Three ways to kill your new business

Noam Wasserman, professor and chief brain-boff at Harvard Business School, said 65% of business failures come down to personal tension within the founding team.

That’s you and your sister/brother/partner/best friend/college buddy going head to head. Standard Bank’s BizConnect gives three pitfalls to watch out for:

Relationship decisions

While it’s common for start-up businesses to look to people they trust the most to be part of the founding team, friends and family are the most unstable founding teams you can get. Why? Because you already know them very well.

In this case, you actually skip the very important early discussions that help you get to know someone professionally (which is very different to getting to know someone personally), and there’s the risk of putting off decisions that could benefit the business because you don’t want to risk confrontation or hurt your partner’s feelings.

Wasserman’s top tip: If you’re going to get into business you’re very familiar with, put firewalls in place to protect your relationships and venture.

Ensure no personal issues creep in during business hours, have clearly defined roles and deliverables, and most importantly ensure they actually have the requisite skills for the position they’re in.

Role decisions

Cause for failure in start-ups can come down to founders not actually wanting to be CEO, but still have equal say in decision-making.

You want to avoid a top-heavy team where there are more C-level titles then there are clients.

Wasserman points out that in more than 30% of start-ups, the founding team all receive C-level titles. This is a bad move because it slows down decision-making and increases tension.

Wasserman’s top tip: Founders should choose titles that reflect realistic, long-term goals they’ll play in the business. It might not be a C-level title, but everyone needs to be ok with that.

Reward decisions

Here’s one of the biggest killers of new businesses: Equity ownership. As many as 73% of start-ups’ founding partners split equity ownership 50/50 within the first month. It’s very democratic.

Unfortunately, they don’t take into consideration change in business model, strategy, or co-founder involvement and haven’t made provision for adjusting the split.

Wasserman’s top tip: Negotiate an equity arrangement that can change as circumstances do.

Equity division in the first few months of a start-up should be avoided, and each founding partner needs to document what they’ve brought into the business in the event the relationship sours.

Source: Standard Bank BizConnect

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