Questions For New Start Business

Something for the business gurus out there.

A couple of the senior people at my current employer are leaving to start their own business. They have asked me if I want to join them (as an employee rather than business partner). They will be starting from nothing and there will be some overlap with our existing business (i.e. almost certainly competing directly). They want to take me on to develop one area of the business in which I have a significant amount of experience.

I have a meeting with them this week to discuss things and whilst I know the business area well I need to be armed with sensible questions to ask a fledgling business to be sure they have thought everything out and guage the probability of success. Anybody any sensible suggestions?

Unless they’ve got their wages+your wages+overheads for a year then forget about it.

sounds like they’d need you more than you’d need them, limited liability partner or no go?

Agree with MrNutt. Sounds like you have the leverage to get in as a partner/director.

First though, ask to see all their plans and projections. Insist on this, as you’d need to know they could pay your wages if taking you on as an employee.

Then if you think it’s a go-er, tell them you want a stake. Doesn’t have to be on same basis as other directors if they are putting money up.

Sounds like they’re realying(sp-sory bit drunk) on you to be part of their plan, so you deserve a bit more, unless they are putting up big money, and can guarentee your earnings

as above

cash flow

And aso check that they are legally allowed to approach any existing customers or trade in a similar fashion within a certain radius – most contracts state that you are not allowed to approach your employer’s clients for a set time after leaving. If they ignore any such clause and do so, they could end up at the wrong end of a legal case and not be in a position to trade…

I don’t have a great amount of experience, but I’d certainly be asking the question of why they are not considering you as a business partner, or at the least, an employee with shares and a voice on the board – or even should you be happy with the employee thing, because you are there ‘at the start’ a healthy wage increase, full control or whatever stipulations you feel makes you happy and gives you what you want?

I think the knowledge of a guarantee’d income is upto you, if you are confident in their and your ability to succeed, then that guarantee is a little less important, no?

Jonathan

Check your (and their) existing work contracts, there may be ‘existing customer’ exclusions.

It doesn’t sound good to me – as an employee I don’t see what’s in it for you (you will loose any accumulated employee benefits of current job, I don’t think there is much ‘accumulated’ below 2 year mark). You’re carrying as much risk as them but if it works out you’ll get none of the *presumed rewards they get (bonus, shares ….).

Ask them what they’re putting in and compare it with what they want from you (and what they’re giving you and expect you to put in). ie if they’ve put their houses on the line at least they’re commited, if nothing then they have no risk.

jontawn – Member
I don’t have a great amount of experience………..

I think the knowledge of a guarantee’d income is upto you, if you are confident in their and your ability to succeed, then that guarantee is a little less important, no?

Jonathan

No. Most start ups should expect to make a loss for the first few years so it’s essential that they have the funds to absorb this. In a micro business where you have two owner directors and one employee guess what the first expendable asset to be cut loose is gonna be if things get tight?

It’s all too easy to underestimate the costs involved in starting up. In the current climate if I was in the thread starters position I would need to see evidence that the two guys aiming to set up the business have the finances.

As everyone else has said… only do it as a shareholder.

I went through the same thing 10 years ago. Expect some nastiest from your current company. They’ll threaten legal action but in reality it’s too costly and very dubious as to whether they’ll win, so don’t take it seriously.

Best thing I ever did, but it wasn’t during a recession.

Most start ups should expect to make a loss for the first few years

What absolute rubbish. Most small businesses should be breaking even from day one.

Depends on the business. If you plan to build cars then it’ll be a long time for you to get profitable. If you’re setting up an IT consultancy then you’ll be in profit by the weekend.

Not many car manufacturers are small businesses though. GNARGNAR talks about micro businesses and potentially being unprofitable for several years in the same post.

geoffj –
What absolute rubbish. Most small businesses should be breaking even from day one.

If you’ve got a market stall selling vegetables maybe, otherwise stfu.

stfu

temper temper!

gnargnar – its a myth that small business should not make a profit from day one. Of course if you are setting up something like a large production facility or a large volume discounter which will take time to attract the customers then there is going to be a lead in time which probably will run into years.

But a two man and a dog business should be breaking even from day one or at least within the first 3-6 months and in the current economic climate, no financier of sound mind would invest in a startup that wasn’t going to turn a profit for a couple of years.

I joined a startup 18 months ago as an employee. they had customers/contracts in place that essentially kept the company running for the first two years prior before they looked to employing any staff and have built the company without any borrowing at all.

My questions woudl be;

1) Do they have any signed contracts – if not then you’re relying on the directors continuing to finance the company whilst they search for a customer who may not be there.If money gets tight you may be asked to ‘work for nothing for a few months until cash flow sorts itself out’ which won’t be good.

2) what’s their exit strategy – if they’re looking to build it up quick and sell it on you’ll be doing a lot of work for just a salary and possibly no job in 3-5 years.

Dr t: Give us a clue about the type of business.

As above, I guess the important thing for you is to keep an income.
So you need to know the projected compnay incomes, cash-flow, outgoings, and who the customers will be. Who will be backing you all? What’s in it for you apart from a change of employer?
And get it all in writing first, before resigning.

I know a bloke who joined his mates on a promise of shares and a massive income, then was offered much less once he’d resigned from his previous.

Don’t forget to factor in things like pensions, holidays and other benefits into any package they offer you.

How is the recession going to affect their plans – how is the market you are in being affected?
What do they see as the risks?
How dependent on you and your expertise is the success of this new venture i.e. what would they do if you didn’t join
Have they got start-up funding agreed?
Have they got various financial projections for different levels of business i.e. optimistic, realistic and pessimistic
What does their cashflow look like in each scenario? – Most companies go into administration because of cashflow problems rather than inherent lack of profitability!
Despite some comments above relatively few new businesses make a profit in their early stages unless there is very little capital involved, or they are very lucky!

Thanks for the comments all. At least you have given me some more ideas. The prospect of a partnership has been mentioned but I have nothing firm at the moment. I fully expect the people involved to turn it into a successful venture as long as they have suitable financial backing in place.

I also have to weigh it up against the openings they create when they leave and I will have ample opportunity to pay bargain for either staying or leaving. Should be a good pay rise this year whatever I decide though 🙂

DrT: “… I will have ample opportunity to pay bargain for either staying or leaving. Should be a good pay rise this year whatever I decide though [:)]

Hhmmm … in this economy climate? I think you might be a bit too optimistic. Count yourself lucky if they give you a raise at all.

😯

While people are saying you should look for a stake in the company rather than ‘just’ a job, keep in mind that employers don’t always treat themselves as well as their employees, especially during the early stages of a new business. A stake in the company is a stake in everything, the risks and hardships and loses as well as the rewards. Are you prepared to do that? Will you pay yourself peanuts in order to make sure your employees get paid in full and on time? This month, next month and for as far into the future as you can see? Are you going to forego holidays and be checking your emails and calling into the office when you do take time off?

My brother and two colleagues set up their own business when the company they worked for crashed an burned. However one of the partners was treating the business like a job, he would do what was asked of him but wouldn’t take liability for the whole. In the end they had to pay him off and cut him loose, he’d been a great guy to work with, but not a great guy to be in business with.

Unless you are of a mind to go into business then you’d be better off to settle for a job, a steady wage while you employers are remorgaging their homes to pay your wages and the rent, and the bargaining power of being their most valued and longest serving employee when they hit the bit time.

DrT, looks like you have had a lot of good advice (some better than others) that should help you. My advice is don’t miss an opportunity that you will regret later, better to have tried etc.
In whatever capcity you go into the new business look at the partners. Skidartist’s point is very important, can the people you will work with/for build a business, can you imagine working with them for a long time.
One other thing, companies that start in a recession often go to do pretty well.
Good luck to you.