This is a story that starts with everyone believing they were doing the right thing so everyone would win, but actually creating the conditions for a fiasco.
Paul started out his business with the best of intentions, highest integrity, and a desire to build his business into a salable asset. He brought Alan on board, promising him a piece of the company.
There was a lot to do on their technical infrastructure and regular service. Client emergencies could suck up hours, evenings, and weekends. The result was work “on” the business got pushed to the side and a formal partner agreement was never drawn up.
Business growth was disappointing. One day, Paul woke up thinking, “I don’t want to do this anymore. I’m done.” He announced his desire to sell the company. He reinforced his intentions to give Alan the promised share.
The problem is defining a share of what?
A partner buy-sell agreement would have included a formula or methodology for how and when a business would be valued and the terms for partners buying one another out. But there was no agreement.
Not having the agreement meant two sides were trying to cross a chasm with no bridge. Paul’s valuation was far from Alan’s, who disagreed with the methodology and amount. Without an arbiter, both dug in and defended their positions, destroying trust, the magical elixir of business dealings.
Recovering was a huge task that cost much more time, effort, and emotional energy than would have been required to do the job upfront. More importantly, it sucked attention away from sustaining the business, draining more value out.
The moral of the story
A partner agreement is like a shingles vaccine; it's easy to put it off and somewhat painful to go through, but getting the virus can cost you a world of hurt from which there is no easy way out.
If you or someone you know is working with others without a partner agreement, contact me. I can help you have the conversations needed to come up with the terms for an agreement, acceptable to all.
In the words of Robert Frost, “good fences make good neighbors.”