Co-working isn't always unalloyed joy. Rawpixel

Co-working spaces are all the rage. Why not leave a stuffy office to work in a funky warehouse full of ambitious people doing amazing things? I thought so, once. But all that co-working was not unalloyed joy. In 2013, two colleagues and I packed up our start-up dreams and laptops and made our way to New York. We wanted to change the face of mobile shopping and this seemed a good place to launch. On arrival, several people suggested we check out various co-working facilities.

I researched spaces in Manhattan and discovered new locations were opening all the time. I shortlisted eight spots and made appointments to check them out. The first one I visited was quite strict. It had rules about the hours people could work and about leaving nothing in the space overnight. The other end of the spectrum was like a hippie commune house. Loud music blared across the offices, people slept on the floor or in hammocks, the walls were covered in graffiti and coffee cups lay everywhere.

 

It can be tricky to establish a culture of hard work when the co-workers next to you watch YouTube videos and go home.

Cultural fit

I chose a place I thought was somewhat structured and a good cultural fit for our team. For $200 each per month, we scored a desk, WiFi, access to meeting rooms and other shared facilities. We would be working alongside other companies in a similar position to ourselves and might make some friends. On moving in, we attended the mandatory orientation session. First, we were presented with a raft of sponsors and their offerings. We could obtain a lawyer, accountant, insurance, server hosting and a range of other services at introductory rates. We learnt the rules of the community. Don't talk in the quiet areas, clean your coffee cups and so on.

At first, the place felt like a utopia. We were in the centre of the tech community surrounded by people designing products to change the world. The desks were laid out in rows facing each other with power points in the middle. There was a quiet side (no talking) and a noisy side where groups could sit and converse. We decided to sit on the quiet side and use a meeting room when we needed to talk. It took a week for the gloss to wear off. Day one's little annoyances became distractions by day seven; after two months, I gave notice that we'd move out. Here's why.

 

Moving desks every day made our team feel transient, homeless. HandsOnPhotography

1. Distractions are dangerous

Small companies such as ours needed focus. We had limited time and money to prove our ideas and we wanted to work hard. Few people in our co-work environment respected the quiet areas. Some people even appeared to show off their important phone calls by talking as loudly as possible. The space provided a stream of peripheral activities. Cheery folk breezed through the office every other day offering free coffee, pizza, massages and so on. There were regular after-work events, so we often had to clear our desks by 5pm or 6pm.

2. It's difficult to establish culture

Every morning we had to find new desks. If we'd paid more we could have rented our own office space, which I'm sure would have proved a better option. Moving desks every day made our team feel transient, homeless. It weakened morale. As our company has grown, I've learnt how people influence each other. The co-working space was full of people I'd never hire but who influenced our team. When co-workers sitting next to us arrived late, watched YouTube videos and went home, it made it difficult to establish a culture of hard work.

3. Competition isn't always healthy

There were more than 200 companies operating from our co-working space, and some used the "community" to their advantage. There were at least three start-ups working on similar ideas to our own, and they often invited our team members to lunch. Other entrepreneurs noticed when we received a positive press story or investment and hassled me for introductions. Finally, a competitor tried to entice one of our engineers with a more lucrative job offer. At that point, we moved out.

The co-working industry has evolved since then. Done well, it facilitates collaboration and motivation while allowing companies to remain focused on their goals. Accelerator offices designed to foster a group of start-ups appear to have succeeded best at this. I eventually decided to lease our own space. It was daunting at first, but it enabled me to build our own culture, give our team a sense of permanence and focus on building our product without distraction.

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How you apportion equity in the first year of your start-up can come back to bite you later. Marcel Aucar

As a start-up entrepreneur I’ve made lots of mistakes. But one mistake irks me the most – because it can’t be rectified. I fell into it at the beginning when, surrounded by a group of friends at a cafe, I formed my first company, Posse. Five years ago I didn’t know anything about building a technology business. I wasn’t confident the idea would work and, in the interest of spreading the risk, I asked a few friends for help. I wrote a plan and called a breakfast meeting at a local cafe. Over eggs and coffee, I scribbled on the back of a napkin who’d be responsible for what and what percentage we’d each own of the company.

Six months later, my friends had disappeared. Our idea hadn’t exploded as we hoped. They weren’t prepared for years of low-paid hard work. One decided to travel, another became a parent and needed a stable job. But five years on, they still hold significant shareholdings in the business and we’re no longer friends.

This is a common mistake. I often meet enthusiastic new entrepreneurs on the cusp of launching their company. When I ask about their ownership structure they say something like: “I own 50 per cent and the other 50 per cent is split between my friend who’s building the technology, a woman who’s doing the graphic design and a guy who’s going to run operations and raise the money.” Six months later we’ll meet again and at least one person has almost always left the team. The remaining members work hard to launch the business and waste energy and time fighting to get the quitter off the cap table. This destroys friendships and creates animosity that will haunt the life of the company.

Founder vesting

Rick Baker of Blackbird Ventures says his firm will not invest in a company where the entrepreneurs have upfront ownership. Instead, they insist on “founder vesting” – founders must earn their shares over time. “Most start-up teams will not survive the first year intact,” says Baker. “As investors, we’re backing the founders to run the business. If we invest $1 million or $2 million and someone leaves after six months but keeps all the equity, then that’s a bad situation for us and for the rest of the team. We need to make sure everyone is committed.”

A founder exiting early creates problems for the life of the company. “It’s a huge distraction early on and even worse when you get 10 years in and the company is worth a lot of money. The last thing you want is a founder who left at the start still owning 20 per cent of the company – that’s just crazy.” Baker says it can be hard to convince founders they need to plan for someone leaving. “Everyone thinks that this isn’t going to happen, but the numbers tell a different story. Even the best entrepreneurs get stuck with problematic exes – just look at Facebook.”

The standard requirement for Silicon Valley and top-tier local VCs (including Blackbird) is for founder shares to vest over four years with a one-year cliff. Team members are allocated a proportion upfront but only gain ownership of their shareholding if they remain with the company. A founder who leaves in the first 12 months gets nothing; they earn 25 per cent at the one-year mark and the rest monthly for the remaining three years. If the CTO in my earlier example was allocated 20 per cent, but left after two years, then she would leave with half her allocation. The team could part ways amicably and without lawyers.

Value people

I wish I’d put this structure in place when I started my company. At the time, I was so infatuated with the glorious future of our idea that I couldn’t imagine anyone giving up. No one wants to think about a prenuptial when they’ve just fallen in love. I also didn’t want to haggle about shareholding because it seemed silly. The company hadn’t launched so it was not worth anything. Why argue over 30 per cent of nothing? But a company does have value at the start. It’s worth the years of energy and intellect the founding team is prepared to invest. When I think of the five years of work and perseverance I’ve committed to our business, it’s clear this level of commitment was an asset at the beginning.

Many people have been involved in making our company a success, and some provided far more than their shareholding reflects. As a founder, it’s important to value people who contribute generously. There’s nothing more frustrating than wanting to reward hard-working superstars with shares but being restricted on account of a few who did very little but happened to be around at the right time. Next time I start-up, I’ll ensure everyone (including me) earns shares over time. This is a fair structure which rewards those who build the business.

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If business partnerships are marriages then I’m a serial divorcee. I’ve rushed into relationships; taking on staff, clients and sometimes business partners, only to move on when things didn’t work. Broken partnerships are always disastrous. Why couldn’t I make these vital relationships work? Was it me or did I choose the wrong people? The question has frustrated me throughout my career. But in 2016 I found the answer.

Years ago, I took on a business partner in my music company. A colleague introduced Ben to me: we hit it off immediately and seemed to have complementary skills. We’d only met a handful of times and I suggested we form a company. It didn’t take long for cracks to appear. I’d stay back late putting together proposals and budgets while he took off to the beach in the afternoon to surf. I felt his work wasn’t of the same quality as mine, so one by one I took over his tasks.

 

The relationship must come first, even in a business.

We both became irritated. I felt I couldn’t rely on Ben to get things done and he was disempowered and miserable. He started complaining, loudly. He labelled me a control freak. I said he was lazy. Our staff, artists and music industry colleagues didn’t know who to believe.

Inevitable glitches

I’ve since learnt that this pattern is common and in my circle of friends I’ve encountered more broken business partnerships than broken marriages. Everyone starts out with the best of intentions and enjoys the camaraderie of a partner when things are going well. But when the business hits inevitable glitches, people don’t stick together. Both grumble about the other; both are certain they are right. The partners enter a spiral of doom that’s usually fatal to the business. I was determined to avoid this mistake again, so I looked for answers. Why do so many business partnerships fail?

Last winter, I went through the most intense personal development experience imaginable: I became a parent. I learnt new dimensions of patience, empathy and love. But my most valuable lesson was about relationships. I met my life partner, Rod, in 2014. After spending lots of time falling in love, holidaying together and living together, we decided to start a family. We rarely disagree but when we do, I know how to prioritise. Rod and his happiness come first. He does the same for me. Our relationship works. Business partnerships are more complicated: is the top priority the relationship or the business? When Ben and I clashed, I chose the business. It seemed like a rational decision and the right decision. I was wrong.

Work together

Becoming parents has parallels with launching a company. For the first time we had a “project” to manage. Three days after our baby daughter entered the world – screaming – Rod wanted to give her a dummy. This was our first conflict as parents. Other differences in opinions arose; how strictly should we stick to a sleep schedule? When does she need a sun hat? Does the baby food really have to be organic? I naturally wanted my agenda to win.

But as small conflicts piled into arguments I found myself asking a familiar question. What should take priority – the project (parenting) or the relationship? The answer was obvious: the relationship must come first. We couldn’t be successful parents if we didn’t work together – even if one person changed nappies in the middle of the night more often than the other. It didn’t matter. Unwavering love, commitment and a willingness to compromise is fundamental to raising a happy, well-adjusted child.

Three rules for a successful relationship

Next time I form a business partnership I’ll apply the same rules:

1. Take time for romance

Most longstanding successful partnerships are between people who’ve known each other for a long time. I wouldn’t get married after a few dates but I formed a company with someone I’d only met a few times. Next time, we’ll make the effort to learn how the other works before we commit.

2. Respect is essential

Ben and I blamed each other when things went wrong. I was so preoccupied in proving that I was right that I didn’t see the damage I was causing. If I could rewind time, I’d put my respect and commitment to Ben above all else.

3. Partnerships are forever

When I started a family with Rod, I committed to the relationship forever. Starting a company with staff and clients is a commitment for the life of the business.

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As Hey You grew, Rebekah Campbell realised her technique for managing change also needed to adapt.

Agile is the new black. Every business leader knows their company needs to innovate at speed to stay ahead; start-ups like Hey You move fast. We raise enough capital to give us a limited amount of time to win an opportunity. As an entrepreneur, I've never struggled to adapt quickly. We are aggressive and change course frequently to respond to user feedback and analytics, better ideas and competitive threats.

Early on, this was easy. But, as our business grew, I realised that my technique for managing change also needed to adapt. One or two engineers can be experimental, trialling ideas and working through the night to test what works. But a team needs structure. By mid last year, we had 30 staff. Hey You had an established profile; tens of thousands of customers used us at cafes every day. We hired smart people across a range of roles: marketing, sales, design and engineering.

Everyone had an opinion about what to do next. Team members would march in, excited about a new idea or new partner that could drive us more customers. We often wanted to get to work straight away. But, as the organisation grew, our nimble approach constrained us. What I had thought was agile was, in reality, chaos. We released features early, moving on to other ideas without testing and improving what we’d already built. Some projects were never finished; overall productivity dropped and team members became frustrated at the quality of our work.

I asked other business leaders for advice; everyone had encountered the same challenge. Managing teams that innovate nimbly is difficult. I enlisted the help of an agile coaching group called Pragmateam and learned that an agile team needs rigorous structure to be effective. We involved the whole company and, in three months, established a process that enabled us to make good decisions and build quality product and campaigns at speed.

Here are the most important principles we put in place:

1. A healthy heartbeat

We began to run the company on six-weekly cycles we called increments. We set two to four goals at the start of each increment and workshopped what each team could commit to in order to support the objectives. We then divided the increment into three two-weekly sprints. Every day we held a full-team stand-up where team members reported on their progress towards the goal of the sprint. Each person would rank from 1 – 10 their confidence on reaching the increment goals. At the end of each fortnightly sprint, everyone presented their achievements and committed to what they planned to accomplish in the following two weeks.

New ideas and opportunities still poured in at mid-increment. At first, I tried to squeeze in a couple of extra projects but found this derailed the whole process. “We couldn’t finish X like we said because of these extra tasks.” I developed the discipline of putting new ideas to one side until the end of the increment.

2. Visualisation of progress

We created a story wall on one side of our office, posting the increment goals for everyone to see, and then used tape to create project streams. So, one increment goal was: launch Hey You gift vouchers for Christmas.

Each team member created coloured cards for the different tasks they had to complete to meet the goal. They owned it and put their photograph to their cards. Design and development would build different parts of the product, sales and marketing would put in place a process to launch to customers. Each day the team member responsible moved their card across the wall from ‘To do’ to ‘Doing’ to ‘Testing’ to ‘Complete’. The wall gave us an end-to-end company view on every project, and it was fun to watch cards migrate from one side to the other.

3. Step back to the balcony

Our agile coach suggested our leadership team take time off the dance-floor to stand on the balcony. We needed to get into a habit of observing and planning. Prior to each increment, we took one full day to reflect on our progress, digest data and user feedback, review our strategy and plan the next six weeks. We set goals that were two to four steps ahead of the team workshop. At first, I worried that a shift from no structure to a rigorous process might deflate morale, but the opposite occurred. Team members chose their own tasks, made public commitments, communicated their progress daily and presented back to the team each fortnight.

We operated as one team rather than a collection of departments. Progress was clear and we started gaining momentum. I knew we’d succeeded when I came back to the office after dinner to find our whole team eating pizza at 9pm, working to finish the sprint. Many businesses strive for a start-up culture, misinterpreting this as scrappy and unstructured. I’ve learned that an agile team works best with a rhythmic process of planning, implementation and feedback. 

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A lot of people want to tell me how to run Posse.

At the moment we’re deciding whether to raise a large capital round and go for growth or keep things tight and focused. Both approaches have merit, and I respect all who have offered their guidance. But people are passionate about their opinions, and that can prove confusing. When I started my business four years ago, I was hungry for advice. I’d never worked in technology and had no experience raising capital or building a product. I cast my net as far as I could and sought help from people who seemed to know what they were doing.

Finding support was easy. Everyone I approached liked my idea; many wanted to be involved. I created an advisory board and handed out shares as if they were candy. I surrounded myself with impressive names, and they all had friends they wanted me to meet. Before I knew it, I had 50 shareholders, and we were all on a sugar high. Everyone had ideas and opinions, and they all wanted to meet with me. Many gave me books to read and research to do. I sipped coffee after coffee and read deep into the night. I wanted to appear grateful for the support, so I reported back on how I’d benefited from the advice and emailed notes on what I’d learned from each book.

All of the advice appeared valid, but much was contradictory. I didn’t want to give offense by ignoring well-intentioned suggestions, and I burned up time holding meetings and keeping up with my reading list. I couldn’t make decisions and had no time to focus on getting work done. But I was confident that my roster of advisers would pay off by impressing potential investors when I went to raise my first round of capital. Surely they would boost my credibility.

Not exactly. During pitches, every time the adviser section of my deck came up, I got the same response: “I’m impressed you got X and Y involved. Have they invested?” Well, no, they had not, which led to a follow-up question: “If experts in the field hadn’t committed to investing despite knowing all of the company’s details, why should we?” Once I realized that these big name advisers who hadn’t invested were having a negative impact on my ability to raise capital, I removed all references to noninvestors from my presentation.

Now I’m four years in, and I still crave advice. I think being a sole founder increases my need for reassurance that I’m on the right track. I always find that having a wide range of discussions, as we often do during fund-raising, helps me refine my strategy. But I’ve also found that too much advice can be a distraction and that advisers who want equity but aren’t willing to back the company are not always the best people to have involved. Now the company is moving on to the next phase of growth. We’ve been a start-up valued at less than $10 million with good prospects but with a small team and with very little revenue. As we start to become a serious business with significant revenue, I’m beginning to move in a different world, one where I need new advice.

I’m also at the next phase in my own growth. I used to see myself as inexperienced and in need of help. Now I make my own judgments rather than deferring to people I see as experts. I still ask people I respect for their opinions and ideas, but I’ve developed a strong sense of whom to trust. I’ve learned a big difference exists between people who enjoy giving advice and those who really care about me and the business. There’s also a big difference between people who think they know how to build a company like ours and those who have actually done it.

I can think of four people who have helped me at Posse and without whom we would have failed. But the new phase we are entering requires a new group of advisers. Here is some of what I’m looking for:

1. Previous success in similar fields

Some of the people I enlisted to my early advisory board sounded impressive. They’d held high-level positions at big corporate companies. When we suffered some early start-up bumps, though, they were unprepared. Their knowledge of how a start-up should grow was based on watching “The Social Network.” When we didn’t hit it big straight out the gate, they became concerned. I learned to look for people who had built a similar company from the ground up.

2. Focus on the granular

Many people who want to give me advice start with a discussion about the potential size of the exit and how quickly we’ll be able to get there. This always creates distractions such as attending to the setting up of complicated corporate structures to minimize future tax or setting up big sales deals ahead of building a product. I’ve found that the best advisers are the ones who drill me on what we have to achieve in the next three months. They’re interested in the granular metrics of the business, how we can improve them and how we can create replicable processes.

Good start-ups are rarely short of willing advisers. Maybe these people are looking for involvement in something that looks like fun; maybe they seek a slice of a big exit. But I’ve developed a keen radar for time wasters. I spend as much time as possible getting to know someone before inviting them to become involved. I do thorough reference checks and never give away shares in the company without a vesting period.

When I do find someone who’s right, I recognize that the relationship has value. Such people are usually in high demand; they’re giving up other opportunities to take a risk and help me. Time is their most valuable asset, so I make sure I’m prepared for meetings and I check in regularly to make sure that they’re happy with our progress and that they enjoy being involved.

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I spent a recent night consoling an associate who had fallen out with her best friend. They tried to start a business together, and she quit her high-paying job to do it. Three months in, the friend had yet to commit full-time and wasn’t pulling her weight. They couldn’t agree on how to split either the tasks or the ownership stakes. Tension built and eventually exploded, and the business died before it was born. Their 15-year friendship was over.

I started my business, Posse, with my best friend, too. We’d worked together as colleagues for eight years and respected each other’s strengths. I spoke at his wedding and trusted him completely, and we were, indeed, close. He was the first person I called when I came up with the concept, and he appeared enthusiastic. But a few months in, he announced that he was starting another company, one that wouldn’t interfere with Posse. Soon after, he disappeared. Suddenly, I was running Posse full-time and solo. He did keep his founder shares, but we no longer speak. I lost a significant chunk of the business and my best friend (which was worse).

These situations arise all the time. Sometimes they make news when the friendship that is breaking up was behind a prominent company. The results can be disastrous for the business and heartbreaking for the individuals. Of all the dramas that entrepreneurs discuss with one another over drinks — often several drinks — I find that the merging of personal relationships with business seems to cause the most pain.

Melanie Perkins and Cliff Obrecht at the offices of their company Canva. Picture: Jeremy Piper.

People start with the best intentions. Most partners appreciate one another and have high regard for one another’s ability and integrity. It’s only natural to want to build something with a trusted friend, someone whose company is welcome. And yet, so often, it all falls apart. Within my group of friends are three couples who started technology companies together. Two divorced within the first four years but still run successful businesses as a team — not without some pain, I imagine.

The other couple grew stronger. Melanie Perkins and Cliff Obrecht have been running companies together for the last seven years. Two years ago they founded an online graphic design company, Canva, that is going through a growth explosion, with more than 750,000 users in the first year. They appear to have the perfect partnership — they complement each other’s strengths and drive the business forward in tandem. In an effort to understand why Mel and Cliff have thrived as partners, while so many others, myself included, have struggled, I asked them to share their secrets. Here’s Mel’s advice:

1. Keep the dream alive

Mel says she and Cliff have always been clear about what their vision is for the business. Every day they talk about what Canva will look like in five to 10 years. “When you know what you both want to build,” she said, “it makes every little decision easier. They’re all steps toward a shared dream.”

2. Have unstructured conversations

“We do lots of walking where we’re free to have crazy conversations and brainstorm ideas,” she said, adding that in business, it’s easy to have rigid boardroom-type discussions in which everyone is afraid to speak openly for fear of side-tracking the meeting.

3. Don’t keep battle scars

Once a decision is made, it becomes a team decision. There is always discussion, but what matters is working toward the shared vision. “We always focus on the best outcome for the business,” she said. “Once something is agreed, the process behind the decision isn’t mentioned again.”

4. Build trust over time

Mel describes how, during the first few years of working together, they were both involved in everything. Over time, as the company has grown, they’ve developed trust and chosen to focus on different areas. “We’re in business together because we believe in each other’s skills,” she said. “It’s great that we each get to play to our strengths, because it means we can cover a lot of ground.”

5. Have the same expectations of each other

“Both of us have an extremely high work ethic,” Mel said. “We’re focused on the business 24/7, and a common expectation of ourselves and each other provides the foundation that makes everything else possible.” In my experience, it’s very hard to have dual roles in a relationship. But I’m incredibly jealous of those who can pull it off. With your best friend by your side, the journey through the highs and lows of business would be magical.

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Recruiting the right team member is always difficult. I start off knowing that I need someone to perform a task, and imagine what qualities that person might possess. How, in a sea of people, can I find my ideal candidate?

In the past, I would have posted job ads on all the appropriate websites and braced for a flood of applications. I’d spend a weekend afternoon sifting through them all, deleting three quarters and writing follow-up emails to the rest. I always mailed a list of questions for each candidate to complete, with a deadline for their return. This enabled me to filter out at least another half who either didn’t reply in time, wrote dud answers or couldn’t spell and didn’t pay attention to details. Finally, I’d have 10 or so interviews. Often, they would all be disappointing.

My problem was that the best candidates all had good positions and were not reading job advertisements. Somehow, I had to find these people and convince them to take a risk by joining our start-up. The only solution seemed to be to hire a recruiter and, as a cash-strapped small business, we just couldn’t afford to shell out a recruitment fee of 20 percent of the candidate’s annual salary.

Earlier this year I signed up to LinkedIn’s Recruiter service. For $2,200 per quarter, I can run detailed searches on exactly the type of candidates I’m looking for and then approach them en masse. I can search by location, previous and current job titles, previous employers, which universities they attended and how long they’ve been in their current jobs. One of my biggest challenges since starting Posse has been the recruitment of high-quality developers: I’m not an engineer, so I don’t have a great network in this area. I know the people who apply through online job ads are seldom the best candidates, but we need to expand our development team.

Some companies, like Google, have a reputation for hiring the best developers. On LinkedIn I can run a search specifically for engineers who have worked or are currently working for Google in my area and have been in their positions for more than two years — so they might be looking for a new challenge. When I did this recently, I turned up around 90 results so I browsed through the profile headlines, eliminated anyone who seemed too senior to be interested, and then sent out emails to the 60 or so who were left. LinkedIn’s Recruiter enabled me to create personalized emails.

At least 60 percent of the people I contacted replied, and about 5 percent were interested in hearing more. I arranged to catch up with them for coffee and — if they were the right cultural fit — try to sell them on our vision for Posse and why they should join our team. I landed some exceptional candidates. In one afternoon, I was able to set up meetings with three senior developers who work at a large competitor of ours. I’ve learned that the more personal I can make the email, the more likely they are to reply. For example, I’ll search for candidates who went to a certain university and now work at a certain company. Then I can contact 50 candidates, but make the email sound like it’s been written just for them.

As a small-business owner, I recognize that building the right team is crucial. We only have room for A-plus players, who will always be in good positions and may require quite a bit of convincing to leave. LinkedIn gives us access to the passive job hunter market that used to be available only through expensive recruiters, and it helps us seek out top quality candidates from within other companies.

There is one catch. If I’m trying to poach the best people from our competitors, I can be sure that they’re trying to steal my best people, too. Once we turned down an acquisition offer from a competitor only to have the company approach all of our staff members individually on LinkedIn. This is almost impossible to prevent, but I’ve come up with a couple of strategies that may help. First, if your business is small, I see little benefit in setting up a LinkedIn page for it. Doing so just enables competitors to find and attack all your staff members at once.

Second, you can try to discourage your staffers from using the platform – although this is nearly impossible. When we relocated team members from Sydney to New York, a recruiter suggested that I ask our engineers not to change their location on LinkedIn because it would highlight them as fresh meat for the hungry New York recruiters.

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Obviously, it’s no fun to get fired. But it’s also no fun to be the one doing the firing.

I have heard it said that the stress of terminating someone’s employment can reduce your lifespan. I certainly know that I’ve awakened in a sweat the night before I have to have “the conversation” with someone. Or worse, I have put off the conversation and let the frustration and anticipation build for months. But no matter how bad it seems, it’s even worse for those being dismissed. The news you are about to deliver is likely to stick with your former employees forever; it will affect their sense of self worth and confidence in moving forward with their careers. Their colleagues and friends all know that someone assessed their value to the team and found it lacking. And after the humiliation at work, they have to go home and tell their families.

We’ve all heard the mantra “hire slow, fire fast.” As I’ve written in my previous posts, I’ve made lots of recruitment mistakes, but one thing I’ve always been good at is knowing when to let people go. I recognize that when someone doesn’t work out, it’s my fault for hiring them, and I try to make the process as pleasant as possible. I don’t want people running around saying what a nasty person I am, and I do feel responsible.

When entrepreneurs get together, we always seem to talk about how, if, and when to fire people. It amazes me how poorly most leaders handle the situation. They either procrastinate and hope people change (they never do), or they let them go in a way that leaves them feeling upset and confused. Getting this wrong can have disastrous consequences for your business. A friend has a media agency in California. He hired too many people too quickly and ended up with office politics and unproductive employees. He made a bold move by letting 40 percent of the team go at the same time. He called them into his office one by one, outlined why it wasn’t working and asked them to pack their things and leave immediately.

The employees gathered at a bar that afternoon to commiserate. They were angry and hurt. Alcohol-fueled tensions exploded, and they plotted revenge. Several contacted friends in the press and made sexual harassment allegations against the company. My friend’s reputation took a battering, clients jumped ship, and it took months before he could get the business back on track. He could have avoided this by hiring the right number of the right people, and if some didn’t work out, he could have let them go with more empathy. At my first company, I made all of the classic mistakes, including at least 20 hiring errors. That meant it gave me a lot of opportunities to practice what I have learned about letting people go with dignity.

I have gotten better. I’m not aware of anyone leaving Posse feeling disgruntled, and almost all of our former employees remain supportive of the company, come to our events and continue to advocate for the product. This is never an easy process, but here is some of what I’ve learned:

1. Let them save face

Whenever I sit down with people, I make it as obvious as I can what’s about to come. I ask them how they think their role is working out. I never make it about their personal contribution; it’s always about the role and how it fits into the organization. I lead them toward seeing that, in a small company like ours, their role isn’t quite what we need. I ask them what they enjoy working on and where they see themselves going in the future.

By this time, they know they’re about to be let go. I try to make sure they don’t feel as if it’s because they’ve failed, and I focus on getting them to think about what they would rather be doing. I think Posse is a great place to work, but we all have our own career dreams. You may think it’s dishonest not to be upfront and tell them exactly why they haven’t worked out. But by the time we reach this point, we will already have had several conversations about what’s not working and how they can improve. This conversation is about making a tough moment easier and helping ensure they have the confidence to move on with their life.

Once I had a senior employee who wasn’t right for Posse. I could see he was cracking with the workload and felt frustrated with the lack of clear role-definitions that he had been used to in more corporate roles. When I sat down with him, it was obvious he was exhausted. “Is this really what you want to be doing?” I asked. After a 10-minute conversation about his actual dream job (not here!), he decided to quit. He also asked if he could leave straight away and not work out his notice. This was a fantastic result. He felt happy and saved face with his colleagues, and I avoided the appearance of being a mean boss who just fired a member of the family, which always affects the remaining team. And we saved the four weeks notice I had expected to pay.

2. Don’t procrastinate

I remember the first few times I thought about letting someone go in my first business. I contemplated the decision for months, hoping things would improve. I put new reporting processes in place, tried new management techniques and wound up frustrated, procrastinating over what I knew deep down had to happen.

Other employees would be affected too. There’s nothing more demotivating for a team than to have people not pulling their weight and spreading negativity — and a boss who won’t do anything about it. In the lead-up to the big event, I would toss and turn in bed imagining how the conversation would go, how would I word it. When the day finally arrived, I’d be so burned out and angry that I’d fumble my words.

I’ve discovered that when I think someone won’t work out, they won’t. I can recognize when I’ve made a recruitment mistake within the first three months, and I’ll let them go within a week of the realization. I’ve found that the longer I leave it, the more they bond with the team and the worse the impact. It gives the person and the company the opportunity to move on.

3. Stick to any agreements. When in doubt, be generous

All of our employment agreements have probationary periods of three months. If the person is let go in that time, we pay one week’s notice. It’s important that there be no doubt about what the person should be paid. If there’s ever a question, I err on the generous side. It’s not good to look stingy, and I’ve learned that it’s important to do whatever I can to make the person leaving as happy as possible.

4. Be clear about what happens next and help them as much as you can

At the end of our conversation, I lay out the next steps. They’ll usually agree to go back to the office and hand over anything important to another team member, and we agree on how to explain the departure. They always finish up that day – it never works to have someone serve out their notice. We then talk about their plan to find another job. I ask if they’d like introductions to my contacts, and I offer to write them a glowing (but honest) reference. I wouldn’t write anything that’s untrue, but it’s always possible to find positive attributes to fill out the letter and help the person find a more appropriate job.

5. Announce it to the team together and let them say goodbye

We go back to the office and call the team together for the announcement. We almost always paint it as the employee’s decision. I just stand there while the person explains. I thank them for their contributions, and we all go out for a drink. The drinks are usually a bit awkward, but it’s important to let the remaining team members grieve. They’ll all go out and drink together anyway, and I’d rather be there than not. Letting someone go is one of the toughest and most important things entrepreneurs have to do. We know that the business will succeed or fail on the strength of the team, and a team is only as strong as its weakest member.

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Rebekah Campbell getting Bill Tai to sign up to join the Posse board along with Rick Baker.

When I started Posse, I knew nothing about company boards or their value. The family lawyer who helped establish our companies suggested that I create a board before I raised our first investment round and that I try to find some high profile people to join it. His objective was to make the team slide in my presentation deck look as impressive as possible. Off I went to enlist some big name folks to join my not-yet-established company.

Within a month, I’d assembled a board of eight, including myself, and we called a meeting. A friend lent me his boardroom, a big office in the city. I expected a casual, friendly affair where we would chat about business and strategy and they would agree to introduce me to some potential investors. I was in for a surprise.

First of all, they wanted to know everything: How much money did we have in the bank? What were the liabilities? The budget? How many people had visited the site the previous week? The previous month? How long had they stayed? How much money had we made? And so on. I wasn’t prepared, and it was overwhelming.

After a couple of hours of grilling, I gained a sense of what a board expects from a founder. Before beginning Posse, I’d run my own business for eight years and hadn’t reported to anyone. In time, I came to appreciate the rigor of reporting. Before the next meeting, I made sure I sent out the cash-flow report, budget, metrics, and a presentation outlining what I wanted to talk about.

Six months in, our group hit its first challenge. The business had started well; we’d raised some money and gained traction. Everyone became excited, but no one had any experience working with start-ups. Their main understanding of the industry came from watching “The Social Network.”

Unexpectedly one director presented us with a proposal involving a full-time job and a lot of equity. The group wasn’t sure how to react. He left the room while we discussed his proposal, and when we rejected it, he was hurt and embarrassed. He quit the board and sent us a huge invoice for his time, which we spent a year fighting and eventually settled.

Some members of our original board were excellent and are still active today. Others drifted off. They harbored an expectation that we would be a huge hit within months, and when hard work set in, they disappeared. Some stuck around and were destructive when things didn’t go their way.

I learned how unpleasant the work environment can become with the wrong board in place. But I’ve also learned how empowering the support of the right board can be. At a recent meeting, after closing off a round of funding, we were working on a strategy for the next phase of Posse’s development. Our board has helped me prioritize objectives, recruit team members and raise capital when needed. The group has the right mix of experience to know when we’re on-track and to guide me away from making (too many) mistakes.

Some of my friends with similar companies have avoided creating a board outside of the founder group. That’s because the board does have ultimate control over the company and who runs it, and many entrepreneurs find this threatening. As a sole founder, I have found my board to be incredibly valuable. In fact, we would not have survived without them.

But putting the right group together is challenging. Three years in, I’m on my third lineup, after experiencing the best and worst of what boards can do. Here are five things I’ve learned the hard way.

1. Make sure your directors have the right experience

Many people imagine that a board should consist of gray-haired gentlemen with high profiles in the business community along with friends who will invest in the business. My original board sounded impressive, but many were impressive in the wrong industries. They had no experience with the challenges a start-up like ours might face. So I received bad advice which led us to hire the wrong team and spend too much too quickly. A couple of our early directors had never used Facebook or Twitter. They wouldn’t even join the business we were trying to build.

Today, everyone on the board has expertise in different areas of early-stage companies in our space. Including me, we have four directors: Bill Tai, Silicon Valley start-up evangelist and investor; Lars Rasmussen, a co-founder of Google Maps; and Jeremy Colless, an Australian venture capitalist. They know what other businesses are doing to grow, engage users, monetize, and save costs. Most days, a board member emails me with an idea or opportunity that wouldn’t have occurred to me. And through them, we can access almost anyone we would need to help our business.

2. Make sure you invite people you like and trust

Directors have a power. They decide who leads the company, what deals to do and when to exit, so you must all share the same vision. You must know they will do the right thing, that they will stick around and support you when you hit tough times. One year into Posse, it looked as if the company might fail. One member of my board turned on me and influenced the rest of the group. I wrote about how this internal fallout almost ruined us and how I wound up sacking the entire board in an earlier post.

I spent a lot of time with each of our existing directors before I asked them to join. I knew I could trust them to act in the best interests of the company and to stick it out. We’ve had hard times, but I can honestly say that our group pulls together and digs in, no matter the circumstances.

3. Keep the numbers small

We have four directors on our current board, including me, and one regular observer who acts like a director but doesn’t vote. It’s a tight group: Everyone knows the others’ strengths; everyone is committed to making Posse a hit. I’ve heard that the reason to keep boards small is to ensure that as founder you won’t be outvoted. I suggest that if you think this, you have the wrong board or you’re the wrong founder. For me, the benefit of having a small board is that I can spend time with each person regularly. There’s no delay when we need to make an important decision. Everyone is in touch with what’s happening and can contribute.

4. Set expectations up front

It’s easy to procrastinate when finalizing deals with advisers and directors. Everyone is there to be helpful, and at the start, it doesn’t seem worth negotiating to pay them a share of nothing. The problems kick in after a few months when things start going well and you realize that you and they have different expectations about payment. Most start-up directors expect to receive equity rather than cash; I’ve found the standard rate — in Sydney, Australia, anyway — is 0.5 percent to 2 percent, vesting over two years. Some want to be paid their standard consulting rate plus a bonus (often double) when payment is taken in equity rather than cash, but I haven’t done any deals like this because I don’t want to feel like the clock is ticking when I need help.

You must determine what you expect of directors. How will they help with fund-raising, strategy, introductions and the like? If appropriate, you might want to agree on how much time they will commit — although when you have the right people on board it’s likely they’ll bug you with ideas and suggestions for how they can help. Although these conversations can be awkward at the beginning, I’ve found that the directors who are best at negotiating their own deals are the ones who are most helpful when I am negotiating deals for Posse.

5. Be transparent and organized

Your board should be the one group of people with whom you can be completely transparent. It’s their job to help you work through challenges; they must understand those challenges if they’re going to add value. At one of the first meetings of our new board, I announced that the product we’d created wouldn’t scale. We had to go back to the drawing board and try something else before we ran out of money. No one flinched. We put a process in place that would devise a better strategy. I’ve also found that board meetings are much more effective when I’ve put time into considering the agenda and have written a presentation to talk through.

At my first board meeting, I learned what directors expect from a founder. It took me quite a while to work out what founders should expect from their directors. Our board helps me refine our strategy and operation plans; they’re constantly suggesting new ideas and making introductions; they’ve been involved in fund-raising; they hold me to account and oversee the governance of the company.

The names on our board are impressive but that’s not why they’re there. A top-notch board of great people with relevant experience and a shared vision has made my founder’s journey easier and more fun.

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I’ve always been a solo achiever. I’m an only child, and at school I excelled at individual sports like long-distance running. But when I started my first music business at 24, I decided I was tired of being a lone wolf. It was time to find a partner. Perhaps I was looking for someone to fill the gaps in my abilities. Perhaps I wanted someone to share the risks. Or perhaps I longed for a sense of camaraderie that I’d missed out on as a child. It must have been an emotional decision because I jumped into a business marriage without the benefit of either a courtship or a rational process.

It was a disaster. We had different styles, work ethics and visions of what we wanted to achieve. I hated it, and within two years we went our separate ways at considerable cost of time, money, energy, and reputation. I promised myself that I would never make the same mistake again. When I launched Posse three years ago, I did so by myself. I surrounded myself with advisers, friends, and later investors and team members, but it was always clear who was in charge. But being a sole founder has downsides, too.

Lately, I’ve decided to take the business in a more ambitious direction, as I wrote in my post a couple of weeks ago about thinking big. Because I want to give Posse the best opportunity for success and because I’d like to have fun doing it, I’ve reconsidered taking on a strategic partner. We must merge with or acquire at least one other business for Posse to expand rapidly and take advantage of our market position. We need expertise and technology that would take too long for us to develop ourselves. And I need a partner with skills to help me expand the business.

Merging with an existing company means there will be a second founder. As I consider entering another business partnership, I’m setting up processes to ensure I don’t make the wrong decision. Here’s what went wrong for me the first time — and what I am looking for this time.

1. Cultural fit

In my music business, my co-founder and I discussed our shared vision of building an international company but had different ideas about the level of work involved. I worked around the clock; he liked to surf in the morning and had a personal work-life balance rule that precluded staying in the office after 5 p.m.

I’m not claiming that my way of doing things was right. But it was different. I wanted to build a company culture where everyone enjoyed being in the office and wanted to squeeze every ounce of productivity out of every day. This was undermined when one of the leaders couldn’t wait to get out the door at 5 p.m. Eventually my partner moved to a surfing town and decided to work from home.

It’s frustrating to work harder than a partner who shares equally in the success of the business. This time, I’ll make sure that my co-founder and I have the same expectations for what we want to achieve and how we’ll get there.

2. Similar aptitudes and complementary skills

Two heads are better than one – but only if the co-founder is smart and views problems from a different perspective. My previous co-founder used to refer every decision to me; that way, he never had to say no to anyone. It was always “Rebekah’s decision” not to give employees what they wanted. Along with being annoying, this didn’t work because no one challenged me.

This time, I’ll strive for a partner who approaches problems differently than I do. For example, I tend to approach a strategic problem from a marketing angle, with a focus on people and a more instinctive perspective. It would help to have someone with to me who prefers to make decisions based on data. Together, we would be likely to arrive at better solutions than either one of us would on our own.

I also think it would help to have a co-founder with complementary skills. For example, I’m a strong external marketer and sales person. It would be ideal to find a partner who is better at operations and finances.

3. Similar approach to resolving problems

One reasons start-ups fail is because the founders fall out. They often start out as friends, and it’s great when things go well. It’s when times get tough, which they almost always do, that partners squabble. They blame each other. One isn’t as smart, makes a wrong call or doesn’t put in the work. This kills confidence with both the investors and the team, and it can even kill the business. Founder divorce has to be one of the most painful and draining experiences you can go through.

My experience with my first co-founder was a waste of time, energy and money. We ended up getting lawyers involved because we had no process in place to resolve disputes. I was so consumed with anger about the relationship that I couldn’t focus on the business.

This time, I’ll make sure I’m comfortable that my co-founder and I will be able to work through problems proactively. There will be times when we disagree, but we will have a process in place to resolve these situations. At the beginning of a relationship, when you’re falling in love, it feels as if there will never be problems. This is the best time to have the hard conversations about what happens when you do disagree. This time I’ll also be sure to have a long courtship and to get to know the person. We’ll be spending a good chunk of our lives together so, for me, it’s important that we have similar values and enjoy spending time together.

I’ve found that being a sole founder these last three years has had its benefits. I had the opportunity to establish the company culture I wanted, I could make decisions quickly because there was no one to consult, and I didn’t having a falling out with myself! So far, my favorite payoff from starting Posse has been the amount I’ve learned. I have been responsible for everything, not just the bits I like or am good at. I’ve had to understand financial modeling, team building, product design, sales, marketing, community, human resources and operations. There’s no M.B.A. on earth that could teach me all that I’ve learned.

But now that I’m ready to take my business further, it’s time to find a partner. With the right co-founder, I think I’ll make better decisions, and a combination of complementary skills will achieve much more than separate individuals. It’s also no secret that investors are more likely to back teams than sole founders. They know how tough the road is, and they believe that multiple founders increase the chances of success. (I’ve written about how to structure the vesting of founder shares in a previous post.)

Finding the right business partner is like finding the right life partner. You want to make sure you really know the person and how you work together before you make it legal.

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