A team approach from the start - forming a company with partners - column

Nation's Business, Nov, 1989 by William J. Stolze

A Team Approach From The Start

There are two ways to start a company--alone or as a team. Whether to team with one or more other entrepreneurs is a complex decision that depends mostly upon the personal qualities and skills of the individuals.

My opinion is that starting a company with a team rather than as an individual is usually desirable. My own experience proved that. I founded RF Communications in 1961 with three associates and built it into an international leader in the radio-communications field. We had 1,200 employees and were operating in more than 100 countries when we merged with Harris Corp. in 1969.

The team approach is not without its problems, however, and a person starting a business should consider carefully whether to go it alone or form a team. Let me discuss some of the pros and cons of teaming.

First, the factors in favor of joining with others.

Complementary skills. The most important benefit of starting a company with a group of individuals rather than alone is that it brings together complementary skills. Most people starting a company have never run a business before, and it would be quite unusual for them to have all the skills needed. Be sure each team member brings key skills to the situation. More than three or four people are unlikely to be needed, since in most startups there are only a few key skills required.

Risk reduction. Companies formed with teams of three or four people have lower risk than companies formed by one person. If the founder should be unable to perform his or her duties, one of the other team members could step in. The chances for survival are better with a team.

Loneliness. Being the head of a new company is a very lonely job. It seems that every decision you make, if wrong, might mean failure. I describe managing a startup as being equivalent to walking down a road covered with banana peels. If you step on one, the game is over. A team of equal or near-equal partners makes it possible to share the emotional burden. For me, this was very important. I do not think I could have started a business alone.

Investors like teams. People investing in new ventures, either individuals or formal venture-capital organizations, seem to be much more comfortable with a team than an individual entrepreneur.

Teaming arrangements are not trouble-free. Here are some reasons against joining with others.

Dilution of ownership. Many entrepreneurs are unnecessarily generous in sharing ownership in their new venture. Contributing to this is the common belief that the stock in their venture has no value. In his book, Entrepreneurship for the Eighties (Prentice-Hall), Gordon Baty suggests that stock in their venture, i.e., a share of the ownership, may be the most valuable thing a new company has. Clearly, it is unwise to give away ownership unless the recipient can contribute in a meaningful way. He also suggests that sharing ownership should only be done as a way of providing incentive for future contributions, not as a reward for past contributions. There are other, less-expensive ways to give rewards.

Possible serious conflict. I have never seen a startup business that did not, sooner or later, experience conflict among the team members. In my mind, the question is not whether there will be conflict but how bad it will be. Conflict can be caused by things such as the emotional strain of running the new business, a feeling that one partner is not carrying his or her weight, simple personal incompatibility, a spouse who feels that a marital relationship has been hurt by the demands of the business, etc.

Difficulty of being equal and unequal. In most companies formed by a team of entrepreneurs, one is usually selected as president. The others may hold lesser key positions, such as vice president-research or vice president-marketing. All are almost always directors of the firm as well. On the board, everyone is equal. The problem results from the president being boss part of the time and an equal at other times. This can be a difficult relationship to deal with.

Bad decisions are hard to undo. When you bring in a team member as an officer and director and give that person stock in the firm, it represents a commitment both for the individual and for the company. You may hope the commitment is greater for the individual, but in fact it may be greater for the firm. If team members do not meet expectations or if their degree of commitment changes, it is very difficult to remove them from the job, even harder to remove them as directors, and it may be impossible to get the stock back. So be careful.

In summary, teaming arrangements in most startup companies can be a powerful strength that greatly increases the probability of success. But they almost always generate problems of some sort that may be hard to resolve. To be aware of this is to some extent to be prepared.

William J. Stolze has been an entrepreneur and corporate executive. He now runs a consulting firm and pursues other activities to help start-up companies.