By Christina Henderson
Mistakes can be a painful, expensive, and inevitable part of running a high-tech company. But according to the more than 25 executives who gathered for the Montana High Tech Business Alliance’s CEO Roundtable on July 6, 2017 at Foundant Technologies in Bozeman, failures can also be a source of valuable lessons.
Here is a recap of that conversation, along with key business lessons learned through experience by some of Montana’s most successful entrepreneurs.
Pay Attention to Company Culture – Or Pay the Price
Lance Tinseth, Alliance Board Chair and CIO of Murdoch’s Ranch and Home Supply in Bozeman, started a company with a co-founder at age 25. For Tinseth, one of the biggest mistakes he and his partner made was failing to pay attention to company culture in the early days.
“We didn’t define the culture we wanted in the company,” Tinseth said. “If you don’t have a defined culture, you have a default culture. It didn’t work out so well.”
Tinseth found that as the company grew and brought in new outside employees with expertise in functions like finance, operations, and marketing, early hires had a sense of entitlement and didn’t allow the new people to succeed.
“It was not a catastrophic failure,” Tinseth said, “but an impediment to growth.”
After four or five years in business, the co-founders took key steps to address the problem. Tinseth and his partner paid an outside facilitator $75,000 to help rework internal alignments. It was a large investment, but ultimately worth the cost.
The company was rebranded with a new mission statement and vision to guide employees and create better customer service. As part of the process, the partners addressed the issues with company culture and took time to build job families so new employees could come into the company and know their career path.
Tread Cautiously with Partnerships
A number of executives at the roundtable faced challenges with partnerships.
In the late 1980s, Jacobson, who had a background in programming, joined forces with a business partner who had a background in sales. The two formed a company using automation to insert local ads into cable TV advertising lineups. Eventually, the partners merged with another firm to move into additional markets. The business was successful, bringing in $60,000 per month. And that’s when the diverging desires of the partners came to light.
“I wanted to keep growing and pay back loans my wife and I had put in,” Jacobson said. “My partner said, ‘I just want a bigger paycheck.”
The relationship with the new partners went downhill, and they bought out Jacobson’s share of the company. Within a year, the company dissolved entirely.
Jacobson has only entered into one other partnership in his subsequent ventures, which is working great because their vision and goals are aligned for the company. He believes other entrepreneurs can learn from his own difficult experience.
“Know your partners,” Jacobson said. “Make sure goals are aligned. Have a great contract. Know what you see the future as, and make sure all the partners have the same vision and that it’s in writing.”
Jennifer Ewan, Senior Counsel with Michael Best & Friedrich LLP in Missoula, has found that this failure to ask key questions among business partners is common in her practice consulting with startups.
“The biggest problems we see are with two best friends,” Ewan said. “And they don’t have those hard conversations. Then down the road, one is not doing as much as the other, and you’re having to deal with it.”
Ewan has also seen partnerships succeed – if the parties are willing to do the hard work up front. She cited one example of two individuals who did not know each other well opening a service-based business in healthcare. One partner was putting in $50,000 in initial capital, while the other was bringing an extensive network of industry contacts and international prominence.
Ewan advised her clients to sit down beforehand and try to discuss an equitable distribution based on the two contributions before meeting with the attorneys; in other words what’s fair essentially. This doesn’t mean and usually isn’t ‘equal’.
“Where is the hard line for each of you?” Ewan asked. “Do you want to be paid back? How much does your intellectual addition play into that? They really had some great talks and came to the table with hard lines and were able to draft an agreement that set the capital amount and a repayment schedule based on net profit over time that they were both really comfortable with. One didn’t want full ownership. They were really clear.”
Ewan also encourages her clients to talk with their accountant beforehand about dissolving to address questions such as, “What happens as an LLC when you dissolve and you have assets and debts? What are the tax consequences when that happens?”
Hire Smart, and Mind Montana’s 6-month Deadline
Workforce was another area that has tripped up several CEOs.
“All of my worst mistakes have been around hiring,” said Andrew Field, Founder and CEO of PFL.com in Livingston. “Making a bad hire, and then not making the call when you know.”
Field recalled the advice of a mentor, who said the time to let go of an employee is the first time it crosses your mind.
“Think about anyone you’ve ever thought, ‘Ah, this might not work out. I might have to pull the plug on this person,’” Field said. “Were any of them ever happy and working out one, two, or three years later? It doesn’t mean you can’t give somebody a first crack at feedback, but psychologically I think the reason I am too slow to make that call is I think, ‘Wait, I just got through hiring her or him.’ So the first thing I have to do is admit I just made a big, consequential mistake. None of us really likes to do that.”
Several attendees at the roundtable also emphasized the importance of knowing Montana’s unique laws regarding at-will employment and the crucial six-month mark for firing underperforming employees.
In 1987, the Montana legislature enacted the first and, to date, the only state statute in the United States requiring that private-sector employers have just cause to discharge their employees. After a probationary period of no more than six-months, an employee can be terminated only for good cause. “Good cause” is defined as reasonable job-related grounds for dismissal based on a failure to satisfactorily perform job duties, disruption of operations, or other legitimate business reasons.
During the probationary period, the employment may be terminated at the will of either the employer or the employee.
“In Montana, you have exactly six months,” said Tinseth. “If people decide after six months and a couple of days, they often have to keep the person on another six months just to go through the process of performance improvement plans and write-ups. Finally, they get to the point where they are comfortable saying, ‘I don’t think we’re going to get sued, and if we do, it shouldn’t be too bad.’ Six months is a hard deadline in Montana.”
Scott Sehnert, Bozeman Market President for Rocky Mountain Bank, noted once the the 6-month probationary period has ended for new hires at his company, the process of dismissing somebody who is not performing up to the required level could take nine to 12 months and several performance reviews.
Associated Employers in Billings was cited as an excellent resource for employers seeking resources to help navigate Montana’s employment laws and other HR-related issues.
Ewan of Michael Best also shared a sample employee counseling form that could be used as a guide for companies that need to document workplace performance issues and corrective actions.
By empowering yourself with good information, you can avoid turning your latest mistake into your biggest mistake.
About the author: Christina Quick Henderson has served as executive director of the Montana High Tech Business Alliance since its launch in April, 2014. Henderson writes and speaks on Montana business trends, entrepreneurship and high-growth companies for Montana Business Quarterly and other publications. She holds an English degree from the University of Iowa and an MBA from the University of Montana, Missoula.
About the publisher: The Montana High Tech Business Alliance is a statewide membership organization made up of more than 325 high tech and manufacturing firms and affiliates.