Breaking Up Should Be Easier To Do: Co-Founder Structures That Accommodate Fast Failure

One of the toughest challenges to building momentum behind a new venture is attracting smart people to explore, mature and execute on the genesis genius that gets it all started. Finding co-founders is one thing. Finding incentives to get them to stick around is another thing altogether, especially if you discover in your early travels that your best-thing-since-sliced-bread requires a little more baking before its ready to eat.

Our experience at LaBarge over the last decade is that over-lawyering at this very early stage can be a real momentum-killer (think of your average house party DJ breaking out the Jethro Tull just as the third round of Mojitos are kicking in). After all, us lawyers deal principally with divorce stuff. If everyone's getting along and the business is rocking and rolling (not in the Jethro Tull sense), then who really needs us, and the myriad of employment, shareholder and other agreements that provide the landscape for binding talent to an enterprise.

If you have a great idea, and have identified the great people to validate it, less legals might actually be more in terms of building the kind of trust and excitement among the management team that creates genuine value. Pick a validation milestone as a group where you'll all know that you've got something real and worth pursuing. This might be customer feedback, an actual intent to buy the technology or, less often these days, third party financing validation. To bridge the gap, enter into a short term letter of intent regarding the contribution of intellectual property rights, which would flip into a full-fledged assignment upon your hitting the milestone and committing to organizing the startup structure in earnest.

This is hardly perfect if you don't hit your milestone. Everyone walks away with whatever they brought to the table, so you need to go into it as a founder with your eyes wide open. However, it does encourage fast failure, and often facilitates maintaining long-term relationships among co-founders, who don't get hung up on either negotiating or settling legal relationships in situations where the group hasn't had the chance to create any genuine value. Living with yourself to live another startup day, and find the next-best-thing-since-sliced-bread is what this industry is all about, and don't your lawyers get in the way of that.

Know Your Neighbours: Disentangling Value Chains

One of the benefits of my job is getting an opportunity to sit in on meetings of the board and management of some world-class management teams. Certainly such meetings are often underwhelming (believe me, the teacher’s voice from the Charlie Brown holiday specials makes a frequent appearance), but I also regularly get blown away with an appreciation of the complexity of a startup’s technology build and, more importantly, the depth and intimacy to the customer required in order to sell their products effectively.

Especially with startups focusing on ambitious carrier or enterprise sales strategies, the internal organization structures of the technology leaders such Intel or Microsoft are byzantine labyrinths, seemingly created to ward off intruders much like the many obstacles that Indiana Jones routinely overcomes in order to claim his prize. The value chains for selling technology are often even worse (see the sample value chain for the mobile industry, just as an example, which looks alarmingly similar to an artist’s rendition of the central nervous system of your average small mammal). One way, of course, is to avoid the problem altogether. You can build a business that swaps this problem for another: selling direct, especially online. But since many startups are stuck with them, how do you make sense of value chains, and make them work for your business?

The great business development and product line management guys that I see in action definitely spend time on the traditional landscape analysis to determine their "neighbourhood" (and, I'm happy to report, typically in a more elegant way than in my example above). They don't stop at this, however, and I think this is absolutely key for startups selling to big enterprises. These guys make a strong, dedicated and relentless effort to get to know and help their neighbours, at a very personal level. Think of it as business small talk (and probably more listening, actually) on the front lawn or at end of the driveway, and the information exchange is very similar:

Where do you live? Understanding not just geography and where in the value chain the player fits, but also the player's key and historic partners and end customers, as well as what product and services these relationships have covered.

How do you make your living? Understanding how the individual you are dealing with is compensated is absolutely key to genuinely advancing relationships (what gets measured gets done, after all, especially if you are measuring a sales guy's year end bonus). This is great information to get - who owns P&L? who/how are contacts compensated on new sales that you might support?

How’s your family? It is great to get under the hood of how the various players in a value chain are working together, at an individual and corporate level. Is everyone getting along, or are their rifts (to be avoided or exploited, as the startup can strategically decide).

And, above all, anything I can do for you? Listening for a problem that your startup can solve, and result in personal rewards for your contacts, is probably the most elusive skill and result for business development gurus. Sometimes you have to resist the power point imperative to get through your slides, and just sit down to hear what is going on, and how might make that contact's job a little easier.

@ Banff Venture Fair - "Suit Off" Social - Thurs, Oct 1st

For anyone attending the Banff venture forum next week, LaBarge Weinstein is co-hosting a “suit-off’ social for founders/management teams and investors at the Rose & Crown pub in downtown Banff on Thursday, October 1^st, starting at approximately 9:30pm.

We’ve arranged a terrific live band for the evening, Calgary’s Funkafeelya, and LW is happy to pick up the tab until 11:30pm (in other words, just in time to sidestep Randy Thompson’s first round of shooters…). I attach a link to the pub’s location for your convenience.

For those of us attending the BVF in years past, we’ve certainly found the after hours to be a terrific place to make genuine connections for doing business after the forum concludes, especially among founders/investors. We certainly hope you can make time to attend, and certainly feel free to invite anyone else attending the Forum that might be interested.

Many thanks to Sarah Blue of Calgary’s Cambrian House for co-ordinating the band’s and the R&C’s availability, and to Kevin Dahl of CTI for knowing enough to stay out of Sarah’s way. We look forward to seeing you at the Forum, and hopefully at our event next Thursday night.

First post: why your startup lawyer should drive a white, F-150...

This being my inaugural post, I'll swap the usual lengthy intro with my confirmation that I'm a lawyer that supports startup activities up here in Canada, and I'll be blogging about the stuff and connections that comprise my day-to-day activities mingling and servicing the GWN tech community, from Halifax to Vancouver (sorry, no NFLD or Tofino clients yet, but we're looking).

First things first then, I've seen some recent posts around what a founder/entrepreneur should be looking for in a lawyer, or really any service provider. I have my own basic premise: check out the car they drive. I myself happened into a sweet deal last year on a brother-in-law-used-vehicle (I know, it's entirely as cliche as it sounds), see the pic enclosed.

"Billy", as he's known affectionately by our three kids, has been great to me (no gun rack just yet, but under consideration). So knowing this, what does it say about me, and why would you want to engage a service provider that motors around in a ex-drywaller's white Ford pickup? Here's some thoughts:

1. Billy's terrible on gas, but the driver knows it. Billy fill-ups cost about $110 these days, and worse last summer. When a vehicle is this expensive, you've got to drive slower (no more than 110 km/hr), and know exactly where you're going.

2. Billy's got room for your logo on the door panel. In other words, it isn't all about the driver, it's all about the passenger (if any of you founders would like me to post their logo on Billy, I'm happy to do so pro bono).

3. Billy's got payload. Billy can store, haul, pull and dump. He can get a very wide range of jobs done easily and efficiently. I usually leave the keys in the ignition, so Billy's all yours if you need him (and everyone needs a truck at some point).

4. Billy's got a lot of kilometres on it. Billy's seen and been through a lot. He doesn't get particularly ruffled by rough weather, traffic or bad drivers. Basically, Billy just seems to carry on until we reach our destination safe and sound.

5. Billy's paid for. This is a pretty big deal. If the passenger can't cover gas money right away, the driver can probably cut him some slack. After all, it's the driver, not the passenger, that's along for the ride.