To develop employees,
match tasks with talent
sdavis@mdaconsultinggroup.com
FINANCE
DEAR INFORMER: My partner wants to self-fund the business, whereas I want investors so we can grow more quickly. How do we resolve this difference?
DEAR OPPOSITES: Forget about “rock, paper, scissors.” This one is going to take some real soul-searching and significant discussion. Your decision will make a profound difference in the future of your business. Neither answer is right or wrong; like a lot of things in business, the right path depends on your goals.
Scott Riser, for example, of Virchow Krause & Co. in Bloomington, always recommends that companies raise capital.
He says the reason is simply mathematics: You pay your trade vendors every 30 days and your employees every two weeks, but meanwhile your customers are going to want to extend payment terms as long as they can. Before you know it, “you run out of cash, and you have to scale back,” says Riser.
That’s the main issue, in his point of view: What kind of opportunity are you going to miss by being short of capital? “A good solid business, it’s going to hamper the growth, especially if you’re carrying receivables or inventory,” Riser says.
He acknowledges that bringing in investors always changes the business, but to mitigate that issue, screen your financiers as carefully as you would anybody else. “You don’t just accept the first money you find,” Riser says. “You need to find people who agree with your business plan.”
Mike Porter, on the other hand, of Adesso Technologies, says the president of his company, Dennis Todora, is committed to self-funding in part to disprove the thinking that that’s impossible for technology companies.
Porter’s motivation is different. “I don’t want to give up control to a venture capitalist,” he says.
Adesso last summer purchased a product, System Suitcase, that eases the upgrading of office software for computer networks.
Whether self-funding will work depends on several key factors, beyond whether there’s enough funding coming from yourselves to last, Porter points out. For example, if a product has a limited shelf life and needs to get to market within a short window, you’ve got to raise money.
Or, if a product is not mature enough to go to market, R&D funding is needed. But beyond such particular circumstances, whether to self-fund or bring in investors is going to boil down to philosophy.
“You really have to have a commitment” to self-fund, says Porter, who is one of eight equal partners. “No matter what happens, it’s ours.”
And in the other corner: “You really have to believe in your business model” to take it to investors, Riser says.
See what I mean? It’s time for a long talk with your partner, about where you want the company to go and how much money and time it’s going to take to get there.
Mike Porter, Adesso Technologies, Bloomington: 952.881.3426; mporter@adessotech.com; Scott Riser, Virchow Krause & Co., Bloomington: 952.351.4791; sriser@virchowkrause.com
HUMAN RESOURCES
DEAR INFORMER: I want to hire a top executive in town as my VP of sales, but he has a non-compete agreement that looks scary. Do I need to forget about him?
DEAR WISHING: Ah, the dark side of those non-compete agreements that all those lawyers want you to get signed. When you want to hire someone away from the competition, they may come back to bite you.
Fred Montana, CEO of FM Industries Inc., an executive search firm in Eden Prairie, says that most non-competes can be worked around. But they’re likely to cost you time and money no matter what.
That’s why the first question you should ask is: Is this really the person I need? “Am I really willing to pay some legal fees to have that non-compete looked at?” Montana says.
If the answer is absolutely, some do have loopholes, Montana says. If they’re too broad or the time frames are too long, they’ll never hold up. “I have non-competes for six months and in two counties,” Montana says. “Invest some dollars in having a good labor lawyer look at it.”
If it’s airtight, you can offer to buy out the contract. Or you can bring over the person but not have him work directly in sales until the time period expires. “Bring that person on and use them in synergistic areas,” Montana says. “For example, if it’s a VP of sales, you can structure it to use him in marketing.”
If the person is valuable in a duplicate capacity only, Montana says, he may not be worth as much trouble as you think. “Say they’re great at selling. Are they great because they’re really good, or because they have a great client base? Is it worth the money you spent to keep them on the bench for a year?”
Montana says non-competes waned during the late 1990s, when employees were king and they educated themselves and refused to sign. He expects more and more employers to require the signing of noncompetes.
Fred Montana, FM Industries Inc., Eden Prairie: 952.941.0966; famontana@aol.com
