A friend shared an unsettling story with me recently that highlights the perils of a poorly negotiated partnership agreement. I am sharing this story with you for two reasons.
One is because it is an important wake up call for anyone who is in or is considering forming a partnership. I cannot emphasize enough how critical it is to negotiate clear agreements up front, as well as continue to renegotiate over time as things change and evolve. All too often rigorous negotiation of partnership agreements gets put off for a variety of seemingly very good and compelling reasons at the time. I can speak from personal experience here – been there, done that and unfortunately learned the hard way. This is another reminder of just how important it is.
The other is because now, given a worst case scenario has occurred, I am very interested in your advice, insight and perspective regarding how these 4 people could navigate this very difficult territory. There is an incredible brain trust available among the readers of this blog from around the world. Your feedback here could make a big difference in how this turns out.
Here’s the situation…
A few years ago four people formed a business partnership. 3 of them kept their day jobs, while one (I’ll call him John) invested himself 100% into getting the business up and running. Things were going great. John was able to generate consulting jobs that covered the cost of his salary while they continued to work together to get the other parts of the business to a point where they could generate enough revenue to sustain them all full time.
And then John discovered he had cancer. A once incredibly vibrant and remarkably healthy man with over the top energy and extraordinary passion for the work he was doing is now fighting for his life. It all seemed to happen so fast and it will be a very difficult fight.
The handshake agreement has been that they each own 25% of the company. They have an agreement to pay John a salary. But now that he cannot generate the revenues that were covering his salary what do they do? The question of for how long they can and should continue to pay his salary is an urgent one. How long they can pay his salary can be answered a lot more easily than how long they should continue to pay his salary.
These partners are each struggling with what to do. How can they balance the competing forces of compassion with the realities of the business situation?
Without going into the details, John’s family cannot survive for long financially without the income from this business. Yet is that really a problem the other partners should take responsibility for? And what about what happens to the business when this key player is not able to perform and you don’t know how long it will be until he can?
Their very different views when it comes to compassion, the business, and partnership, are becoming apparent. And these views are informed by the clear differences in their values, commitments, and personal circumstances, .
If you look beneath the obvious business considerations such as cash flow and the differing interpretations when it comes to compassion and partnership, the fundamental issue seems to comes down to this: how do you value the contribution of each partner? It sounds good to say we are equal partners (especially in the beginning), but the actual perceptions of the value of each partner’s contribution to the business is not that simple.
John has arguably taken the biggest risk and has invested more sweat equity and mind share. Yet John is the only one drawing a salary. What is his contribution to date to the business really worth and how do you measure the value? And how do you value the contribution of the other partners? The others may not have invested the same amount of sweat equity or mind share, but they are not a drain on cash flow and have brought key relationships and skills to the table. Every one of them could say the business would be nowhere without them.
Below are some specific questions for you to think about and respond to. And I am of course open to anything you have to say that could contribute to the thinking about how to navigate this situation.
- What would you do?
- If you were helping these partners, what questions would you ask?
- How would you navigate finding that balance between compassion for the individual and the needs of the business?
- What do you think needs to be considered to come up with a solution that could serve everyone involved now, as well as given the worst and best case scenarios for the long term?
- How could they approach establishing the value of each of their individual contributions in a way that is grounded rather than based on personal opinion and motivations?
- What are the more intangible, yet essential contributions partners make to a business and how could you value them?
I am looking forward to the discussion that emerges from the incredible people in the Random Acts of Leadership community. Thank you for all you provide.