Recent Business Lessons from a Serial Entrepreneur and Investor
The goal of sharing my lessons here with you is that you can use them in hopes that you do not make the same mistakes. By doing so, you can look to skip all the pain and jump ahead in your business faster.
Here are some of my recent lessons -- some painful, some annoyingly obvious, and some of them lessons I've already learned but am paying for them again by not following them. The key is that with each lesson (learned by experience), my business acumen is stacking and I can carry forward these business lessons for a lifetime, and hopefully, pass them on to my children, friends, and colleagues.
Enjoy!
Business Lessons on Investing
1) Personal Guarantees. You may consider getting into an investment and doing a personal guarantee to get a better interest rate or for the bank to feel comfortable with doing the deal. My lesson: do not do a joint and several personal guarantee if you do not have control of the asset. If the asset does not perform to expectations, the bank can come after you for your personal assets, which can completely disrupt your life. If you don't have control, you cannot fix the problems that arise. Don't leave your financial fate in someone else's hands.
2) Track Record. If you're investing alongside others, be sure to check their track records. Bankruptcies, foreclosures, or other prior business failures are major red flags that give you a clue of what it may be like for you as an investor. Likewise, a track record of many past successes is a clue, but no guarantee that your investment will do well.
3) Operating Agreement. If you're investing in a private deal, you are only as strong as your operating agreement. It's all you have to protect yourself once you sign and the money leaves your bank account. Before signing, have your attorney review the operating agreement and put in clauses that will protect you as an investor. For example, you may want the ability to replace operating managers who are not performing, require accurate reporting from accountants, including annual audits by third party firms, and include other bad boy clauses.
4) Too Good To Be True. If a deal sounds too good to be true, even if other investors are saying it's legitimate, you still need to do your own diligence. Don't rely on other investor's diligence or "stories". Never, never, skip the diligence phase on the operators. Ask as many questions as possible. Challenge the numbers. Ask "what if's". Also note that an operator in a good market always looks good. An operator in a bad market, must be a good operator, to get results. So an operator may look good in one market, but when the market gets tough, it shows who the true good operators are.
5) Resistance to Questions. If there is ANY resistance from the general partner in answering your questions, run. It's their job to answer questions from investors. Ask about fees, ask about reporting, ask about experience, ask about the worst case scenario plans. Challenge them upfront and see how they act. This is likely how they'll act when things get tough.
6) Skin in the Game. Ensure that the general partner has A LOT of skin (money) in the game. If not, then it's just your money on the line, with no downside for them. This means they may decide not to act in your best interest as an investor, and if your operating agreement doesn't address that, you could be set up for a huge loss with limited options.
7) Ego is the Enemy. This is probably the #1 lesson I keep learning. We tend to be attracted to the fast talking, big visionary types, who tell a good story - but these types of people often come along with big egos (some of which may be entertaining, fun, and make you feel good). In some cases, if the ego is too big, the person may start doing things that are not in the interest of the investors. They may start overlooking negative data and telling themselves a story that is far off from reality. They may start blaming others for why the investment is not going the way it could be. They can start skirting accountability at all costs. This is the worst thing that can happen -- putting your money with someone who has a big ego, is not accountable, blames everyone else, and is a victim. Do not invest with anyone who has an ego so big it could backfire. Instead look for those with humility and extreme accountability.
Business Lessons in Hiring
1) Avoid Big Egos. On the hiring side, the lesson is the same around big egos. Avoid BIG egos at all costs, even if they drive revenue. They just are not conducive to business and are not worth it long-term. The business does not have the energy to run itself and to work alongside and address big ego employees or team members. A common theme about people with big egos is that they are commonly surrounded by drama and “stories” while avoiding facts or truths. Many times, they will not accept the truth. That’s their blind spot and they don’t have the awareness to even realize they are doing it. Instead, look for people who are humble and thoughtful, but who also generate results. This may be 1% of the population, but once you have these humble rockstars on your team, it is like rocket fuel to an organization and everyone in it.
2) Research Track Record. A person goes through multiple phases in their life and business. That’s why it is important to understand what phase of life someone is and what phases they’ve already gone through. Look at their prior affiliations and themes. For example, an employee who has jumped from job to job every 2 years is more likely than not to do the same to you. While this is no guarantee, it is common. We are creatures of habit. For example, I know for my own programming I like to start something new every 3 years. Understanding the time frame of a person based on their history can give you insight into what is likely to happen, or what needs to happen for you to disrupt the pattern if you want to keep the person on your team.
3) Talk to References. The best thing you can do to check track record is to ask for references. Go as deep as you can to learn new information about the person and ask the reference for more references to talk to. You are looking to find people who did not like working with this person so you can see why that is the case in case it pops up after you hire the candidate. You can start to see what others aren’t telling you. Now, just because one person doesn’t like this person, doesn’t mean the person is not a good candidate. We all have preferences. What you are looking for is patterns in behavior and any potential red flags that may pop up.
Good luck I hope these help. Go out there and BUILD! The world badly needs more builders right now and fewer people just wandering aimlessly through life.
