Questions Potential Business Partners Should Ask Themselves - Kanebridge News
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Questions Potential Business Partners Should Ask Themselves

Starting a new company with somebody requires a hard conversation. Better now than later.

By MOLLY BAKER
Fri, May 10, 2024 10:00amGrey Clock 5 min

You and a friend have a can’t-miss idea for a new business. You’ve got a great name, and the logo is perfect.

It is time to ask each other some hard questions.

Talking up front about tough subjects like how you work, how you deal with stress and your expectations for the business can save lots of headaches later. “Most issues are neutral when you discuss them ahead of time,” says Jane Brodsky , who ran a barre-and-spin studio with a partner for 10 years in Washington, D.C. “But in the heat of the moment, issues become personal and larger than they need to be.”

Here are crucial questions that should be settled at the start to help make the partnership succeed.

How did your family communicate?

Maybe you were raised in a family that talked through disagreements to find solutions. But maybe your partner grew up in a house where the loudest voice won. That could be a problem when issues arise in the business: Experts say that when people are under stress, they often fall back on behaviours that were imprinted at home—and different styles could clash.

At Happy Being, a company that sells nutritionally enhanced teas and drink powders, the three co-founders discussed communication style before they started the business.

“We discovered that one partner gets triggered if he feels no one is listening,” says co-founder Dutch Buckley . “It goes back to an early fear of not being heard.”

(For his part, co-founder Josemaria Silvestrini says that early on he “definitely needed the validation of being recognised and being right.”)

So, the three work at making sure everyone has a say in meetings, and they made a rule that no one’s work is ever belittled. On the flip side, when someone on the team accomplishes something, someone else on the team draws attention to it.

What does success look like to you? And failure?

While these may seem obvious—like, the business either succeeds or fails—everyone’s definition is different, and they are surprisingly specific. Certainly, monetary goals or anything that can be enumerated will help partners envision each other’s goals. Is one looking to grow slowly with customers and suppliers in the community and get to better than break even after three years, while the other wants to be cash-flow positive in year one and scale quickly to sell the business to a larger entity after 10 years? There’s a lot of success and failure in between those two outcomes, depending on your perspective.

Silvestrini of Happy Being recommends hashing it out together on the whiteboard until everyone agrees on an explicit definition of success for the company. “Hopefully, it’s an easy 10-minute conversation,” he says. “Because if founders have different objectives, the boat is going nowhere.”

What does everyone bring to the table?

It is crucial to discuss what each partner is contributing to the partnership in terms of expertise, experience, network and money. Kathryn Zambetti , an executive coach specializing in founder relationships, recommends taking an honest strengths-and-weaknesses inventory of yourself and your partner and then discussing what you both bring to the table. The exercise will help delineate which responsibilities naturally suit each partner, and it will highlight areas that will require additional work or outsourcing.

The clearer the roles can be defined, the better. If you are opening a bakery, you and your partner shouldn’t both be good at just making bread. Someone needs to handle marketing, suppliers, leases and licensing, financials and hiring and managing employees.

Why are you doing this?

You and your partner need to be in complete alignment on your motivations. Does this venture need to support your family or merely add to your vacation fund? Are you doing it to prove your father or your high-school econ teacher wrong? Any answer other than unfailing commitment to the mission or the product is a red flag.

“Your north star has to be something bigger than money to succeed,” says Buckley. “People will go through things that test them, but if money is the only motive, that won’t be enough.”

What pushes your buttons?

Just like in a marriage, you want to know best how to support and protect your business partner. Understanding what puts each of you in a fight-or-flight mode can be key to getting the best out of each other.

Do you need to be consulted on all decisions, or just major ones? Do you need to be recognized as the leader and sit at the head of the table? Do you fear having to downsize your home if the business fails?

What does your workday look like?

Does a day at the office mean working 9 to 5? Can the work be done remotely and on your own time? If you work well at night and need rapid responses to questions, is it a problem having a partner whose phone goes on “do not disturb” every evening at 7? Having the conversation and understanding expectations is key.

When Buckley started Happy Being, the team learned that one of the partners got up very early. “I had to tell him, ‘We don’t want 6 a.m. calls.’ ”

Do you like taking gambles?

A penchant for lottery tickets, Las Vegas gambling or high-adrenaline activities like skydiving shows a potential partner’s tolerance for risk and whether that aligns with your own. There will be countless decisions early on in a business concerning risk, and the partners need to be on the same page.

So ask about it. You go into the venture planning and hoping for success, but how much money or time is your partner willing to lose if it doesn’t succeed? How much of their parents’ or in-laws’ money would they bet on the partnership?

Is the business more important than the friendship?

Many business partners start as friends. But would you each be willing to give priority to making the right decision for the business, even if it means possibly hurting the friendship? Would you each be capable of letting the other one go if it was better for the company? Most advisers recommend choosing a partner who has a common business goal and letting the friendship build from that, rather than trying to build a partnership on top of a strong friendship.

“Your business partner will be one of your most intense relationships, but it shouldn’t fulfill every role in your life,” says Amy Jurkowitz, entrepreneur and co-founder of branding adviser Bread Ventures. “You need to be compatible in how much energy you will both put into the business.”

If the partnership doesn’t work out, how will it end?

A co-founder relationship is a binding agreement with financial and emotional repercussions, just like a marriage. But starting a business has the added stress of having the company—the baby—arrive on day one. If there is a divorce, who gets custody?

The more specific you can be about potential breakups, the better. If you are both putting capital in at the start, would you expect to get that out if you exited? What if, several years in, one partner can’t continue to struggle without a regular paycheck and leaves—and the next year the company finally turns a profit or is bought by another company? Would the partner who left get a share of the money?

These discussions should help make it clear that the survival of the company—and not the partnership or the friendship—is the ultimate goal. Those who have been through a business breakup recommend involving a third party to help sort through these issues at the outset.



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These stocks are getting hit for a reason. Instead, focus on stocks that show ‘relative strength.’ Here’s how.

By KEN SHREVE
Wed, Jun 12, 2024 4 min

A lot of investors get stock-picking wrong before they even get started: Instead of targeting the top-performing stocks in the market, they focus on the laggards—widely known companies that look as if they are on sale after a period of stock-price weakness.

But these weak performers usually are going down for good reasons, such as for deteriorating sales and earnings, market-share losses or mutual-fund managers who are unwinding positions.

Decades of Investor’s Business Daily research shows these aren’t the stocks that tend to become stock-market leaders. The stocks that reward investors with handsome gains for months or years are more often  already  the strongest price performers, usually because of outstanding earnings and sales growth and increasing fund ownership.

Of course, many investors already chase performance and pour money into winning stocks. So how can a discerning investor find the winning stocks that have more room to run?

Enter “relative strength”—the notion that strength begets more strength. Relative strength measures stocks’ recent performance relative to the overall market. Investing in stocks with high relative strength means going with the winners, rather than picking stocks in hopes of a rebound. Why bet on a last-place team when you can wager on the leader?

One of the easiest ways to identify the strongest price performers is with IBD’s Relative Strength Rating. Ranked on a scale of 1-99, a stock with an RS rating of 99 has outperformed 99% of all stocks based on 12-month price performance.

How to use the metric

To capitalise on relative strength, an investor’s search should be focused on stocks with RS ratings of at least 80.

But beware: While the goal is to buy stocks that are performing better than the overall market, stocks with the highest RS ratings aren’t  always  the best to buy. No doubt, some stocks extend rallies for years. But others will be too far into their price run-up and ready to start a longer-term price decline.

Thus, there is a limit to chasing performance. To avoid this pitfall, investors should focus on stocks that have strong relative strength but have seen a moderate price decline and are just coming out of weeks or months of trading within a limited range. This range will vary by stock, but IBD research shows that most good trading patterns can show declines of up to one-third.

Here, a relative strength line on a chart may be helpful for confirming an RS rating’s buy signal. Offered on some stock-charting tools, including IBD’s, the line is a way to visualise relative strength by comparing a stock’s price performance relative to the movement of the S&P 500 or other benchmark.

When the line is sloping upward, it means the stock is outperforming the benchmark. When it is sloping downward, the stock is lagging behind the benchmark. One reason the RS line is helpful is that the line can rise even when a stock price is falling, meaning its value is falling at a slower pace than the benchmark.

A case study

The value of relative strength could be seen in Google parent Alphabet in January 2020, when its RS rating was 89 before it started a 10-month run when the stock rose 64%. Meta Platforms ’ RS rating was 96 before the Facebook parent hit new highs in March 2023 and ran up 65% in four months. Abercrombie & Fitch , one of 2023’s best-performing stocks, had a 94 rating before it soared 342% in nine months starting in June 2023.

Those stocks weren’t flukes. In a study of the biggest stock-market winners from the early 1950s through 2008, the average RS rating of the best performers before they began their major price runs was 87.

To see relative strength in action, consider Nvidia . The chip stock was an established leader, having shot up 365% from its October 2022 low to its high of $504.48 in late August 2023.

But then it spent the next four months rangebound—giving up some ground, then gaining some back. Through this period, shares held between $392.30 and the August peak, declining no more than 22% from top to bottom.

On Jan. 8, Nvidia broke out of its trading range to new highs. The previous session, Nvidia’s RS rating was 97. And that week, the stock’s relative strength line hit new highs. The catalyst: Investors cheered the company’s update on its latest advancements in artificial intelligence.

Nvidia then rose 16% on Feb. 22 after the company said earnings for the January-ended quarter soared 486% year over year to $5.16 a share. Revenue more than tripled to $22.1 billion. It also significantly raised its earnings and revenue guidance for the quarter that was to end in April. In all, Nvidia climbed 89% from Jan. 5 to its March 7 close.

And the stock has continued to run up, surging past $1,000 a share in late May after the company exceeded that guidance for the April-ended quarter and delivered record revenue of $26 billion and record net profit of $14.88 billion.

Ken Shreve  is a senior markets writer at Investor’s Business Daily. Follow him on X  @IBD_KShreve  for more stock-market analysis and insights, or contact him at  ken.shreve@investors.com .