Co-ownership issues Women entrepreneurship

1. Co-ownership issuesWomen entrepreneurship Martin Lukeš July 28, 2011

2. Co-owners • To have or not to have? • Tomas and Karol’s case

3. Tomas had his own business already in the late nineties. He built retail network of shoe outlets, however he bankrupted because of underestimation of Asian competition and mainly because his business partner took out a substantial amount of money from the company for personal use. However, entrepreneurial spirit stayed in Tomas and thus he started to build a business firm focused on buying and selling windows, doors and related equipment. He worked with a margin at about 10 per cent and sales revenues at about 20 millions CZK. That was OK for living, however he saw a big potential in window production that would allow higher margins. It was the year 2006, the market was highly fragmented and growing and there was a new technology in Germany allowing producing windows without steel reinforcements, i.e., with better heat-insulation, for the same costs. Therefore he prepared a business plan and convinced CMZRB (state owned bank with a mission to support new businesses) to provide loan guarantees for his business idea. He had 3 millions CZK and needed another 20 for building a production facility. Nevertheless, no commercial bank wanted to give him a loan, because they said the business is risky, he has not convincing history in the industry, and there is no guarantee his products will be wanted. What would you do in his place?

4. Tomas made a deal with Karol - Slovak entrepreneur who had in Slovakia successfully running sales company operating in the window market for more than a decade, yearly sales revenues over 120 million SK. Karol also agreed that after the start of production, he will take 20% of the production and sell it in Slovakia. New business partners also agreed that Karol will invest 6 millions CZK in the company and Tomas additional 3 millions in order to have the equal share. Besides that, Karol will work on business development and Tomas will take responsibility for the construction site of their factory, staffing and supplier relations. Simultaneously, in order to make for living, Tomas kept running his small sales company from which he had a stable income. During the next year, the factory was built, however misunderstandings and conflicts between co-owners grew. Tomas was disappointed, because Karol did not work on business development, the only thing he did was contributing financial resources. On the other hand, Karol just watched, how his millions (8 in total) vanished in building the factory, there are yet problems with final building approval and Tomas is not able (or willing) to show him complete accounting documents. He suspected Tomas that he finances his own sales company from Karol’s money, thus he creates profit and these money puts back in their mutual business claiming this money are his personal wealth invested. Therefore he stopped to provide additional financial sources and whatever support and started to plan how to lower Tomas’ influence in the company. However, when he was abroad on 2-months long vacation, Tomas called him off from the position of company’s executive head. After his arrival, Karol handed in complaint to the court because of this illegal act and financial fraud. Tomas handed in a complaint for not keeping partnership agreement to take and sell 20% of production. Karol said, the windows are not possible to sell because of high price Tomas declares. Three months later, the company produced 50 windows per day (plant capacity is 120 windows per shift), had unpaid liabilities 15 millions CZK, each day generated some loss (break even point with 70 windows per day), and had not approved accounts from the last year. How would you solve this situation?

5. According to what criteria would you recommend to look for and to select co-owners? • Agreement in business philosophy • The direction of firm development – major business activities • Business fundamentals and values • Growth ambitions • Personal time devoted to business • Opportunistic or planning approach? • How big the loans/ivestor’s money should be • Exit strategy • Agreement with clear division of roles, professionally different responsibilities

6. Selection criteria (2) • Complementarity – co-owners should complement each other and have their unique added value for the business • Professional knowledge • e.g., knowledge of products, customers, procedures, legal issues, ICT and languages • Skills • Selling, negotiation, team, presentation, managerial skills • Contacts / Social capital • To customers, suppliers, investors, potential associates / business partners (accountants, lawyers, webmasters, …) • Sympathy and trustworthiness • Positive mutual relation, mutual respect, mutual trust, morale

7. Co-owners • What sources can be used when looking for co-owners? • What are the pros and contras of various sources? • Friends and school-mates • (Former) co-workers • Family members • Well-known professionals • „Market“ relations

8. Finding co-owners • Imagine you want to start your own business during your studies or after graduation. Also imagine, you wish to have your business in the same area (e.g. Consulting for entrepreneurs) as your neighbour sitting next to you and you both are looking for a co-owner. • Discuss, whether you two would be good partners in the business based on your business philosophy: • Agreement in business philosophy • Growth ambitions (how big in 5 years?) • Business fundamentals and values • Personal time devoted to business (hrs per week, how long?) • How big the loans/investor’s money should be (EUR) • Exit strategy (when to sell?)

9. Womenentrepreneurship „There are three types of people in this world: those who make things happen, those who watch things happen and those who wonder what happened.“ Mary Kay Ash founder of Mary Kay Cosmetics

10. Entrepreneurial activity and gender

11. Recommendations for women • Setting up priorities • Right timing: children and/vs. entrepreneurship • Partner’s support • Industry selection • Right co-owners • Supportive organizational culture as a competitive advantage • Networking