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Tuesday, December 4, 2012

Keep your business dealings as simple as possible

This path has more twists and turns than needed!

In the Sands of Iwo Jima, Sgt. Stryker (i.e., John Wayne) stated, “Life is tough, but it's tougher if you're stupid.   People can be very smart but do things that are not so smart.  The result may work out, but the path to the end can be hard to complete, consume excess energy and money, and confuse the team.   The goal should be to develop the clearest path to success and keep the dealings as simple as possible.   Otherwise, you fall in the trap of making life more complex than needed and potentially create delays or other complications.

The same is true for most aspects of business; business structures, deals, compensation plans, stock plans, marketing, manufacturing, etc.  Planning is an integral part of business.  Regardless of the intended purpose, starting simple and amending the plan as needed is often a good strategy.  The ability to keep things simple allows everyone to follow along with less confusion. 

One of the added advantages of keeping things simple is that should the originator of the plan depart, everyone remains able to determine what the intentions were.  Living with overly complex business dealings results in making the task of building a company more difficult especially if no one understands the situation after the originator departs.  Explaining the plan to investors is extremely complicated and review of the dealings in diligence becomes even more difficult.  The dealings may have worked, but certainly would require an understanding of it to carry it out!

Creating complexity is a natural reaction to adjusting to different situations.  Once something does not work properly, the analysis and modification are logical next steps.  The stepwise changes allow for monitoring and improvement yet keeping plans to the simplest form possible.  There are cases where individuals will contemplate all the ways something may fail and add layers of adjustments on day one.  Some of these have a tendency to cross from the realistic and workable to the ridiculous. 

When possible, try to keep your dealings as simple as possible.  Add the degree of complexity required to get the job done and ensure the plans are understandable by everyone.  If one of your team cannot describe the plan, maybe it is too complex.  You can count on them not carrying it out properly if they do not understand it.

For example, suppose you want vesting of equity.  You can go with simple time dependent vesting, you can pick select milestones for vesting, and you may be able to mix them.  It is possible that the mixing can become so complex the company and the employees will have problems tracking the vesting.  The reporting of the vesting is even more complex with an overly complicated plan.

As another example, you may want to acquire a technology for stock and cash.  You can develop a clear set of deal terms for the acquisition.  You may want to delay some of the cash payments.  Most of the transaction can be documented in very clear terms.  However, it is possible in the desire to do a great deal you develop a structure so complicated that no one will understand it in the future.  This presents problems with tracking and explaining the deal to others. 

The examples do not do justice to the complex deals they were describing.  The simplicity of the examples should help you get the points.  Maybe the simple explanation is satisfactory to present this message.  The actual deals were so horrible it is nearly impossible to describe them anyway.  In short, try to keep things simple.  No need to create a stupid arrangement that is overly complex unless that is the only way to do the job.

Taffy Williams is the author of:  Think Agile:  How Smart Entrepreneurs Adapt in Order to Succeed to via Amazon