When I look back to when I started my first real company in my early twen-ties, I was much the same as I am now. I am certainly older now and some would say wiser. Part of that wisdom is that at least some of my boyish naiveté has been replaced by an understanding of how people can be downright un-friendly to one another. I hate to bring this up, but I can’t paint things over when it comes to this topic. It’s something we must discuss.
From my perspective, it comes down to psychology. Whether or not people are willing to treat each other with respect, honesty, and dignity is dependent to a large extent on whether they feel any personal identification with the other person and whether they have established and maintained a proper psy-chological contract. Getting along means maintaining an “us” mentality.
The problem is that even good people can fall out of this “us” paradigm very easily. Things happen, and communication is a very difficult thing to maintain.
Especially when money is on the line, relationships and understandings can be stretched or torn apart.
Take the following scenario as an example. You start a business with a business partner. Later, the business has problems. You think they are his fault and thus feel comfortable telling anybody who will listen that he is not the person he used to be. Your partner meanwhile thinks the problems arose because you are always out of town, traveling with your wife to Rolling Stones concerts.
What we have here are people who, through a natural course of events, have come to a place where they no longer see eye to eye. Who is right? It depends on where you are standing, as both appear ‘right’ from their own vantage points. This imaginary scenario is a simple illustration of how one-time friends can come to a cold place where they want to sue the living daylights out of one another.
In another instance, a good friend of mine earned a share in a company over several years, to be fully vested upon its sale. A great deal of work went into building the business into something worthy of acquisition, which eventually came. When the sale was completed, no mention of the equity vesting was ever offered. When he brought it up, he was told that due to the fact that it was an asset sale and not a sale of the actual company, there would be no payout. The fine print here is that the company was never ‘sold’ per se, but all the assets were—leaving the company only a name on a piece of paper with no residual value. That’s great, isn’t it? No two ways about it, the people who had worked and struggled for the company felt … how should I say this in a polite manner? Well, that they had not been treated fairly. In this case, he did have a contract, which was plain and to the point, but not written in a way that fully protected him in the situation at hand. He had thought that a big contract was unnecessary because the owners were “good folks” that looked him straight in the eye at meeting after meeting for years—and had agreed to equity sharing.
I can only imagine what the owners of the company who got millions of dollars in the transaction were thinking. Mind reading is a dangerous thing, but they likely felt that they always treat people fairly and that the employees in ques-tion had actually failed to deliver in some way.
Everybody considers themselves to be justified in their actions. All of this is a matter of perspective.
Over Time, Many Business Relationships Follow This Pattern
Doesn’t feel like anybody needs a contract. Glad we have a contract, because this is a mess!
Figure 2-5. Time and lack of effective communication can lead to problems that nobody wants
Another recent instance comes to mind. I met a gentleman in Albany, New York who is a lobbyist working with the state government. He, in his suit and tie and with his youthful enthusiasm, is the only employee of a small firm, and he works under the owner. This young man works for $200 per week. His story is that he is willing to work for less than the minimum wage because the company is going to grow, and his boss “takes care of him,” as he put it. The boss buys him lunch most days and gives him an extra Hamilton or two when he needs it. In listening to this, I started to get a bit agitated. I asked the ques-tion, “Does your boss need you in order to continue his business? Are you critical?” The answer was a decided yes. Furthermore, since the boss “takes care of him,” my friend believes that he is going to be taken care of when the business grows into something bigger. My advice to him was, “Get a contract.”
Directly communicate that the only way to move forward is to trade “fair value for fair value.”
I told him this, “You should expect an equity share to compensate for the lack of a living wage, and the fact that you are critical to the business.” I also told him that he should directly ask for it in a fair, level-headed, transaction-minded way. The likely outcome otherwise will be that the young man diligently puts in his time, grows the business, and then gets handed his walking papers when he asks for any special consideration later on. Never count on your boss agreeing with you that your effort was critical to the success that created the business, after all is said and done—it is not going to be visible to him in the same way it is to you.
Peter, a good friend of mine put it succinctly when he said, “Emotion has no place in business.” Clearly, people, as emotional beings bring emotion to
everything they do, but he means that you should lock down your under-standings and agreements in a contract or written form so that the ambiguity of emotional decision making can be held in check.
So, I say this to anyone who will listen:
1. Never rely on abstract ideas like “good feelings” or beliefs like “they are great people” or “I feel like I can trust him” in business. These are important things, but they are not sufficient by themselves for forming the basis of real and reliable business relationships. Assume that the worst will happen.
2. Get a contract to define roles, responsibilities, ownership, and financial details for any aspect of the business that has value.
3. Have your contracts reviewed by an attorney that represents you as an individual–distinct from the company.
4. Remember that nothing changes things like money. If your business be-comes valuable, you will be thankful for having worked out everything between the people involved well in advance.
Create value together with your partners and build something that benefits everyone in powerful ways, but put a mechanism together that protects you.