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When the problem was finally discovered, two and a half years after our founding, I was completely unprepared. The headlines of this story are gory and embarrassing; more than $ 1 million lost from the company, balance sheet inventory securing bank debt revealed to lack title (it had never been paid for), one-third of the company employees (mostly located overseas) involved in some way in this, as well as two of our three joint-venture factories.
We have outstanding contracts for personal residences of household names in the entertainment industry and suddenly had neither the cash, staff, nor production facilities to fulfill them. To make matter worse, consistent with our industry, we had taken 50 percent deposits on these multi-million dollar contracts and had spent the money to procure materials; the money was now gone.
Meanwhile, my now ex-partner had liquidated all his U.S. assets and moved them overseas, and he contacted my contacted my customers and offered to finish their contracts for lower prices. With no sizeable assets to recover, huge legal bills burning limited capital and a disinterested judiciary, it became painfully obvious that I was unlikely to find satisfaction.
Popular notions aside, most successful entrepreneurs do not operate as “Lone Rangers” in the business world. In fact, research suggests enterprises that thrive are usually led by talented and effective teams of entrepreneurs, especially those who have had prior new venture experience. Entrepreneurship experts Jeffrey Timmons and Stephen Spinelli emphasize this point: Owning and running the whole show effectively puts a ceiling on growth… It is extremely difficult to grow a higher-potential venture by working singlehandedly. Higher-potential entrepreneurs build a team, and a company.
Unfortunately, team leadership in a small enterprise all too often presents its share of heartaches, as was the case for Richard Rhodes and his unnamed startup (see In the Sport-light). The high hopes of partnership and camaraderie in business can easily be dashed on the rocks of real life. People are imperfect, after all, so working closely with others is bound to lead to a certain amount of disappointment. But in all but the simple of businesses, the entrepreneur’s personal talents often need to be supplemented with the experience and abilities of other individuals. Therefore, a venture’s prospects typically are most promising when its leadership is composed of competent, resourceful, and tenacious individuals who are committed to doing their best. With that in mind, it is important for an entrepreneur to identify and attract a strong management team. A business plan that provides for effective leadership is appealing to both potential investors and prospective managerial personnel.
Beyond assembling a well-balanced leadership group, an entrepreneur must make a number of other important organizational decisions, For example, it is critical to select an appropriate ownership structure, which is often referred to as a legal form of organization. The direction of the business will be powerfully shaped by an entrepreneur’s decision to organize as a sole proprietorship, a corporation, or one of the other available forms. The organizational form should match the needs of the business, but getting it right can be a challenge.
This chapter also explains the use of strategic alliances, which are becoming increasingly popular among small businesses and can be strategically important to their performance. And, finally, we describe the role of boards of directors or advisory councils for small businesses and provide insights on how to make the most of them. All of these elements of a small business should be carefully considered in the organizational plan. The quality of an entrepreneur’s decisions on these issues can greatly enhance the performance of the company-or doom it to failure. But in the sections that follow, we will show you how to navigate the potentially dangerous waters of planning for these facets of the business and guide you toward improved odds for success.