I’ve shared my views on the importance of bidirectional relationships and treating investor relationships as partnerships. Today, I write about another relationship truth. For most entrepreneurs—and everyone else, for that matter—there will come a time when a relationship is no longer a good fit. This has happened to me when values—mine and the other person’s—don’t align.

At CCAW, we had done business with a certain vendor since our earliest days. Eventually, we bought more from this vendor than from any other, and we’d become one of their biggest customers (for the products we purchased). As with any relationship, there were ups and downs. I was tech focused and pushed them to upgrade their technology so we could integrate our systems and grow the relationship faster. They thought the old manual way worked just fine. Despite this, we continued working with them. It got to the point that CCAW spent about $1 million with them every year.  

It all seemed to work, until it didn’t. They began to gripe about their other customers to me and show attitude to our service team members. For years, I’d met annually with their executive leadership. After noticing these changes, I began inquiring about their company vision and values. Maximizing revenue and profit was their vision, and they had no clear values. It all started to make sense. As they grew, the lack of a clear vision and values caused them to stray from what made them successful.

Our internal data showed that sales of their products accounted for half our annual gross profit. I’d have to figure out how to replace it before I even thought about switching vendors. I was basically married to them. I decided to unwind and replace the relationship slowly over two or three years.

Within a few months, the working relationship between our service team and their sales team tanked, to the point that a blowup reached my desk one day. I reviewed the situation and knew I had to do something. The vendor was eroding our service team’s morale and taking up too much of our operations leader’s and my time. I decided to pull the plug on the relationship effectively immediately. Remember: half our gross profit! I was making CCAW instantly unprofitable. Needless to say, I was pretty nervous. I was under the gun. It was either replace that lost profit or go out of business.

Then a funny thing happened. Because our team didn’t have to deal with this vendor, it had so much bandwidth and time that we were able to invest in both new and existing vendor relationships. In a month or two, we had regained all the lost profit and then some. My service team was happier, our leaders’ time wasn’t being wasted, and the company was back to growing in a healthy and profitable manner.

Upon reflection, I now realize that I made rookie mistakes:

• Hire slow – I focused on growing the relationship with the vendor as quickly as possible. What I should have done is evaluate them more thoroughly before doing business with them or get to know them better before allowing the relationship to reach material scale. I should have found out what they stood for, and why.
• Fire fast – When you make a hiring mistake, it’s best to correct it quickly. Fire them right away. The longer they’re around, the more serious the damage becomes. I tried to ease the vendor out over time. Instead, I should have ripped the Band-Aid off and endured the short-term pain. I could have saved my team a lot of time, energy, and frustration.

We were lucky that things worked out well. Lesson learned: pay much closer attention to the values of people and organizations I associate with. If the values revealed by their actions don’t align with mine, I politely pass. It’s easier to avoid them than to rip and replace.

How has alignment of values affected you?

I’ve shared my views on the importance of bidirectional relationships, which I believe is one of those good-life principles. But for entrepreneurs, understanding how to approach relationships with investors is imperative.

Don’t view a good investor as a cash machine, but rather as a partner in building your business. Yes, they provide capital and seek a return on it, but they can also add value in a variety of other ways. They can make warm introductions to potential customers or vendors. They can tap their networks to help recruit for key positions. They can help you navigate turbulent times by sharing their experiences and strategizing with your team. A good investor may invest a lot of time as well as money. They aren’t just making an investment in your company—they’re investing in the founder—you—too. Quite reasonably, they are likely to want to get to know you before making an investment. In fact, they like to establish the relationship long before they commit funds.

These ideas may help entrepreneurs approach investor relationships correctly:

• Pitching – Don’t expect to walk away with a check. Their feedback can be many times more valuable, especially if you’re early stage. Pay close attention to it. And ask questions. Two good ones: “Is there anyone you think I should know?” “Can I help you in any way?”
• Updates – Send them a clean, succinct monthly update. This will help keep you top of mind. Have a clear ask.
• Touch base – Periodically reach out to ask them what they’re up to and how they view certain markets. Share some of the things you’re doing that may not make the update. Ask if you can connect them with anyone or help them in any other way.
• Make connections – If you know someone who could benefit from knowing the investor, or vice versa, make the intro. Both will appreciate it.
• Share knowledge – If you learn something that you think an investor could benefit from knowing, pass it on.

Approaching relationships with investors correctly can be a game changer. Start developing them early.

Sheltering in place for over a month has been . . . weird, let’s say. A lot of people are now working exclusively from home. Travel is limited. Routine activities like grocery runs are potentially hazardous to health. COVID-19 stats in the news are frightening. After reflecting on all of this today, I realized that one thing is helping me cope: bidirectional relationships.

I’m reaching out to more people. Others are reaching out to me. Each of us listens to what the other has to say about our experiences navigating the pandemic. What lessons have we learned—good and bad? What information do I have that they may find helpful? And vice versa? What do we think about the state of the world—and what do we believe about the future? To be supportive and convey that I care about what they’re going through, I always end by asking if there’s anything I can do to help them.

These conversations usually energize me. This is partly because of the social interaction, but beyond that I also enjoy feeling that I helped someone and at the same time invested in the relationship.

A good friend recently shared this analogy: “Relationships are like bank accounts. If you make withdrawals but never make deposits, your account will become overdrawn, and eventually it will be closed.”  

Are you investing in your relationships—or draining them dry?

Unemployment benefits claims figures for last week were released today: over five million claims were filed. In the last four weeks, more than 22 million claims have been filed. This is unprecedented.

Over the last two weeks, I’ve had conversations with six entrepreneurs who have furloughed or laid off staff. Each company’s situation was different, but they had one thing in common: the pandemic had put immense pressure on them and a difficult decision had to be made in order to survive.

Each entrepreneur told me how difficult the decision was and how gut-wrenching their conversations with their employees were. They shared some of their thoughts leading up to those meetings, how they were personally affected, and how they broke the news. All of them explained the company’s situation, explained how they came to their decision, and treated their exiting team members as fairly as reasonably possible (depending on the resources available). In short, they treated them like people.

Entrepreneurs are optimistic and see lots of opportunity in the world. But regardless of how optimistic we are, we can’t capitalize on opportunity by ourselves. It’s a team effort and the team is composed of people (not numbers). Nevertheless, to keep their companies afloat in turbulent times, entrepreneurs must sometimes let people go.

Today, almost all entrepreneurs are being forced to deal with uncertainty and immense challenges. I think it’s important to keep in mind that we’re all people—not statistics or numbers. This mindset won’t change what must be done, but it could affect how it’s done. Treating people fairly and with dignity during tough times helps them. Being let go (or having their hours or pay reduced) will still be painful, but they will be able to maintain their dignity and feel like a human being.

Next time you have to make a tough call, imagine yourself in the other person’s seat before you proceed.

What lessons have you learned while carrying out difficult decisions?