Ownership, Governance, Partnerships- It's All About the Money

Or is it?

Over my 30 years as a banker I have seen far too many decisions made based solely by money. In the context of this discussion I am referring to decisions made by the individual who has the most money invested. Sometimes this approach is needed (for example in a wind-down,) but often this approach to decision making may not make sense – particularly strategic decisions.

Think of childhood days gone by – “it’s my football so we’ll play by my rules.” Perceived power from ownership. Strategically, maybe not the best approach if you’re also the receiver.

Let’s talk about a real-life business situation.

A few years ago, I worked with a company that had struggled financially for several years. Losses. Multiple cash calls. Poorly reasoned strategic decisions.

The person leading the strategic charge had no business background and was not involved in day-to-day operations. He did have the most at stake based on dollars invested (though not a controlling interest.) He had also brought in several friends as investors. No doubt he felt an obligation to show leadership and results.

Investors and management permitted his leadership given his implied financial authority, but the approach to decision making and control did not make sense. And over multiple years it had yielded nothing but losses.

The business originally started with someone who had a revolutionary idea. This person didn’t have enough cash to grow the business and turned to outside investment. These outside investors saw the potential and participated without consideration to appropriate ownership and decision-making models.

Nobody stepped up to challenge the implied leadership. It was difficult to do. It took courage and communication both of which can be demanding. The outcome? The investments were written off and the opportunity squandered. Yet the company was at the forefront of a new industry which continues to thrive today.

Effective business partnerships are hard to maintain at best and take much work to nurture and foster.

When it comes to the money invested, investors should not automatically be granted control of a business based on dollars. However, stakeholders, often knowingly, permit undesired outcomes like these because ownership, control and the decision-making process are not addressed in an appropriate manner.

The lesson: Communication and understanding business partners’ expectations is vital. These are complicated discussions. It is too easy to allow someone to lead with or hide behind the size of their investment. My experience is that this is not the best approach. It is NOT all about the money!

I have a keen interest in business partnerships. For years I’ve observed every partnership possible – Weak, successful, failed, effective, unproductive, abusive. The worst situations are families ripped apart from ineffective family business partnerships. Good intentions that came with unexpected and unnecessary outcomes.

This is my first post. I will continue to share stories, ideas, insight and perspectives here on this site. All with a focus to assist Business Partners.

My partners and I have built 4West Advisors for the sole purpose of helping Business Partners build strong, sustainable and profitable business partnerships.

Thanks for reading.

Doug