Business at first sight

Business marriage guidance, or how to deal with ‘business at first sight’.

It has become a guilty pleasure, I have been watching ‘Married At First Sight (NZ)’, and a truly awful Australian show called ‘Seven Year Switch’. During a commercial break, it dawned on me that when people get into business together, they often do so without much due diligence, hoping for the best – much like the television show.

When starting a new business venture or taking on a new investor, it can very much be like a marriage. You have spent time ‘courting’, and you agreed you would be better together. You enjoy a great wedding and the associated honeymoon. But what happens when the honeymoon ends? What happens when you start to disagree, how do you work things out? What happens when the love seemingly ends, and the bickering begins?

You don’t agree on how to manage and handle the best way forward. You start thinking about winning and trying not to lose – business, like life, is not an infinite game. You both agree you can’t ignore the problem, so what do you do?

Lesson #1 –The bad news is that nothing lasts forever.
Lesson #2 – The good news is that nothing lasts forever.

I was recently engaged to work with a relatively young company (only three years old), who were very excited about future prospects and opportunities. On the surface they had it all, passionate and skilled people, great product, market validation and growing customer demand – what could go wrong?

I was asked to come in and look at the business and co-develop a growth strategy and plan to fund the business growth heading to a potential exit in three years. A similar, but not as good company in Australia, sold 50% of shareholding for AU$40m, so all smelling like a rose garden. Upon closer inspection, those pesky aphids turned out to be flesh eating microbes consuming all in their wake.

What was the root of the problem? The level of debt made the business barely solvent let alone investible. In addition, the debt was 100% with one of the founding shareholders which was starting to cause issues in the other business. While we could manage the debt situation and had identified a suitable investor, the shareholding would need to change to reflect actual effort and investment into the business, or the business would need to fold.

The two shareholders were in a 50/50 arrangement, but had very different expectations of what 50/50 meant. One believed that as equal partners they share in the ups and the downs and fund the business as it grows. The other – not so much. This other shareholder was not willing to fund the business, while the other mortgaged their house.

The financial reality meant that there was no way they could or should remain 50/50 shareholders. This became the sticking point. In the mind of the non-contributing shareholder, less than 50% meant loss of control. So behind the façade of 50/50 was a deep mistrust and misguided view of what determines control, and what winning and losing looked like, as if business was an infinite game.

On top of this, that shareholder treated the business as a hobby, and when reasonable questions were asked, displayed textbook narcissistic personality traits. The outcome was inevitable, and the business was not salvageable. I ended up moving the business into voluntary liquidation with a plan to liquidate stock and assets to recover the outstanding debt. The narcissist will end up with 50% of nothing, and will be none the wiser offering as a parting comment ‘it’s a shame how it turned out’.

A good business idea still requires compatible business partners, shotgun weddings are a bad idea – so is starting a business with someone who you don’t necessarily know all that well. But, do we ever really know anyone? Hindsight is 20/20, but you can’t wait 20 years to know who you are dealing with before starting a business.

People change, and behaviours change – whilst you have tail winds and the business is doing well, it is easy to focus on the good while ignoring potential warning signs. When a storm is approaching, typically over money/funding, that is when behaviour often changes.

The traditional paradigm in business suggests we need to seek to win, or not lose. The reality with business, is that you either get ahead or behind. When you make decisions about a business or a strategy think about where this can take you from your current position. Ask yourself –

“Will this move me ahead, or at worst how much behind
will this move me if it goes wrong?”

It was Jaques in Shakespeare’s ‘As you like it’, who said

“All the world’s a stage,
And all the men and women merely players;
They have their exits and their entrances;
And one man in his time plays many parts”

The reality is that no matter what you do, there could be a potential narcissist at your table or in your bed.  There is only so much you can do to prepare. This doesn’t mean that you do nothing… hope is not a strategy.

Lesson #3 – In business there is no win or loss, just ahead or behind.

A solid shareholders agreement is critical to giving you options if it goes bad – think of this as a pre-nuptial agreement, and is something all parties need to understand carefully and clearly. Having a marriage counsellor on hand during both good and bad times can alleviate your stress during an unplanned issue or need to exit. An external eye and voice looking over the business can alert the early warning signs of trouble ahead. This oversight is often listed as the most valuable part of engagements we undertake, and recently I was described as the ‘canary in the coal mine’.

Another critical step is developing a detailed business plan and strategy which is reviewed on a regular basis. This should make clear expectations for the business, including the effort, and capital required and who is going to provide it. More importantly, what happens if that capital doesn’t get raised? A fundamental truth is that it will take longer and cost more than you think at the start. Overnight success usually comes after many years of hard work. The difficult part is being upfront about the reality when it goes wrong. 

Lesson #4 – Never deny the truth of bad news.

This experience for our client has been an expensive MBA, it caused much stress and many sleepless nights. They also said they would never do this again. That would be a shame, they now have been empowered with a framework to better evaluate what the ‘marriage’ will look like. This doesn’t guarantee success, but will help you deal with the issues when they arise.  

We are happy to discuss your business and the journey ahead, and the issues we can see, and the cost of not addressing these issues.

If you don’t know where to begin, want to talk through something, or have a specific question but are not sure who to address it to, fill in the form, and we’ll get back to you within two working days.

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