Mexican Shoot-out
5
on April 8, 2009
I did a podcast interview recently with Alex Bellinger of SmallBizPod fame. He asked me what advice I’d give to someone starting out in business now.
The biggest mistake I made when starting in business was to go 50/50 with somebody else. We both owned exactly half of the business as it seemed the fair and sensible thing to do at the time.
I told Alex that my advice to others starting out is to never, ever, ever go 50/50 with anyone – ever!
There has to be a boss – someone that’s in charge and can decide the way forward if a mutually agreeable decision can’t be made.
You may be going in to business with your best friend or a sibling, you may be fool enough to think you’ll always be able to resolve any disagreements. You’re wrong.
If the business is a success (and that’s what you’re both aiming for, right?) then there will be plenty of times when you disagree. Some times it may be over something trivial and one of you will just give in to the other. But the more successful the business and the longer it’s running for then the more likely these disagreements are to crop up – and the more you’ll each have to lose.
A few years ago, myself and my then business partner agreed we’d gone past the point of no return. The company was up a creek without a paddle and we couldn’t agree on a way forward. After intense negotiations he eventually agreed to sign over all his shares to me and walk away. It was a very gentlemanly thing for him to do, but it could very easily have gone the other way. We would have both been sitting there with half a company, and the other half owned by someone we couldn’t work with. It would have been game over for KashFlow before it had even really started.
I read in a Felix Dennis book about a “Mexican Shootout” clause you can have put into a shareholders agreement that would have instantly sorted out our problems.
Essentially, we would have both have had to put in an offer to buy the other person out – without knowing what the other person was going to offer. Whoever offers the most – wins.
Can it get any fairer than that?
5 Responses to Mexican Shoot-out
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I’m liking Matts idea of having a tequilla drinking competition. whoever gets drunk enough to give in or even hand over the company first looses. simple.
I am in business 50/50 with a distant family member however I am the boss. I call the shots and he follows that as i have more business experience than him. Sometimes i am wrong but luckily we haven’t had to make any decisions that are extremely major neither have we fallen out after a dissagreement.
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Having been in the position you were in myself, I agree 100% with your advice.
Never ever ever go into a 50/50 joint venture with someone else however well you know them.
It took nearly two years to finally agree a price with my former business partner for his shares in the company.
Glen
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LoL, in total agreement with Matt’s first point about having rows. Ours (50/50 with better half) started even before we signed the deal ;-)
Also decide (before signing on the dotted line) who’s doing what in/for the business and take both responsibility for your own job AND don’t be afraid to hold the other to account on his/her job (so be prepared to be hold accountable on yours).
Still going strong – including strong rows from time to time – after 8 years in 50/50 share business.
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And if you do (or must) go 50/50, financially, make sure:
1. You know your relationship with the other person (whatever that may be) is strong enough to withstand the fact that you are probably going to have _blazing_ rows. The longer it takes before the first one, the worse it will be.
2. You have an agreement in place (mexican standoff buyout, tequila drinking contest – anything) which can break a total deadlock and/or offer one of you an escape clause should they need it.
My tip would probably be:
Learn when to admit that you are wrong.
If you believe you never are, then you need to admit your error right now..!
The sooner someone puts their hand up and says “Uh. My bad…”, the sooner the business (collectively) can recover, repair any damage, and move forwards.