It’s a familiar story.
Two friends, Chris and Jo, had a great idea for a new business and, energised by the prospect of breaking free from the shackles of corporate life and working with someone they liked, they decided to turn their idea into reality. They had complementary skills and shared a vision for what their business would look like so, full of enthusiasm and optimism, they created a company. They each invested the same amount and become 50/50 shareholders or business partners.
They constructed a business plan, agreed a budget and implemented a marketing strategy. Whilst it was tough to start with (building a business is always more difficult and time consuming than you think) they battled on. Fuelled by a blend of youthful enthusiasm, passion for what they were doing, determination and sheer hard work, their company prospered.
The years passed and Chris and Jo remained friends, even though their roles changed substantially as their company grew (it came to employ over 150 people and had customers around the world).
Their friendship was tested however when, out of the blue, they were approached by a competitor wishing to purchase the company. Chris is 10 years’ older than Jo and was keen to accept the offer, but Jo wanted to carry on building the business. They discussed the matter extensively but were unable to agree on a way forward. As equal shareholders, neither was able to make a definitive decision.
The acquiring company became irritated by their inability to reach a decision, eventually lost patience and withdrew their offer. Chris and Jo’s friendship was damaged irreparably, the business suffered, and things were never the same again.
What became clear in hindsight was that Chris and Jo’s 50/50 business partnership was all very well whilst they agreed but became problematic as soon as they had differing views on an important matter.
So how might this sad situation have been avoided?
The opportunity to do so actually arose when the company was founded. Chris and Jo could have awarded a token shareholding (say 2%) to a third party in whose judgement they both had faith. That person could have facilitated the discussions between them and, if necessary, broken the impasse by exercising a casting vote.
Chris and Jo would also have been well advised to create a partnership “charter” to complement their business plan and budget. Created at the outset of any new business partnership, it is effectively a memorandum of understanding, to which all partners contribute, that documents each partner’s contributions, motivations and values; establishes ground rules; helps to set and manage expectations and, most importantly in Chris and Jo’s case, establishes a process for resolving disagreements.
Business owners who have invested in this way say that going through the process of establishing the charter is almost as valuable as the resultant document. They feel insured against difficulties that their partnership might encounter by having ready access to a decision-making framework and process that helps them deal with the unexpected – such as offers for the company that come out of the blue...
