My Partner(s) and I Can’t Work Together; What Do We Do?

Quote: Disputes happen (my sanitized version of the often used phrase of unknown origin.)

It is tough to be in the business of serving entrepreneurs and not encounter a dispute or two between owners. I am not referring to the garden variety disagreements that happen on a daily basis, but major differences that lead to paradigm change. The most common form of this conundrum is one owner firmly believing that the glass is half empty and one adamant about the glass being half full. In this scenario, the more optimistic owner dreams of the future and touts expansion, investing and new hires; the pessimist blocks him at every step setting up an unworkable situation. So what do you do?

One of the techniques I have seen employed is to bring in outside consultants to set up processes to both help clarify the true nature of the differences as well as resolve them. One of my clients often used the phrase “says easy; does hard” and that is what I usually found with this technique. When people really have different business philosophies, it is difficult at best to identify all of the differences and just when you think you have, new ones seem to surface. Obviously, if you can’t fully identify the problem, you can’t resolve it. The stark reality is that in some business relationships, there exists what is referred to in many divorce filings as “unreconcilable differences” and when they are deep seated, attempts to resolve them almost always lead to failure.

Unfortunately, in this situation the only viable solution is the difficult separation / buyout / settlement approach. Now those that have followed my blog know that I am not a fan of liquidity provisions in shareholder agreements. Even if a price is set in advance, getting the appropriate financing can be a major hurdle. For some reasons, banks are not interested in loaning you money that is going to an important “former” partner and out the door leaving the debt behind to be serviced by the survivor. However, when this type of situation arises, in many cases the future of the enterprise is at stake so it is imperative that a separation be negotiated.

These transactions are very emotion packed and much like a married couples’ divorce, value seems to manifest itself not in the true worth of the item being negotiated but in the perception one owner has as to the importance of the item to the other owner. So terms and conditions as well as price suddenly carry with them a level of unreasonableness fueled by the years of feeling underappreciated or maligned and getting a deal done takes on a whole new level of difficulty.
So my advice here is first, to start a separation process if it is clear there are major business approach differences and engage advisors who are used to dealing with this type of situation. Qualified lawyers and advisors who have not dealt with this before tend to treat this as a normal sale which only delays the process. And be prepared to be patient because emotions add to the timeline, but do not place your business at risk by avoiding the issue. Unfortunately as we all know, disputes happen.


Do You Have What It Takes to Be an Entrepreneur?

“The difference between involvement and commitment is like ham and eggs. The chicken is involved; the pig is committed.” – quote attributed to Martina Navratilova

There seem to be more blogs and advice pieces today preaching of the coming evolution in entrepreneurship. It appears more graduates are trading in the traditional path of a career in a larger institution where they can learn a skill set for the opportunity to uncover some unwanted need in society and building a solution that can make them rich. For those of us who remember that famous scene in “The Graduate”,  “entrepreneurship” has replaced “plastics” as the one word of advice for a college graduate. We are also seeing more experienced people trading in that one final job in Corporate America for the chance to “be their own boss.” Entrepreneurship seems to be alive and well with role models like Bill Gates, Mark Zuckerberg and Jeff Bezos leading the way. (I guess it helps they are three of the four richest people in America.)

What is it that makes some of those who choose this route more successful than others? Many have written books, blogs and articles on what makes an entrepreneur. I have posted two blogs – “Can You Be an Entrepreneur?” (March, 2014) and “What is an Entrepreneur?” (April 2014) but it took a reminder from my sister (thanks, Ro) about the quote above to focus me on what it takes to make it as an entrepreneur. So, let me expand a bit further.

First, too many people use the word entrepreneur to describe anyone who is in business. I do not mean to disparage anyone, but the carpenter who works for a construction company and decides to start a small business and do a couple of jobs on his own when he is off is not what I consider an entrepreneur. An entrepreneurial venture should involve some risk taking; something that is disruptive and that creates value. It is not an avocation but the desire to solve a pressing problem.

I had the honor of having a front row seat to a cavalcade of successful entrepreneurs. I was fortunate enough to be involved for years in the EY Entrepreneur of the Year Program in New Jersey. Each year, we would be witness to dozens of successful stories from all walks of business. We had immigrants who came to the U.S. with no money or job or even a place to live but were committed to their vision and accomplished great things. We had a receptionist who learned her boss’s business so well that she bought it from him and made it an amazing success; and a toy manufacturer who introduced a product four times and after three failures, it became one of the best-selling products of all time. But none of them did it part time; the stories of sacrifice were emotional but inspiring. At the end of every EOY Gala, you could feel the excitement in the room; a renewed sense of commitment. A few winners announced they were inspired by what they had witnessed at previous galas and went on to accomplish great things. The common theme was one – – commitment.

So, if you have the real desire to be an entrepreneur, ask yourself if you are willing to sacrifice it all for what you believe in. Because the road to success is long and hard and those who are only involved will have a hard time making it to the end of the journey.

Getting Your Pitch on the Right Page

“I am them, they are me, we are all singing, I have the mouth.” – a line from Fabiola, a Mel Brooks character.

So another week of reviewing pitch decks has passed, and as the saying goes, “The more things change; the more they stay the same.” I like to reflect on my comments on decks from the last week or two and search for commonality. This week seemed to indicate that founders are struggling a bit expressing their vision.

Here are some ideas that may help:

  • Don’t be too esoteric. Much like the Mel Brooks character above, don’t hide your vision by burying it in language which makes the reader feel like they have to interpret Plato’s “Allegory of the Cave” in order to get your point. Instead, state clearly the nature of the problem you are solving. You may think the correct interpretation of your pitch will result in investment, but be careful. That sound you hear may just be indigestion.
  • Try to avoid repeating. Once you have outlined the problem and solution, assume the reader can follow and will move on. Having to repeat your key concepts more than once (save for in the body and closing) may not add value to the investment thesis.
  • Less is more. Related to the previous subject, a deck should be no more than 20 or so slides. It is a vision piece, not courtroom evidence or a master’s thesis. I would suggest a useful exercise from my college communications course – pretend each word costs you $1,000; then review your pitch with the goal of cutting costs.
  • Acronyms can confuse. In an attempt to show your market prowess, using abbreviations may showcase your industry knowledge, but is every investor as in tune as you are? You want people to know when you use AI that you are talking about artificial intelligence and not aortic insufficiency, so words may trump abbreviations.
  • Show a picture. I do believe a picture is worth 1,000 words but I believe value is conveying the right ones. Have a simple visual of the customer, your product and the problem with limited notes that highlight the interplay. When I explain succession planning, I now find it is easily understood when I show three intersecting circles representing family, management and ownership. We relate better to something we can see.
  • Practice, practice, practice. You have to start by making your pitch in front of family, friends or advisors. Start with the request that they point out at least one or two things they would do differently if they were making the pitch. Honest feedback is worth its weight in gold.

Please keep in mind that the more eyes who see and honestly comment on your pitch, the better it will be. It is crucial to make sure that while you do not want to lose your vision; if others cannot see it (aka be on the same page), you will probably be disappointed in the value your deck brings. Simple steps like the above can bring you an improved result.

Stages of a Business Life Cycle – Why It Matters Where You Are

“Where you stand depends on where you sit.” – quote attributed to Rufus Miles of Princeton University

I have been privileged to serve businesses in all stages of their life cycle. For example, I am now helping an owner sell the business I helped him to acquire over 30 years ago. Over the years, I have helped companies deal with a wide variety of issues and realize the commonality is often the current stage of the life of that business. More importantly, focusing on “where you stand” in the cycle can help an owner address the typical issues they will probably face not only in this stage but the next. It’s the old “I am more afraid of what I don’t know” syndrome I see so often. So while a complete listing of what to consider at each stage is way beyond the scope of any blog or article, some brief highlights will get you thinking.

It may have been the Boston Consulting Group or another organization which introduced this concept (or a derivation thereof) years ago, but to me there are typically four stages of the business life cycle:

  1. Startup
  2. Emerging
  3. Growth
  4. Mature

Startups are characterized by developing proof of concept, they are pre-revenue, may have a minimum viable product (MVP) and the owners are usually trying to define themselves. Challenges are funding, funding, funding (angels, friends and family), sharing equity and recruiting team members (usually centered around those that believe in the founder(s) vision.)

Emerging companies do have an MVP, some traction, and are looking to develop an effective approach to the market. They have raised funds from friends and family and are looking for that next round. Challenges are more sophisticated funding (VC’s, etc.), honing the customer experience, the product and approach, expanding the team, more disciplined equity grants and trying to keep control over everything – – being a bit more “directed” but monitoring culture.

Growth is when you start to hit stride. Product is developed and is appealing to the sweet spot of the market. Financing is less of an issue and you probably have cash flow to fund basic growth: your balance sheet is your friend. Team members are now recruited with more specific objectives in mind. Equity is more guarded (like a fine wine) and delegation and timely reporting of Key Performance Indicators replaces informal chats as to “how things are going.” Discipline works its way into almost all aspects of the business and controls (versus control) is the key word of the day. Organic versus acquisition growth is a constant subject of discussion.

Mature companies have usually achieved stability in market presence, financial rewards and in management team composition. Thoughts turn to succession planning, risk management (protecting what you have built) and perhaps an exit plan. Processes are helping keep the business intact and acquisitions and dispositions are a more frequent part of the conversation.

So there are issues to address at each stage in the life cycle, and at times, owners get a bit ahead of themselves like adolescents tend to do. Hopefully, by identifying where you are in the process and understanding that where you stand depends on where you sit, you will be able to successfully see your way through it.

Equity Plans Part I – The Sooner the Better

“The time has come, the time is now . . . ” quote from the book “Marvin K. Mooney Will You Please Go Now!” by Dr. Seuss

Hopefully many of you remember this fabled line and for me, it is what comes to mind when I think of the right time to finalize most equity plans. (I am using equity plans to cover anything which resembles ownership – from stockholder agreements to shadow equity plans.) Sooner is almost always better as delays always seem to have unwanted complications. To confuse matters further, my next blog is Equity Plans Part II – Are We There Yet? So before you conclude I have probably gone off the deep end (a concept constantly reinforced by my family) let me begin with a true story.

In the early 90s, leveraged buyouts (or LBOs as they were known) were the rage and I participated in my fair share. I was called in to help one group of four very qualified managers who were buying a half dozen plants from their parent company. The four covered different disciplines and were great at what they did – – they were just lacking in the skill set needed to buy and set up a separate company / operation. So we focused on the deal for about three straight weeks; long days with hard tasks and two days before closing, the five of us went to lunch. I brought up the subject of equity plans and shareholder agreements among the four. The CEO let me know that considering what was pending, bringing this up at that time was the “dumbest thing he ever heard.” I backed off but shortly after the close, I persisted and we finalized the equity plans. Six months later the CEO called with the heartbreaking news that one of the four had passed unexpectedly. While distraught over the loss, he came to appreciate the fact that all settlements related to ownership had been concluded during a less emotional time and he came to appreciate that fact.

Here is another situation which highlights why it is best to conclude on any equity plans as early as possible. Going through a transaction is stressful, and I have had a handful of situations where trying to finalize an equity type bonus when a sale was pending almost cratered a deal. Owners see the chance at monetizing their lives’ work becoming a reality while key employees believe they were responsible for creating that value and should be rewarded. Incentive and reward plans go from a thank you with benefits to a hard fought negotiated settlement and at times, transactions suffer. All of this stress can be avoided by addressing this issue earlier in the process when a sale is hypothetical and parties are more prone to have a logical view of how an equity plan should work.

So the punchline is that when you have concluded on the sharing portion of any equity plan, be it shares in the company, options, stock appreciation rights, etc., then the time is right to finalize the plan and complete the documents to avoid the hardships and risks that delay can bring. If you are an owner thinking of this issue, the time is now to address it.

Congratulations; You Got Funded – Now What?

“The future ain’t what it used to be.”  famous quote by Yogi Berra

The closing of an early round of funding is certainly a milestone event in the evolution of any company, but after experiencing temporary euphoria, reality soon sets in. The extra capital, (while fending off the Ramen noodle diet) brings an added dynamic to your organization; you are now obligated to devote some of your time to communicating with and listening to investors. I don’t mean to simplify the paradigm, but here are three “musts” in that relationship:

Manage Investor Expectations

On your journey to getting funded, there was a great deal of information you shared with potential investors who are now your shareholders. Hopefully the financial projections, the milestones you planned to achieve and the “current state” of your company were honest and realistic, as they were a significant part of what set the expectations of your new partners.

For many entrepreneurs, it is a rude awakening that now, for the first time, there are other individuals to whom they have to report. Since most investors are passive, the only real information they will get is what you decide to share with them. In the early going, there is a real need for increased communication between you and your investors. Without a steady flow of data, an ugly “expectation” gap can form between how a company is performing and how investors think it is performing.

So start by outlining a basic communication plan showing how you will work together. You should be proactive in making sure they clearly understand the company’s current state and the critical issues you are facing. Relevant information allows you to paint a realistic picture and helps to manage your investors’ expectations.

Generate Timely Reports

Whereas in the past you may have not generated detailed monthly financial statements, investors in the early stages of a relationship will likely expect timely financial data from you. Thus, a new initiative should be to establish a more rigorous reporting of monthly financial and operating results; say 10 to15 days after the end of the month.

Also, many early stage companies are at the beginning of the revenue cycle, meaning their level of revenue most likely does not cover operating costs. A company’s “burn rate” has to be closely monitored and reported so investors understand the status of their investment, which is often meant to take a company through its developmental stage. Keeping track of the burn rate versus the cash available allows you and your investors to understand if and when a follow-on round of financing will be required.

Track Progress Relative to Milestones

Often, the most important information is how your organization is operating relative to milestones. Many owners tend to focus on financial parameters, while investors typically look for some measure of organizational progress. While financial success is usually a part of every investor’s expectations, other measures may be equally important and should be included in your periodic reporting.

If the expectation when you received funding was that your company would build out a management team, it is critical to communicate progress in this area. The status of candidates, progress toward expanding the team, and even upcoming interviews should all be communicated to the investors. If another milestone is to improve and quicken the pace of product development, give a clear picture of the current state of your product, a path of steps you hope to accomplish in terms of functionality and usability and your progress toward completion.

So congratulations on getting funded; let us rejoice and be glad. But please follow these simple post funding guidelines and you will have even more success if you need another round. Good luck.

Ten Reasons Sale Transactions Fail

Comicus : “Dopus; I almost had the money in my hand”  – dialogue from the movie History of the World Part I

As followers of this blog know, I am a devout fan of Mel Brooks.  I have found his

spontaneous comments on bits such as the 2000 Year Old Man both intriguing

and perceptive.  And, many contain life lessons; garlic as the ultimate weapon against

the angel of death; fear to motivate singing; dancing to avoid someone kicking you.

While I have not experienced as much as he has, I have seen more than

my share of failed sale transactions so I decided to assemble my list of the top

ten reasons sale transactions fail.


In reverse order they are:

  1. Waiting until next year. You believe you will always do better, show improved results and be worth more. As I write this blog, I do not think there has been a better time in my business career to sell a business. And if you wait until you have captured it all and there is no more growth left, your value fades.
  1. Forgetting it’s a process. You have to give it a chance to work. Every transaction has emotional highs and lows and entrepreneurs are loathe to wait it out. You need patience and trust in the process.
  1. Eliminating a logical buyer. With all the consolidation in our profession, my mantra is “today competitors; tomorrow colleagues.” Don’t overlook those who know your industry best.
  1. Too much focus on the past. Buyers are only interested in the past as an indicator of the future. If all you had was historical operations and it was all in cash on your balance sheet, all  anyone would pay you is the value of that cash dollar for dollar.
  1. Poor deal structure. Please let the professionals handle this. It is what you get at the end that counts; not just the price.
  1. Doing the deal yourself. You probably wouldn’t sell your own house; why do you think you can sell your business? Get a qualified, knowledgeable agent.
  1. Ignoring your warts. Perform due diligence on yourself and make sure you understand what is good and not so good about your business. Then develop a plan to address the concerns.
  1. The wrong deal team. This is the transaction of a lifetime. Surround yourself with the best.
  1. Sellers’ remorse. I have blogged about this before. You won’t sell if you do not have something to go to. Make sure you do or do not start the process

1. Unrealistic price expectations. I know; you have the most beautiful baby in the world, but when you sell your company, everything has a price and there is a professional way to understand what yours is. Please do not relegate what may be the most important decision of your life to some friend’s belief in what you should get for your business.


So, there you have it. I am not going to promise you will be able to sell your business for

what you want. But, if you can avoid some of these pitfalls, your chance of success will

be a whole lot higher. Good luck!