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ILLUSTRATION © MARK SMITH; PHOTO © SHUTTERSTOCK/MIHALEC
Disagreements over salaries can
stall a business right out of the gate, so
it’s important to get on the same page
before anything is formalized.
“Discuss the expectations of the
parties,” Steinberger says. “What type
of personal overhead does each party
have to have? Is each party willing to
take less money out of the business
to help it grow? From there, you can
execute employment agreements, which
provide for a base salary and allow
for quarterly or semiannual distributions
or commission income to be tied
to performance.”
Financial infidelity is more difficult.
Suspicions that your partner is stealing
money from the business can be
devastating. However, accusing your
partner of the act, while failing to
establish and document the allegations,
could result in defamation claims and
create a highly contentious relationship
going forward.
To avoid this scenario, create a
process of checks and balances wherein
one partner oversees the day-to-day
accounting, while another is responsible
for account reconciliations, including
(but not limited to) banking, credit
cards, trust accounts, accounts receivable
and accounts payable.
When you enter into a
business partnership,
you’re literally tying your
fortune to that person.
It’s important to discuss
your perspectives on
money upfront.
You can also prevent fraud by
requiring dual signatures on checks
that exceed a specific amount and/or
establishing limits on bank withdrawals
or credit card transactions.
Most important: If you and your
partner truly want to put your trust
in one another, conduct comprehensive
financial background checks. Poor
credit scores, tax liens, judgments
or bankruptcies are all red flags that
need to be discussed before signing
any agreement.
STEPH WAGNER IS A PRIVATE EQUITY
INVESTOR AND A FINANCIAL STRATEGIST
FOCUSED ON GUIDING WOMEN TO FINANCIAL
INDEPENDENCE. @STEPHLWAGNER
| VC VIEWPOINT |
Great expectations
Create value—not just buzz—for your customers
By Sam Hogg
A
s an active investor in agricultural technology, I hear pitches from startups that
have found ways to make crops bigger, stronger and more resistant to pests,
usually through some proprietary formula or advanced biotechnology.
I always challenge these folks with a little drill. I tell them there is an item on the
table that can do the exact same thing, and I point to my glass of water. I explain
that more water can make plants bigger, stronger and more resistant to pests; more
fertilizer can, too. But farmers don’t use excessive water and fertilizer because of wellknown
diminishing returns.
This is the point where we begin to have a constructive talk about value, and
whether the whiz-bang product being pitched truly has the potential to add it.
To customers, value is the difference between what they perceive and what they pay.
For a farmer, this new super-product needs to return more profit than it costs, but it
has to do sufficiently better than well-known and completely de-risked options such as
additional water and fertilizer. Doing something because it’s new or supposedly easier
simply doesn’t cut it—you have to keep growing value to be sustainable.
There are many ways to do this. Henry Ford didn’t invent the automobile, the
assembly line or the conveyor belt. He did combine them, however, and drove down
the time it took to build a car to 93 minutes. In doing so, he created a cost curve and
customer value spread that revolutionized an industry.
Conversely, the price of an iPhone has never gone down, yet sales have climbed with
each new model. Apple creates a value spread not by reducing costs, but by adding
features that make buyers feel they are getting more with each version.
Too often I see startups focus on their cost curves so much that they neglect the
most important goal: determining why someone would want to buy what they’re
selling. A business needs to show that there is a compelling reason to buy its products
and to keep buying them for a long time. Once companies figure that out, the cost
curve takes care of itself.
If you find yourself pitching your company to a VC like me, don’t be surprised if I
spend more time discussing your customer than I do learning about you. Successful,
sustainable companies are the ones whose leaders know more about their customers’
economic expectations than their own. That’s the value proposition I look for—and you
need to prove you can deliver it.
SAM HOGG IS A VENTURE PARTNER AT OPEN PRAIRIE VENTURES. @SAMHOGGVC
MARCH 2015 ENTREPRENEUR 61