Today we learn a very concrete rule to live by when starting a business: three is not your lucky number.
My home seems to attract neighborhood children. All of our sons bring friends home regularly and we have always welcomed them, making our home a safe place to play. However, a few years back my wife established a wise rule: you can have one friend over, or three, but not two. Three has always been a dangerous number. Whether you’re nine years old making up a game in the backyard, 16 and going out to a movie, or 40 and starting a new venture, three is a tricky number.
When you’re dealing with children, the storm will usually blow over after a day or two, forgiven and forgotten. However, it’s harder for adults to play nice the next day. More often than not, we tend to hold grudges and attempt to exact revenge.
I once cofounded a business developing niche content web sites. My partner and I were enjoying rapid success. A close friend of my partner’s—a former boss of mine—stopped by for a visit. He had lost his job and was looking for an opportunity. I was reluctant, but my partner felt very strongly about bringing this friend into our business. Not wanting to rock the boat, I went along with the plan, despite my reservations and the deep concerns of my wife.
After extensive discussions, my partner and I agreed to bring this fellow on as the general manager under three conditions:
1) He would not have ownership in the company: no equity involvement.
2) We would pay him a very good salary.
3) We would not follow a path that would raise capital (which was his background and natural path).
Somewhere deep inside, I could hear a voice telling me that this relationship structure was perilous, but logically I couldn’t find fault with it. To complicate the situation, our new hire had also been the chairman of a company where I had been the CEO. In this new arrangement, he would be required to report to me rather than me reporting to him. I know, I know—this screams train wreck, doesn’t it?
A number of months later, as we were developing our next business concept, the new general manager laid down the gauntlet and demanded equity to remain involved. My partner supported his position and pressed hard to grant him ownership. I caved. Rule #1 violated. Several months later, I woke up realizing we were on the path of raising funds “to quickly bring the new concept to market.” Rule #3 disregarded.
Now I want to be very clear here. I hold myself accountable for the violation of these rules, as much if not more than my partner.
In most of our interactions, I felt displaced and stupid. I felt awkward. I was the odd man out. My communication and interaction became guarded and I became hesitant to verbalize my thoughts, feelings, or ideas. Much of the direction of the company was now being decided independent of me.
I was the little kid left out on the playground—the third wheel that just didn’t fit. And just as the little kid on the playground gets mad and runs home pouting, I made a stupid mistake. This mistake was over-dramatized, which, when combined with the communication breakdowns, led to the total destruction of the business relationship and the friendship. For me, the loss of the relationship was far worse than the loss of the business, but the decisions we made left us no other option than to messily and bitterly part ways.
Porter’s Points—Three Is a Dangerous Number
- 1+1+1 does not equal three – it equals trouble.
- If you know the train is bound to wreck, why buy a ticket to that destination? Get off the train and find another ride—there are hundreds of trains!
- If you find yourself in a hostile partnership give plenty of consideration about the price of terminating it. Pride is not your friend!
Stick to the rules you made when you started your business and watch for warning signs that you’ve drifted off course. Next time we’ll talk about family businesses.