card and it would say kind of ‘serial entrepreneur’ or something like that on it. Right? I’m sure there are 22-year olds who are legitimately serial entrepreneurs – there’s not a lot of them. You know, at the end of the day the best marketing is a great product. Right? So this is true for software companies. This is true for automobiles. This is true for cities that are trying to figure out municipal branding. And it’s also true for people.

Matt: Yeah.

Kristian: Right? So those who are focused on kind of the traditional approach to personal branding, which is all about building your own mission statement and relentlessly being present and visible on social media, and showing up to every conference, and trying to get on the panel…

Matt: Right.

Kristian: And so on, and so forth. If all of that energy was being funneled toward building a product – and I mean in some cases the product being a person. Right?

Matt: Yep.

Kristian: How you create value in the world. Right? I think you would see a lot more success. And I’ll give you just a finite example, right? The way to build a great personal brand is to help people. Right? So that may be the people you work with, it may be the person you work for today, it may be the people who you are trying to hire or attract into your company, it could be people in a non-profit space, people at your church. Whatever the case might be, right?

Matt: Yeah.

Kristian: Investing in people is a really, really quick way to effectively build your own brand. If you have a reputation for being somebody who gets stuff done, who when people ask for help delivers that help, that is so much more effective in establishing credibility and boosting your visibility, rather than just being noticed. Right? And I’m not saying that you shouldn’t blog and be active on Twitter and… of course you should, right? But all of that should be, I believe, done through the lens of ‘How am I helping? How am I creating value?’ Right? ‘How am I making the world a better place? How am I advancing the agenda of my organization or the city I live in?’ And I think that’s where people most often go wrong; and I can cite a whole lot of examples – and I won’t bore you with the details – but it seems like a simple truth, but it’s one that people have a hard time grasping.

Matt: Well, lets get a little specific there, because I really like that idea of entrepreneur as a product. Right? Before maybe they even have a product built, and an entrepreneur viewing themselves as a product. So if entrepreneurs out there are viewing themselves as a product, what do you see – at this point in time, 2015 – what are people out there hungry for in terms of a product as it pertains to an entrepreneur as a product? What kind of entrepreneurs does the world need right now?

Kristian: You know, unfortunately what the world needs and what people are hungry for are rarely the same thing.

Matt: That’s a good point.

Kristian: People are not particularly rational, as you know, and have a hard time kind of playing the long game, right? So you know, I fear my answer will be kind of unsatisfactory because it’s so banal and obvious; but the simple version is we need more people doing, and less people pontificating. Right? So, I mean we see this, you know, everywhere; in our business and the companies that we work with and the companies that we’re talking to from an investment perspective. Execution trumps everything, right? Ideas are cheap. You and I meet with people every day that have ideas. I’ve never met anyone that didn’t have at least one hundred million-dollar idea rattling around in their brain.

Matt: Yeah.

Kristian: Right? Ideas are cheap. You know, in terms of currency, it’s people that actually kind of advance, move the ball forward; and that means rolling up your sleeves and being prepared to face a whole lot of rejection and casting aside any sense of entitlement one might have about what the world owes them, or what they deserve.

Matt: Yeah.

Kristian: Once again, that’s human nature, right? I mean, we are kind of broken people innately, right? And we constantly have to battle selfishness. Right? I want. I deserve. Why me?

Matt: Sure, sure.

Kristian: So on and so forth, and I think the people who end up being most successful are folks that get to work building something that has value that transcends themselves. Right?

Matt: Yeah.

Kristian: And once again this goes back to how you do personal branding well. I can tell you how to do it wrong. Right? If it’s focused purely on you building your CV, making sure you’re the most visible, brightest light in the room….

Matt: Mm hm.

Kristian: Over time that pays; you may get some pops from it, but it pays diminishing returns over time. Humility is so underrated.

Matt: Yep.

Kristian: It is unbelievable, and people talk about it all the time as if it’s like this core value that everyone shares; and I’ll tell you, true humility is in extraordinarily short supply.

Matt: It’s hard to come by. Hopefully a little less hard to come by here in the Midwest.

Kristian: Yeah. You know what, there’s even this perverse arrogance in the Midwest about their humility; they love to talk about how humble they are.

Matt: It’s true. It’s true.

Kristian: Right?

Matt: Guilty right now.

Kristian: Yeah. Well no, it’s interesting; I was on a road trip with someone the other day and we were kind of comparing the different geographies and what’s true about them, and I was making this case for Midwestern humility, and he was like, ‘You know, even in the Midwest you see humility perverted into vanity, where it becomes this bad…’

Matt: Look how humble I am.

Kristian: Look how humble I am. It’s a little bit like when somebody gets their Oscar and they, you know, any time somebody says, ‘I’m so humbled by…’ they actually mean the exact opposite of that. Right? So it’s another word that is slowly losing its meaning.

Matt: Yeah. That’s true. Well, let’s say that founders out there watching this right now are working on building great product, and they’re building a great team – as best a team they can with whatever money they’re bringing in from their product. There’s still some amount of communication that they need to do in order to continued to attract the right talent, potentially attract investors, and market to clients. What are kind of like – especially in the early stages – what are some of those things, as let’s say a founder’s going out to start the fundraising process; how can they communicate who they are and what they’re about effectively with their brand, or what is to become their brand?

Kristian: I mean once again, I think it goes back to story telling; and I really don’t make a distinction, so I talk about…

Matt: Should there be one story? Should there be many stories?

Kristian: Oh no, there needs to be one story. It certainly can be contextualized for the audience.

Matt: Sure.

Kristian: But no, there needs to be, there should only be one story; and that story needs to live in the product.

Matt: Okay.

Kristian: Not exclusively, but I’m not… we tend to fall into this way of thinking where there’s marketing and there’s product; and those are different things. Right? One is, you know, how you fulfil demand, and the other is how you generate demand; and I tend to think that those are not the same thing. Increasingly, as people purchase experiences – not products – you have to think along the lines that the continuum is different. Right?

Matt: Yep.

Kristian: So the retail experience if there is one, the advertising experience if there is one, the product experience – so actually interacting with what I’m paying money for, the services experience that I’m dealing with; if I have a problem or I need to return it, or something broke. I mean, that’s all the product.

Matt: Sure.

Kristian: And really the most successful products are stores, right? And I mean, if I said: ‘Hey, name the three most interesting dynamic products on the planet?’ Right? Whether you said the Nest thermostat, or Tesla, or a MacBook Pro, or whatever – those are really kind of like living narratives. Right?

Matt: Yeah. Absolutely.

Kristian: I mean literally. It’s a story, and it’s a story that’s constantly being tuned, and it’s constantly being tweaked. So my first point would be that you need to view your product and that experience of consuming it – buying it, consuming it – as part of that narrative. More specifically, in the fundraising process I like to think of the pitch deck as it’s a novel, right? It is hopefully not a work of fiction, but it’s a book. It’s a story; and it has a plotline. Right?

Matt: Okay.

Kristian: That should be clearly articulated. It has a protagonist.

Matt: Mm hm.

Kristian: Right? You’re a product coming to save the day. It has an antagonist; what’s the problem that’s being addressed?

Matt: Yeah.

Kristian: What’s the great wrong that has to be righted? It has a de noir, it has a climax, right? The climax may be when that problem gets solved for a particular customer. If you’re talking to investors it might be when there’s liquidity in there, that puts money back in the investors pockets; but I think if entrepreneurs would force themselves to think in terms of the narrative, constantly the narrative. Who’s our hero?

Matt: Mm hm.

Kristian: Who’s are enemy? Right? What’s the great quest or challenge that’s been put in front of us? Right? Kind of the hero’s journey.

Matt: Yeah. I like that.

Kristian:  That goes a really, really long way. And that way when you get nervous, or you need other people to help carry the water and tell the story, you know… We might all give slightly different versions of what happened in Star Wars, but in general we’d be able to tell the same story. Right? And it’s the same thing when you’re raising money, and you’ve got a COO, or if you’ve got a co-founder and you’re split up, or you’re in different planes and your pitching different groups. You want to be singing out of the same hymn book. The same things true when you’re selling to customers. The same things true when you’re recruiting. And this is why the idea of story, living inside of the product, living inside your organization, being a culture, is so critical; because if you’ve got a story that’s properly articulated and codified then it’s not just up to you to be able to tell that story.

Matt: Yeah. Let’s get a little more brass tacks; how long should that story be?

Kristian: Once again, I think you’ve got to contextualize it, right? So, if you’re at a launch festival you’ve got two minutes. It should be two minutes long. Right?

Matt: Yeah.

Kristian: You know, if you’re sitting down, recruiting a VP of Sales, you can take a lot longer to tell that story; but you know, if you want to think of it through the kind of rubric of the investor pitch, right? Obviously, less is more. And you know, 10 to 15 slides, following that plot line of who we are, what we do, here’s the problem, here’s how big the problem is – which is a really critical thing that many entrepreneurs get wrong. Right?

Matt: Yeah.

Kristian: There are a lot of terrific problems out there, that are real and no one’s going to argue with the fact that they’re real; but if you’re successful in addressing it, in a vacuum it may not be sufficient to build a venture scale business around. One thing, because the one thing that – I’m really on a Peter Thiel kick now, so forgive me – but the one…

Matt: I read Zero to One based on your recommendation.

Kristian: One of the things he points out in that book that I think is critical is that most really, really big ideas, A. seem dumb. Right? Initially.

Matt: Mm hm.

Kristian: And, B. appear to be attacking a problem that’s too small. Right? So you really need to understand how big the opportunity could be. The flip side of that is, folks that are only targeting ten billion dollar minimum total addressable markets I think are missing the boat, because many, many great ideas are great because they actually change consumption habits; they change the way people behave. So trying to size that market before you’ve disrupted it can be an impossibility, and I think if people are too fixated on that it means we’re going to miss out on a lot of great ideas.

Matt: That’s a really good point, and I think that if you can kind of shape that in your story, right? And show… who was it? I don’t remember who was talking about how they did this effectively, but it was literally; in this industry this company did this. In this industry, this company did this. In this industry, no ones done it yet; that’s because we’re doing it. Are there other things that you see that kind of escalate that story to the climax, or sort of the apex moment of the story?

Kristian: Yeah. I mean once again a lot of this is conventional wisdom, but I think we hear it so much that it loses its efficacy.

Matt: Yeah.

Kristian: You know, another big deal in the story telling process is you really have to… people have to care about you, the individual.

Matt: Right.

Kristian: Before they can care about your product, right? Or even care about the problem that you’re trying to solve.

Matt: How do you make someone care about you.

Kristian: Yeah. That’s a good question. A number of the things that we’ve already touched on, right?

Matt: Sure.

Kristian: So it really comes down to, who do you want to invest in? What are the character traits that exist – and this differs from investor to investor for sure, but there’s some commonality, right? By and large people want to invest in winners, right? Now that seems kind of crass.

Matt: Yeah.

Kristian: But it’s the absolute fact, and winners have kind of one defining characteristic.

Matt: Mm hm.

Kristian: Are you ready for this?

Matt: I’m ready.

Kristian: Okay. Winners believe that they are going to win.

Matt: Yeah.

Kristian: Right? So losers think they might win if everything goes according to plan and nothing happens, you know? Nobody screws with them from the outside and the market doesn’t get disrupted by a third party. Winners don’t think about that that stuff.

Matt: They don’t have a Plan B, C, D…

Kristian: As soon as the shoes are laced up, they’re out there. They’re not just trying to win; they believe that they are going to win. Right? I mean Ali is like the greatest example, right?

Matt: Sure. There is an example of humility.

Kristian: Yeah. Well you know what’s interesting, there was lots of things that he knew he wasn’t good at.

Matt: It’s very true.

Kristian: Lots of stuff. Right? He happened to be right about the one thing he believed he was good at. Right? And that was whipping people. So don’t confuse humility with fake self-deprecation, or self-flagellation. That’s not what I mean. You can know you’re really good at something…

Matt: Right.

Kristian: And still manage to be humble in the process. And also baked into that is people want to invest in winners, they want to invest in people who they believe are teachable – because nobody knows it all, right? So coming across, somehow striking that balance where you are confident and self-assured is critical, but also that you are flexible, because we know that you are going to need to be, coachable, teachable. And I’ll tell you, you know you can’t read a book on it, in terms of that person. Right? I mean, it’s like everything else; you’ve got to practice those things. You’ve got to practice being confident.

Matt: Yeah.

Kristian: You know, it’s all about like, at bats. Right? And that’s why constantly pitching, working on a story, interacting with people, refining your method – in many ways talking yourself into what it is you’re trying to talk other people into.

Matt: Yeah.

Kristian: Is so critical. I do believe that there are probably some entrepreneurial genes that are passed along from mother to daughter, or father to son; but as a general rule, most of that is a function of training and learning.

Matt: Well if you’re in America the chances are you have some of those genes in you.

Kristian: Yeah. That’s right, that’s right.

Matt: Well so, those are really good pieces, you know, in terms of the character and bringing out that character in telling that story; your own entrepreneurial character as well as the protagonist and antagonist in your story. You know, as you’re going through and developing a relationship, you know one of the things that I’ve always admired about Studio Science is even though I haven’t always been your biggest client – nor have I probably ever been your biggest client – the care that you take in developing that relationship with just little things, you know; like sending gifts. You know, when I was on the front page of the IBJ, you guys were the first people to send a thank you note. Talk to me a little bit about, 1). Where did you get that trait? Because I know it’s not you writing every card, but it comes from you, the founder of the company.

Kristian: Yeah.

Matt: And can you maybe tell me a little bit about why that’s important?

Kristian: Yeah. Well certainly it’s not – as you noted – that’s the culture of Studio Science, and the culture of gratitude is really strong here; some gratefulness, being grateful. And I think we are all, I know we are all really grateful to have the opportunity to do what we do for a living. I mean it’s a really dreamy job.

Matt: Yeah.

Kristian: You know? And we’ve been successful at it, and we’ve been rewarded along those lines, which has been terrific; but that – at the risk of sounding trite – that’s definitely not why we do it, because there are easier ways to make money.

Matt: Yeah.

Kristian: As they say. I think everyone here is really grateful, and so it’s… when you are yourself satisfied and content and grateful, and acknowledge the fact that you have a lot of stuff that you may not deserve, it makes it really easier… it makes it a lot easier to be happy for other people.

Matt: Yeah.

Kristian: Right? Gratefulness is the exact opposite of resentfulness. Right?

Matt: Sure.

Kristian: And so what that leads to, is it leads to a culture of celebration, where you not only want to celebrate kind of your own successes, but you naturally just want to celebrate other people’s as well.

Matt: Yeah.

Kristian: Right? I think it’s one of the reason why we’ve been such an active and prolific cheerleader of this community, is that we’re proud to have played some role in its ascension; but more than anything we’re just happy. We’re happy for the people who live here and work here, we’re happy for the people that have those successes. And you ask where it comes from and, you know, I think that in my case – it certainly doesn’t all come from me here – but in my case I was certainly raised in an environment where I was reminded to be grateful. Right? Where that was part of the culture of my family, to give thanks, and to give thanks religiously – if you’ll pardon the pun. And that spills over into every aspect of your life, right? It does not mean that I am never resentful, it doesn’t mean that I never look at somebody and go, ‘I sure would like a car like that someday.’ But I think it’s sincere, and I think interesting, it’s gratifying to hear you say that about Studio Science. I think that’s something that this team owns, and spends a lot of time trying to be really intentional about.

Matt: Mm hm. What – you know in terms of that being a core value for Studio Science – 1). Do you think that that needs to be a core value for all companies? And then the follow up question is, do all companies need to define what their core values are?

Kristian: I mean the second, the last question is simple. Yes. I mean at some point there needs to be some shared understanding about what’s important.

Matt: At what point is that important? Do you think that’s before you hit the road pitching?

Kristian: Yeah. I think in the beginning, right? I mean – and once again, you know, I’m certainly not saying we’ve always been good at that, and that’s always a process… I believe values can change by the way. Right? And most people would say, ‘No, you set those in stone and those become your guiding lights.’ No. I think things change, people change, and what may be important ten years ago, may not be as important to you. Maybe you achieved that, or maybe you thought that was important to you and you realized over time that it wasn’t; but no, I think you absolutely have to be really proactively engaged in evaluating what’s important.

Matt: Mm hm.

Kristian: Documenting that somehow. And this is the role of CEO. Right? Is to establish what is important for that business, and then relentlessly communicate that down to the organization until people are sick and tired of hearing it. In terms of should gratefulness be a core value for all businesses? I mean, I have no idea. Far be it for me to say what should be important to them. So no. It has been important for us; it has served us well. It’s been something that we can galvanize around and rally around, and it’s certainly paid dividends. It’s the kind of quintessential ‘what goes around comes around’ scenario.

Matt: That’s good. We talked a lot about what companies can do to communicate well, and to grow; specifically focusing on product and developing the right messaging around that, at the right times. What are the things that companies… what are those things that growing companies need to avoid? And you know, we obviously touched on some of that too; focusing all of your time and attention on doing the ‘look at me’ side of things. But what are some of the pitfalls you see, especially in fast-growing companies, which you work almost exclusively with fast growing companies?

Kristian: Yeah. I think the biggest thing – I think this is a pretty easy question actually… As we like to say, talent is the atomic unit of success. Right? So that’s kind of the irreducible complexity of success, is who are you working with? You know, you’ve got a crappy product? If you hire the best team they will fix your crappy product. Right? You’ve got bad customer service? You hire the right team; they will fix your bad customer service. Talent can fix anything.

Matt: Mm hm.

Kristian: Right? It can fix a bad product. Literally. Right? It can fix a broken sales model. Literally. And so getting the right people on board is so critical; and everyone pays lip service to that, right? Everyone, ‘talent’s our most valuable resource’, or whatever. The reality is that when you’re a hyper growth company, and you’re hiring 50 people a month, or 50 people a week…

Matt: Yeah.

Kristian: Right? It can be really difficult, almost impossible, to hire well across the board. Right? So when you’re the size of Studio Science, it’s not easy, but it’s manageable. Right? If we need to slow our role to make sure we’ve got the right folks on the team, we’ll just slow down. Right? If you’re a hyper growth venture backed company that, you know, the wolves are at the door and the competitors are circling and IBM decides to get into the business, you can’t take your foot off the accelerator. So hiring is so critical, and getting that right is so critical, and so difficult; and so knowing that at scale it’s going to be almost impossible to continue to hire A players, building the right type of culture with the right type of values, that are rigorously and religiously conveyed to those inside of the organization, can help smooth out a lot of those rough patches; because the second best thing you can do next to hiring the right person, is firing the wrong person quickly. Right?

Matt: Yeah.

Kristian: And if you’ve got the right culture in place, and the right values in place, and the right people in place, the host organism will reject. Right?

Matt: Yeah.

Kristian: Folks that are not good fits, folks that are either toxic or not up to the task. It’s not always up to bad people, sometimes they just don’t have the horsepower. Right? And when you’re into the hyper growth curb, especially early on, a couple of bad apples can really muck up the works, you know? I mean this is – once again, this is kind of conventional wisdom – but the interesting thing about A players is A players will hire, and subsequently inspire other A players.

Matt: Right.

Kristian: The problem with letting just one B+ person in the door – and that’s tricky, because B+ people walk like A+ people, and they talk like A+ people; it can be very, very hard to understand the nuance. The minute one of those folks come in the door, the wheels gonna fall off the wagon; because B player hire and inspire C players, and C players hire and inspire D players, and it’s like a virus. Right? A players are so unique in that regard. And I’ll tell you, if you want to know the secret to divining the difference…

Matt: Mm hm.

Kristian: How do you know an A from a B in the interview process? It’s pretty simple, I think I’ve got it down.

Matt: Let’s hear it.

Kristian: When you ask them the kind of perfunctory question about, ‘Tell me about one of your greatest failures. Like when a project went wrong?’ You know, this is kind of standard interview 101. What you’ll find is that the A player and the B player will both tell you about the failure, and then you’ll say to the A person, ‘Why did that happen?’ Here’s what the A person will say: ‘I failed to do X and then recognize that until two weeks later, and by that point it was too late.’ Or, ‘My manager told me to do X, but I decided to do Y and it failed.’ Or, ‘I slept through my alarm.’ Or whatever the case may be. A B player – the cause will be external. Right? ’Well my boss insisted that we use an offshore development firm, and they didn’t really understand what we were trying to do, and they…’ Or, ‘We had this new sales guy came in, and he sold a bunch of vapor that doesn’t even exist in the product yet. There was no way for me to…’ Right? It’s always going to be some external event, or individual, or set of circumstances, that drove the failure. And I mean to me that has proven itself to be the clearest, cleanest, crispest way to distinguish two parties that on paper look almost identical. How do you know who’s really… who’s got the bandwidth and intellectual horsepower and humility, the leadership to move to the next level? That simple test usually will render that out.

Matt: Do you ask that question too, to entrepreneurs who pitch to you? Or do you have a similar kind of litmus test around character?

Kristian: You know, it’s interesting. The way we deal with someone who’s coming and asking for money, and the way we deal with somebody who is gracious enough to consider coming and joining us – we manage that a little differently. Right? So those are two different… It’s an interesting question, I’ve never thought of it that way; but those are two very different processes. There’s a different set of patterns that I personally am looking for in an entrepreneur. Right? And once again, a lot of this is kind of intuitive, or intuition driven. Some of it is a little more practical and linear. You can ask some questions. And the first thing is to be a great entrepreneur you have to be oriented toward entrepreneurship, right?

Matt: Yeah.

Kristian: And one of the simplest ways to find out the answer to that question is to ask them about their entrepreneurial background. I mean it is shocking… I mean it is really, really shocking how similar the backgrounds of most successful entrepreneurs are. I mean there are a series of very similar… You know, I always ask, ‘Tell me about the first time you remember making money on your own.’ Right? And I mean like clockwork, it’s the same answer. I mean, contextualized a little differently, but they were selling cinnamon toothpicks on the playground, or they were having their mom drop them off at 7-11 and buying lemonheads, and then crossing the street to the elementary school and marking them up 50 percent, or they were selling T-shirts to the sorority girls when they were in college, or they were mowing lawns at the beginning of Summer and by the end of the Summer they were running a crew of five of their friends mowing lawns and they were just counting checks. I mean that cadence of being a starter; being able to execute, being able to build teams – whether it was in third grade selling cinnamon toothpicks, or you know, brokering T-shirt printing to college kids – it’s really, really similar, and as you… Just because you did that does not mean you will be successful. That’s not my point. But those who are successful, by and large, a disproportionate number of them have similar experiences. As a matter of fact, a disproportionate number of them never even had real jobs.

Matt: For those with real jobs, who haven’t already started an entrepreneurial venture; should they stay away from starting something?

Kristian: That’s a good question. So if you have not exhibited the gene historically; are you saying is that enough of a reason to not move into entrepreneurship? I don’t know. That’s a good question.

Matt: It probably doesn’t matter what you say, because the person that’s the right person would start no matter what you said.

Kristian: That is an excellent point. So yeah, for anyone who that would dissuade them – they’re ignoring what I’m saying anyway. So that’s good. And I think the answer is no, because I think that you can come to things late in life. And really that’s certainly… yeah, absolutely. And I also think that the – I’ve used this word several times today, it’s an important one – I think the context of entrepreneurship has changed dramatically, and will continue to change as well. Right? So as we largely continue to move into this kind of free agent nation idea…

Matt: Mm hm.

Kristian: Right? The idea of, ‘Well, I’ve been at the same job for 28-years, I don’t know if I…’ We’re not going to have one of those conversations in the future. Right? So I think that one of the things that’s happening is everybody is having to become, at least at a micro level, entrepreneurial even in their day-to-day jobs. So I don’t know that the cinnamon toothpick test will be as meaningful five years from now as it was five years in the past.

Matt: That’s a good point. Well, Kristian I could probably ask you questions all afternoon if you’d let me.

Kristian: Yeah, we’ll save some.

Matt: But I know you’ve got a lot of stuff to do, and we’ve got another conversation coming up in a couple of days. So, anything else you want to touch on? Or something that you just really wanted to expand on but I cut you off?

Kristian: No. I got it all out of my system.

Matt: Awesome man. Thank you so much.

Kristian: Hey, thank you. A please.

Matt: Likewise.

12 Items You Should Never Forget To Include in a Partnership Agreement

Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

What should you absolutely not forget to include in a business partnership agreement?

1. What Will Happen if it Doesn’t Work Out 

Sharam Fouladgar-MercerThis should be a given, but let’s talk about it for the sake of reiterating its importance. Any business partnership agreement should clearly outline what steps will be taken should the partnership go astray. People despise discussing this, but the reality is that we live in a world where disagreement happens and it’s best to have a plan in place in case it does occur.

– Sharam Fouladgar-MercerAirPR 

 

2. Equity Valuation and Buy-Sells 

Chris SmithNames, ownership equity, and how the business is going to be operated are always must-haves. However, most problems arise when there’s not a clear method for valuing the equity down the road, or when there’s no buy-sell agreement included. Always know how equity is valued should it need to be sold to or purchased by another partner, and don’t forget to properly fund your buy-sell agreement.

– Chris SmithSuperius Ventures, LLC and Smith Simmons, PLLC 

 

3. Legal Inclusions 

Peggy ShellWhile it’s important to include standard legal items, such as non-solicitation of your employees, confidentiality, and ownership of work product, one important thing to never forget is clarifying the business relationship. The Department of Labor errs against employers in situations where a business partner might be considered an employee, so including clarifying language is key.

– Peggy ShellCreative Alignments 

 

4. A Vesting Schedule 

Chris BrissonOne of the biggest mistakes I made in my company early on was the fact that my partners and I vested immediately. The was a problem after one year when my partner decided to stop working and took another job. I was left holding the bag to grow the company while he still had shares in the business. A typical vesting schedule has a four-year cliff. Be sure to set this up in the beginning.

– Chris BrissonCall Loop 

 

5. How a Buy-Out Will Be Paid 

Elle KaplanIn the event that a partner splits, it’s vital to determine how they’ll receive their fair share of the business. If this isn’t in writing, they could request all of their payout at once, and feasibly bankrupt the business. By determining a payout structure, you can ensure a clean, positive break-up.

– Elle KaplanLexION Capital 

 

6. Roles and Responsibilities 

Murray NewlandsRoles and responsibilities should be clearly delineated from the beginning and in writing so there is no confusion, and to minimize or even eliminate conflict. It keeps everyone on the same page from the start and lets each partner go out and get done what they need to without question.

– Murray NewlandsDue.com 

 

7. Operating Agreements 

Tommy MelloThis is the foundation of the business that handles everything from A to Z. In most agreements, you should discuss what happens if one partner has health issues or wants out. Also, take consideration of voting rights and who is on the hook for what. All the key elements should be discussed and documented in the operating agreement. This is the prenuptial agreement for business partners.

– Tommy MelloA1 Garage Door Service 

 

8. Expectations for Hours, Vacation and Company Budget 

James McDonoughEveryone has very different expectations for how many hours they should put in, how much vacation, and generally on what and where the precious company budget should be spent. Sit down with your partner and draw out what a year would look like for all expenses and time commitment with best/worst case scenarios. You will uncover some interesting discussion areas.

– James McDonoughSEE Forge creators of FAT FINGER 

 

9. How Costs Will Be Shared 

Cody McLainMost individuals enter into partnerships based on the fact that there could be a high return in the form of equity. Equity is fantastic, but the reality in accounting terms is that the individual who shoulders the most costs will in effect be the one with the greater equity. Cost sharing is an important part of equity sharing, and it informs how the pendulum of equity will swing over time.

– Cody McLainSupportNinja 

 

10. What if a Partner Is Injured or Dies? 

Cassandra BaileyYou have to think about a business partnership agreement as if it’s a prenuptial agreement. Even if you hope nothing bad will happen, you still have to prepare for the worst. Have steps in place in case an acquisition or a merger occurs. If a partner is injured or if the partner dies, there needs to be a solution in the agreement.

– Cassandra BaileySlice Communications 

 

11. Non-Compete / Non-Disparagement Clauses 

Kristopher JonesUnfortunately, business partnerships don’t always work out. In fact, sometimes business partnerships can go wrong and a former partner can abruptly quit only to start a competing business. The partner may also say nasty things about you or your business. Therefore, it’s very important to include a non-compete and non-disparagement clause in a partnership agreement to eliminate issues later.

– Kristopher JonesLSEO.com 

 

12. General Expectations 

Ismael WrixenUnexpressed expectations are equal to premeditated resentment. Although you can include conduct and expectations in a separate document, it should be a part of your partnership agreement. Otherwise, you could end up resenting your partner, and that’s not good for business. You need to be on the same page in terms of the goals you’re trying to achieve, even if you have your differences.

– Ismael WrixenFE International 

Strategies for Bootstrapping When One Co-Founder Has Greater Financial Assets Than the Other

Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

What is your best advice to startup co-founders who plan to bootstrap their business, but one has greater financial assets to contribute than the other?

 

1. Offset Cash Contributions With Additional Labor 

Charles MoscoeI’ve entered into founder agreements where different founders offer a different level of capital contribution, but that can be offset by additional responsibilities. For instance, for a startup that I am involved in now, I am financing the majority of the capital spend with the understanding that I will recoup my investment first, but my time commitment as a result is substantially less. – Charles MoscoeSkinCare.net 

 

2. Draft an Operating Agreement and Plan for the Worst 

jeff epsteinYou should draft an operating agreement that accounts for all the assets (and time plus energy) contributed to the business. The reality is many partnerships don’t last — planning for the worst (a breakup) will allow all parties to have full transparency on the range of outcomes and a full understanding of how to calculate the value of their contributions. – Jeff EpsteinAmbassador 

 

3. Keep It Equal 

Jared BrownIt doesn’t matter whether one founder has a million to invest and the other just has ,000. If the business can succeed with just ,000 from each founder, keep it equal. It makes things much simpler and is better for overall accountability. If the business needs more funding, the extra money should be considered a loan, not an investment. – Jared BrownHubstaff 

 

4. Distribute Equity Fairly, Not Equally 

Nicole MunozThis may be counterintuitive, but splitting equity 50/50 isn’t the best solution for co-founders. Because each founder brings a unique set of skills, resources and assets to the table, equity should be divided based on those attributes rather than equally. Careful consideration now about how to divide the company fairly will eliminate many headaches and unnecessary battles down the road. – Nicole MunozStart Ranking Now 

 

5. Put Together a Spreadsheet 

Andy KaruzaYou need to put together a spreadsheet that adds weight to each person’s contribution. We devised a spreadsheet that places weighted values on how much a founder brings to the company in terms of cash, hours, intangibles, ideas, resources and unique management processes/documentation created. Agree to the value of these inputs collectively; then use it to determine fair equity compensation. – Andy KaruzaFenSens 

 

6. Balance Equity 

john ramptonBalance equity and cash put into the business. If one person is putting in equal time but more money he should get more of the pie over the other person. Paul Graham put together a very simple equation for startup founders bootstrapping. 1/(1 – n). In the general case, if n is the fraction of the company you’re giving up, the deal is a good one if it makes the company worth more than 1/(1 – n). – John RamptonDue 

 

7. Think in the Opposite Direction 

Blair ThomasWhether one founder has more capital than the other shouldn’t matter as much as what does the business actually require? If a founder can invest 10 times more than another, that doesn’t mean they should. Find the lowest capital commitment required to get the business off the ground so that founders can garner equity equal to the expectations they had in place while bootstrapping the company. – Blair ThomasFirst American Merchant 

 

8. Differentiate Between Financial Capital and Sweat Equity 

Ross BeyelerWhen posed with a situation where one partner can contribute more (financially) than another, consider creating two classes of stock and treating financial investments in the company different than ‘sweat’ investments. Split the business as desired based on your partnership structure, and then treat whatever investment is made by one partner the same as you would an external investor. – Ross BeyelerGrowth Spark 

 

9. Hire a Lawyer 

Kristy SammisUse whatever extra assets one of you has to hire a very good lawyer. In all seriousness, expert legal guidance is critical and always worth it in the long run. No one ever said, “Gee, I wish our working agreement had been less clear.” Whatever arrangement you come to, it’s not enough to get an agreement in writing; get a fantastic, ironclad agreement in writing. – Kristy SammisClever Girls Collective, Inc. 

 

10. Allot 20 Percent to Each Area: Finance, Operations, Sales/Marketing, Founder and Product 

Erik HubermanSplit equity according to which aspect(s) each co-founder contributes. If you can’t have a fair conversation on equity, don’t go into business together. If one finances the entire thing, that 20 percent is his. Split the percent for Founder evenly. It comes down to why you’re partners. Who’s the “product person?” Who’s got sales? How do you divide the work? – Erik HubermanHawke Media 

 

11. Have Active and Passive Roles 

- Engelo RumoraOver the years I have seen (and been involved in myself) way too many business relationships that go south due to someone not pulling their weight. The best way to go about this is to always have one person doing all of the work and the other person being more passive but investing most if not all of the funds. This keeps things simple with everyone knowing what is needed from them. – Engelo RumoraList’n Sell Realty 

 

12. Deferr Payouts 

Dan GoldenIf you’re keen on keeping a 50-50 split amongst co-founders, consider a deferred payout for the co-founder with greater financial assets. This lets one of the co-founders take larger draws upfront, and then even out the payouts once the company has grown beyond the early bootstrapping days. Sure, there’s some risk, but startups need cash to hire and scale. – Dan GoldenBe Found Online 

 

13. Be Balanced and Fair 

Julian MillerJust because a contribution isn’t financial, doesn’t mean it isn’t valuable. I was at a well-paid corporate job and my co-founder was five years into a Ph.D. when we met. His contribution was potentially giving up five years of work to bet on our company. Because we aligned on what it meant to contribute from where we were, it was easy to build a solid, equitable base for our company. – Julian MillerLearnmetrics 

 

14. Have Skin in The Game 

Bryanne LawlessMake sure both partners have skin in the game, whatever it may be. If both partners aren’t equally invested into the company, where both need to be held accountable, the partnership will be uneven and the work-relationship could end poorly. – Bryanne LawlessBLND Public Relations 

11 Sabotaging Startup Mistakes New Founders Make When Managing Cash Flow

Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

What is a common mistake new founders make when managing cash flow that can easily jeopardize the future of their startup?

 

1. Not Having a Line of Credit

Kenny NguyenIt’s great if you have sales that are going to be very profitable for your company. However, if you have to buy a lot of materials/time upfront to execute the sales or sell to companies that mainly have longer paying invoices, you may run into a cash flow problem. Getting a line of credit with a bank can make or break your business. I always tell founders to get one before they need it. – Kenny NguyenBig Fish Presentations 

2. Trying to Buy Growth

Jonathan ShokrianA lot of founders think of their bankroll as a never-ending gobstopper, that burning absurds amounts of cash to grow overnight is healthy, and funding is always available. However, it’s important to remember that growth doesn’t always equal a healthy business, and money can and will run out eventually. Building a brand takes time. Healthy businesses are grown organically and slowly. – Jonathan ShokrianMeUndies Inc 

3. Locking in Real Estate

Kim KaupeNew founders tend to get overly ambitious when it comes to building their company — they need employees, an office, furniture, the works! However, locking into a long-term office contract can create a huge hole for your cash to flow out of every month. Even worse, if the business isn’t churning out enough in profits, there is no way to extract yourself from the payments to your landlord. – Kim KaupeZinePak 

 

4. Not Reinvesting Back Into The Company

Anthony PezzottiMost business owners will start out by pocketing whatever the business earns, acknowledging any company profit to be their salary. However, if you don’t reinvest back into the business, you’re essentially starving the company’s growth. It can be bothersome to put your well-deserved dollars back into the company, but in the long run, your business will be better for it. – Anthony PezzottiKnowzo.com 

 

5. Not Having a Reserve

Elle KaplanOften, startup owners will operate on a thin margin and spend almost every dollar as soon as they get it. This “grow or die” mentality can be great during good periods of business, but can prove disastrous when you have unexpected expenses or a slow period. Similar to a personal emergency fund, startups should always have some money reserved for surprises, even when everything is going well. – Elle KaplanLexION Capital 

6. Letting Tax Time Be a Surprise

Laura RoederToo many business owners forget about taxes when looking at their profitability. It’s easy to just count the money in the bank, forgetting that a significant chunk of it is going to need to be handed to the government. Don’t just assume that you’ll have cash leftover when tax time comes. Budget for your yearly tax bill every month so that you can stay on top of your real cash flow situation. – Laura RoederMeetEdgar.com 

7. Mindless debt, Salaries and Spending

Alisha NavarroI come from a background of bootstrapping and grassroots. Mindful debt, well-planned out debt, debt that increases sales all are examples good debt. Thinking you should make a huge salary just because you are the CEO is dangerous. Think of your company as a long-term investment; you don’t want to take the money out before it matures. You want to reinvest generously. – Alisha Navarro2 Hounds Design 

 

8. Accepting Sales With Bad Payment Terms 

Chris GowardMost new entrepreneurs don’t realize they can negotiate terms and get access to much more cash than they imagined. Consider the difference between a typical Net 45 payment upon completion compared with a 50 percent up-front deposit and Net 15 on completion. The difference could mean thousands of dollars in saved interest. You can set the expectation for how soon and how often you’re paid. – Chris GowardWiderFunnel 

9. Not Keeping Updated Records or Books

Andrew O'ConnorBecause most founders lack the financial knowledge or accounting acumen, they may not realize the need to keep books and financial records as updated as possible to understand the current cash flow and what is still outstanding. A good automated accounting system can provide a way to avoid this mistake. – Andrew O’ConnorAmerican Addiction Centers 

 

10. Assuming One or Two Good Months Is the New Normal 

Adam SteeleIt’s great when things start to really pick up for your business, but it’s dangerous to assume that you’ve arrived because you met your goals for a short period. Make sure you’re on steady ground before you increase spending to match new levels of income. It may not last for very long. – Adam SteeleThe Magistrate 

 

 

11. Looking at Analytics Platforms Instead of Quickbooks

Carter ThomasFounders often look at the analytics platform being used inside their company to gauge success. They may see a certain number in Google Analytics E-Commerce data, but that doesn’t account for returns, credit card fees, chargebacks and failed payments. Your P&L statement, however, is the ultimate mirror for your financial health. – Carter ThomasBluecloud Solutions 

What You Need to Know About the New SEC Crowdfunding Rules

“Bureaucracy defends the status quo long past the time when the quo has lost its status.”  — Dr. Laurence J. Peter

When Congress passed the JOBS Act it mandated that the Securities and Exchange Commission finalize new crowdfunding rules within nine months. Well, the SEC missed the deadline by nearly three years, but on October 30, 2015, it finally approved the new rules. They “go live” April 2016 and there are some details you really ought to know…

What You Need to Know about SEC Crowdfunding Rules

Verge regulars know that last year Indiana passed its own, intra-state crowdfunding law (see my prior Verge article). While the Indiana-specific rules are now likely to gather dust because they limit your pool of potential investors to only Hoosiers, the federal rules may prove to be a robust marketplace for small-scale capital raises. Here’s a quick snapshot of the SEC’s final rules.

But First, Why New Rules?

As most know, selling securities is a highly regulated activity. Securities must be sold on public exchanges, unless there’s an exception.

The exception most familiar to entrepreneurs is the 506(b) safe harbor, which allows companies to sell securities to accredited investors in a private placement. Accredited investors include, among others, banks, high net worth individuals and trusts, and the issuer’s officers and directors; that is, those with sufficient knowledge and resources to “know better” and to absorb any losses from risky investments. Sites like CircleUp and AngelList have used crowdfunding for a few years, but they limit access to accredited investors.

verge startup pitches at the hi-fiOf course, there’s potential upside to investing in startups, and the “99%” who lack the income to qualify as accredited investors are presently shut out from investing in early and mid-stage companies.

Crowdfunding solves that problem by creating a new safe harbor where start-ups can raise money off of the public exchanges.

5 New SEC Crowdfunding Rules for Companies

Here are a few key rules for companies crowdfunding under the new SEC guidelines:

  1. Max Raise. A company may raise up to $1 million in a 12-month period from the crowd. (Note: under Indiana’s law, a company that provides Hoosiers with audited financials may raise up to $2 million).
  2. Portal. The company must conduct the raise through a registered third party “funding portal.”
  3. Target/Deadline. Through the portal, the company must set a target offering amount and a deadline to reach that amount, and it must allow investors to back out of any commitment up to forty-eight hours before the deadline.
  4. Investor Disclosures. The company must disclose certain company information to investors. The amount of disclosure required is similar to what start-ups are accustomed to disclosing to accredited investors: risk factors, business plans, financial statements (balance sheets, income statements, and cash flows), governance, and the like. You’ll want an experienced lawyer’s assistance.
  5. Annual Reporting. The company must file annual reports with the SEC, but with nowhere near the depth required of publicly-traded companies. Failure to comply with this or other SEC rules could strip you of your exemption. Not good.

Ding Dong the Wicked Audit is Dead (Sort Of)

New SEC Crowdfunding Rules For financial disclosures, the SEC’s proposed rules had called for audited financial statements for all raises above $500,000. There was tremendous push-back due to costs; for instance, Slava Rubin, Indiegogo co- founder and CEO, called audits, “a massive deal breaker.” Fortunately, the SEC slackened the requirement for first-time crowdfunders. The new rules require:

  1. For offerings of $100,000 or less, financial statements must be certified by the company’s CEO.
  2. For offerings between $100,000 – $500,000, financial statements must be reviewed by an independent auditor.
  3. For offerings greater than $500,000, financial statements must be reviewed by an independent auditor for first time crowdfunders, but for any follow-on crowdfund campaign the financial statements must be audited.

4 Crowdfunding Rules for Investors

Individuals will be allowed to invest based on annual income or net worth. Under the new rules, an individual may:

  1. If annual income or net worth is less than $100,000, invest the greater of $2,000 or 5% of the lesser of annual income or net worth.
  2. If annual income or net worth is $100,000 or more, invest 10% of the lesser of annual income or net worth.
  3. Invest not more than $100,000 per annum aggregate in crowdfunding offerings.
  4. Sell the securities, but only after holding them for one year.

Importantly, funding portals may rely on the investor’s representations concerning annual income, net worth, and the amount of the investor’s other crowdfunding investments, unless the portal has reasonable basis to question the investor’s representations. That is, there’s no affirmative obligation on the company or the portals to prod into investor’s private financial affairs to verify the investor’s representations.

Outlook for Investors and Entrepreneurs with the New SEC Crowdfunding Rules

Crowdfunding Rules for InvestorsVenture capitalists aren’t sweating. At $1 million a crowdfunded project is small even for a seed round, where average deal size hovers around $4 million and which constituted a mere 1% of 2014 VC dollars ($719 million of $48.3 billion).

On the other hand, one commentator noted that if U.S. families invested 1% of their assets in start-ups via crowdfunding, it would unleash $300 billion annually. The success of state-specific crowdfunding rules and of non-equity platforms such as KickStarter, Go Fund Me, and Kiva indicate there’s a sizable market for small denomination equity investments. And there’s certainly no dearth of start-ups looking for capital.

Ongoing SEC rules and reporting requirements will always be a deterrent to start-ups and will hamper crowdfunding’s potential, but as quality funding portals develop and the public acclimates to the new investing landscape, crowdfunding may become a useful tool for small-scale capital raises.

How will these rules change how you grow your business? Will you invest using the new Crowdfunding rules? Let us know in the comments below.

© 2015 Faegre Baker Daniels. All rights reserved.

How to Create a Life of Greatness with Lewis Howes

I could barely contain my enthusiasm as I walked into the well-furnished penthouse overlooking the Hollywood hills. But my excitement was justifiable. I was about to have a one of the most real conversations of my life with an ex-pro athlete who turned his life around to become serial entrepreneur, speaker, and author.

Lewis Howes on GreatnessLewis Howes has the ability to connect with anybody. His hit podcast The School of Greatness gets a million downloads a month and is consistently ranked in the Top 100 on itunes overall, and even the Top 5 in the Health and Fitness category. As we took a seat in his home office, Lewis slid an advance copy of his new book across the table to me. I’ve since underlined his book, also named The School of Greatness, dozens of times over and dogeared it front to back —a sign of a book containing true greatness.

Maybe it’s because I’m a frequent listener to The School of Greatness podcast, or maybe it’s Howes’s sheer charisma and ability to connect, but our conversation that afternoon went deeper than I had anticipated. I sat there for nearly an hour, entranced in conversation and surrounded by hundreds of his personal collection of books. I recognize most of the authors—former guests of of his show—including billionaire business leaders, best-selling authors, and professional athletes. With only the room of best-selling paperback as our audience, we dove in…

lewis-howes-greatness

In this interview, Lewis and I talk about some interesting topics like growing profitable businesses online, writing best-selling books, and performance psychology. But my favorite part of this interview is when we get personal and real about some of the challenge of building a life of greatness while building a business.

You’re going to love this…

Listen to Lewis Howes on Greatness:

Selected Links from the Interview:

Show Notes:

  • On starting his first company while living on his sister’s couch [3:40]
  • How to take action and stay motivated [5:15]
  • What to do when you don’t see eye-to-eye with your business partner (and insight into selling your company) [8:05]
  • How to use Periscope to make money and grow your audience [9:00]
  • Creating a unique and differentiated podcast [11:32]
  • How to prepare for any big event with Lewis’s “grounding” technique [13:05]
  • Why you should have a business coach [15:03]
  • What qualities to look for in a good business coach [16:15]
  • The important role of emotions in business [18:10]
  • Dealing with breakups and other emotional trauma while growing your business [21:35]
  • How to feel deeply and remain open to the world [23:00]
  • The journey to writing a best-selling book [26:00]
  • Why it’s important to write a book [31:20]
  • Lewis Howes’s new book The School of Greatness (plus how to get your free copy) [33:00]
  • What does the Greatness mean, and how can we achieve it? [34:15]

More About Lewis Howes:

People Mentioned:

You may also like these interviews:

Did you like this podcast?

What is your motivating force? What’s your purpose and inspiration? Drop a comment below and let us know what you learned from the interview with Lewis Howes.

The first 10 comments will get a free copy of Lewis Howes’s new book, The School of Greatness. PLUS we’ll include you on a private Verge-only call with Lewis, so you can learn from from Lewis live and ask him YOUR questions about greatness.

And hey, I’m feeling generous. Even if you’re not one of the first 10 people to comment, but you still comment within the first week of this post, I’ll hook you up with access to the call if you go out and buy your own copy of the The School of Greatness (just email your receipt to matt [at] VergeHQ [dot] com) Yes, that’s my direct line.

While you’re at it, I would LOVE to know what you thought about this podcast-eque format. It’s something we’re playing with here at Verge and we have some pretty killer interviews lined up. But maybe you prefer a different format. Maybe you prefer a different type of guest. Let me know!

 

Why Startups Should Celebrate Big Wins: The Psychology of Celebration in Entrepreneurship

Frank Gruber bootstrapped Tech.co (formerly Tech Cocktail) to grow organically and profitably. Since raising $2.5 million from Tony Hsieh and moving headquarters to downtown Las Vegas, Tech.co has reached millions of people.

Gruber has interviewed some of the world’s most exceptional entrepreneurs, including Jason Fried of Basecamp, Uber’s Travis Kalanick, and Matt Mullenweg of WordPress. He’s even written a book (Startup Mixology) to capture the most powerful lessons learned along the way. But I recently had a chance to talk with Gruber to dive deep into a couple of counter-intuitive concepts for high-impact entrepreneurship.

Watch (or listen) to the full conversation with Tech.co CEO Frank Gruber below:

Here’s the full audio with Frank Gruber for on-the-go and audiophile Verge friends:

Watch or listen to the full interview to learn:

  • Why entrepreneurs need to celebrate their wins with their team (and families!)
  • Strategies for bootstrapping to a scalable business
  • Stories from the tenches from Tech.co startups around the world

frank gruber tech cocktailFrank Gruber and I also talk about Tech.co’s annual startup conference—Celebrate. I’ll be joining them this year to moderate a powerhouse panel of investors.

Want to join me?

Drop a comment below for a chance to get a FREE pass to Celebrate 2015. Let me know one thing you’ve accomplished in your startup over the past month. We’ll pick our favorite 3, and give an all-access pass to Celebrate 2015.

So… what should you and your startup team celebrate?