Partner 1 called me a couple days later with some good news; he’d thought of a third principal for our would-be company, a women he’d worked with in the past. She was finishing her MBA but had been less-or-more doing the same work as an MBA with her current company for many years. Partner 2, as I’ll call her, might possibly come available from her current job soon and would be willing to have a sit down with Partner 1 and me to get a better idea about the business we’d like to start, and more specifically the initial product or products we’d be developing. Since I know exactly zero MBAs who’d be willing to operate with our practically nothing budget (i.e. inability to pay any salaries, all principals would have equal shares in the company, etc.) and who also had experience in the area of technology, I trusted that Partner 1 was on top of this selection.
We arranged to take a meeting in early June, on a Saturday, at Partner 1′s house, to discuss our business plan. For several days I thought about what our product would look like and do and how I might provide an “elevator pitch” to Partner 2 — who I understood to be non-technical. Note that it’s not uncommon for business people who work in technology to be non-technical. Their purpose is to manage the business, so to me, a business person being non-technical is fine so long as I can convey my pitch in a way that makes sense to both technical and non-technical people.
On the day of the meeting, I arrived at Partner 1′s house first. We chatted for a bit before Partner 2 arrived. Partner 1 gave me a synopsis of how the high-level business operation would look; I’d be the “principal architect” of the product (that is to say, in a company of 3, I’d be solely responsible for a thorough understanding of the technology and for doing all of the programming — that would allow us to bring our product to market), Partner 1 would be “chief technology officer” who would be responsible for a soup to nuts approach for all the technology related to our product, and Partner 2 would be “chief executive officer” who’d be the de facto boss, handle all of the finances and tie everything together.
Further, according to Partner 1′s high-level plan, we’d be a “virtual company” in the sense that we’d have a storefront on the interwebs and an 800-number so we would be reachable by phone. But behind the scenes we’d not have office space with a logo over the double doors or a receptionist at the front desk. It was important to keep vanity in check and to not spend dollars on office space or other flashy stuff until it was absolutely necessary.
As for ownership, we’d split the company three ways equally with the understanding that to add other principals in the future we’d redistribute our shares as necessary. We’d build the business over three years and assess where we were then to determine what to do with the business. Our goal was to build a solid, financially lean, small business that sold enterprise software (that is, software sold to corporations, en masse, for core computing infrastructure) in hopes of getting our return on the back end — that is to say by being acquired by another, larger corporation. The influx of capital from an acquisition would be our return on investment (ROE).
I was fine with Partner 1′s plan on its face, because it seemed ideal; everything would be symbiotic and there would be no difference between Partner 2 handling channel sales and Partner 1 putting together all the technology pieces and me doing all the programming work. The problem with an ideal plan, though, was that I ran the risk of being the only one doing large amounts of tangible work before we sold a dime’s worth of software. This would mean I was at a major disadvantage in the early days of the company and meant a total imbalance in terms of output if Partner 1 or Partner 2 didn’t follow through with their commitments.
Since I’d known Partner 1 for 10 years and Partner 2 had the endorsement of Partner 1, I was willing to go along without a fuss, but I had my reservations.
Our meeting with Partner 2 went pretty much as I’d expected. Partner 2 came into the meeting more-or-less cold. Partner 1 didn’t say that much about what we were doing except to tell Partner 2 that there was a kernel of a good idea that she might be interested in. Partner 2 got the “elevator pitch” and asked a lot of questions over and over, but this was more than fine. I’d rather deal with a businessperson who gives a crap to ask the same question enough times ’til they get it instead of one who either pretends to understand an issue but doesn’t (such that you’re screwed when you try to sell something or value what you’re selling) or dismisses your ideas wholesale because they don’t understand and/or trust you.
During the meeting, Partner 1 indicated that he expected this business to generate $1M (yes, that’s 1 million dollars) worth of sales within three years. He’d done some homework and figured out who our competitors would be and who might be interested in an acqusition, and for the first time I realized the magnitude of what we could accomplish — just us three principals. In fact, this was the first time I heard Partner 1 attach a number to what he thought we were going to sell, and for the first time I began to believe that I was truly on to something — because it was my idea, after all.
Partner 1 asked me to stay after the meeting to talk about things and I was aminable as I’d liked what I’d heard and wanted to see what his impression was. We spent some time talking about the product at a high level and what a v1.0 product would look like. I left the meeting with a sense of my next steps and started doing some more research on the next day. Remember, not a single line of code (code is a program to those of you who don’t know) had been written at this point.
