Friday, December 23, 2011

The Way Things Start is Usually the Way Things End

Business relationships are usually at their easiest, their friendliest, their lowest friction, in the beginning.

People tend to be on their best behavior then. People are exploring the potential partner's thoughts and beliefs, and know their own are being probed as well. People tend to be focused on what they can gain from the relationship, and what they must give. And they normally do it cautiously.

If there is conflict at this stage, it is a clear warning of what most likely lies ahead.

This lesson was probably most clearly pointed out to me several years ago during the negotiation of a share purchase in another company -- a partnership. The target firm needed cash, and we were looking for geographic expansion -- it looked like a natural fit. We needed the owners to stay with the business, and they were keeping half the stock, so it seemed like the arrangement should work. The first round of discussions went fairly well -- but I got significant push-back when the subject of salaries came up.

When you own your own business, you set your salary. There were two owners in the business, and neither of them had paid themselves very much over the last several years. When I suggested a market-based salary for the both of them, their loss of control over their pay immediately became an issue.

Through several additional meetings, it became clear that "market" to them meant an outrageously high number they heard whispered by the owner of a similar business. I produced data, they resisted. The dispute took the investment agreement to the brink of dissolution.

It should have been a warning. But, alas, I was going to have to learn this lesson the hard way.

Rather than tabling the deal, I pushed forward. I developed counter arguments, more data, and ultimately compromised, giving them most of what they wanted.

It was a mistake.

Over the next ten years, the same pattern was repeated over and over in a tumultuous relationship that ultimately ended up with one owner quitting, one being fired, and the business going into serious decline. The conflict orientation the two owners had shown in those first few meetings played out over and over again on variety of subjects. It was the conflict, more than any other factor, that caused us to fail to make the kinds of improvements originally envisioned when the deal was cut. Conflict that undercut trust.

My advice? If the relationship starts bad, no matter how theoretically attractive the project/deal is, drop it. The way things start is usually the way they end.

If you enjoy my blog posts, check out my novels: Leverage and Incentivize.

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