It is tempting but dangerous to start a business with good friends, and it is similarly challenging to get the real deal on someone you don't know, executives said at the 2004 Entrepreneurship Conference.
Hiring friends
Panelists conceded that it is often hard not to work with your friends. After all, people are most likely to bat around their best ideas with pals over pizza. And friends are the people we know and trust, so who would possibly be better business partners?
Despite the inevitable pros of working with friendsmutual understandings, shared goals and fond memoriesall four panelists admitted that it was an issue they had personally struggled with, and one they could not recommend for future entrepreneurs in the audience. It is terribly painful to have to lay off a friend, and that makes it easy to cut them too much slack and defer the tough decisions, they said.
"There is something completely different about creating an idea and building a company," said Stuart Schaefer, CTO of Softricity, a company that makes application virtualization platforms.
Rosalind Resnick, the CEO of Axxess Business Centers, which provides start-ups and small businesses with consulting, business plan writing, and financing, said that she started a previous company in the Internet era with her life partner. She retained 51 percent control.
It is terribly painful to have to lay off a friend, and that makes it easy to cut them too much slack. |
"I was CEO, he was CTO. At first I liked feeling like Bonnie and Clyde. But you don't want your partner reporting to you," she told the student audience. "It turned out OK, but it was a dot-com rollercoaster."
Even if people aren't your friends when you hire them, it is easy to become friends with them later after slogging through long hours together. Be prepared for all ranges of emotion, said Michael George, CEO of Bowstreet, a firm that creates products for Web applications.
And strangers...
Evaluating strangers for positions of responsibility in your company is no less difficult, they said. John Keane (HBS MBA '88), of ArcStream Solutions, said his company has started using formalized testing programs. Job candidates take a forty-five-minute test that asks a variety of questions pertinent to the position, and then fax it back. Third-party interviews are also helpful and save time since the interviewer writes up a report to highlight weaknesses and strengths. That allows Keane and colleagues to conduct a more focused, personal interview later.
"At the lower levels, use recruiters. At the executive level, it's best to know the people and know exactly what they did," he said. In business, you are in the trenches, added Schaefer, and if you can't trust someone it may cost you a lot of time and money.
But the whole hiring process is never foolproof, panelists said. They recommended that entrepreneurs always "network in the background" and seek a back-end reference among people they know and trust in order to learn about positive or negative experiences others may have had with individual candidates.
This is why it is important to never stop networking even if your own job is secure, they said. According to Keane, "You might not meet your next CTO, but you will meet CTO types" and this will give you better grounding for evaluating future CTO candidates, for example.
It's also essential to know who you are as the decision maker, advised Resnick. This will save everyone the cost of unrealistic expectations and misunderstandings later.
MIT professor Diane Burton moderated the session, held March 5 at Harvard Business School.