You’ve developed a patentable idea and want to commercialize it. To do so, you’ll need someone to help with finance and management. So, you approach your close friend, “Bob.” You’ve known Bob for years, since college in fact; he’s a great guy who has the requisite entrepreneurial attitude and resume. You pitch him the idea of establishing a 50:50 partnership. Bob agrees. What could go wrong?
Keurig began this way. While that story has a happy ending, that ending was achieved only after a third founder came onboard to break early-stage, decision making deadlocks. More about that in my next blog . . ..
Most small businesses are founded in a spirit of optimism. Launching a new product or service is the shared corporate goal. Working long hours, the norm. Partners wear many hats. When cash flow is constrained, they take below market salaries. Disagreements are few. The 50:50 voting split works.
Until it doesn’t.
Business circumstances change. After an initial product launch, corporate goals can be less tangible, less universal. Also, personal lives intrude. With marriages, divorces, children, and illness come changes in work and salary expectations. Perhaps, one partner puts in longer hours. Maybe, the other partner wants to hire a relative. They may differ on whether the company should look for new office space. The reasons are varied but the consequences are predictable. The two shareholders disagree and, with the voting split evenly, the company stagnates.
Such disputes can lower employee morale, negatively impacting operations, productivity, and even customer and vendor relations. When neither party is willing to compromise, these stalemates can end up in the courts. One partner sues the other. Such cases can take years to adjudicate. Meanwhile, the business continues to suffer. To lose value.
Some 50:50 partner combatants seek out arbiters instead, third party, business divorce lawyers. Even so, if both parties remain unwilling to compromise the results can still lead to the forced sale of the company, or its dissolution. Business and personal relationships are lost. It’s a tawdry ending to what began with so much promise.
This outcome is not inevitable. Over the past 20 years, Worldwide Local Connect and its team have helped many 50:50 partnerships avoid such problems. All are thriving. Read my next blog to learn more. Or click here to contact me.