If I only knew then what I know now
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Often times in life we come to a point where negotiations must take place in order to resolve issues that have come between contracted parties. In 2001 I formed a partnership with a local group of entrepreneur’s to open a new restaurant. They owned the property, financed the building and were responsible for most of the startup costs. We made the usual contract arrangements for profit share, building and equipment costs, and operational controls. I set up the entire staff and restaurant floor plan layout to get the operation off the ground. I designed the menu, trained the staff, and oversaw the day to day operations. In the first year we were able to see a 5% profit over the budget and our investors were very happy with their ROI for year one. All parties planed and set the year two budget however in this negotiation it was contracted that the operator (me) had to sign off and approve the final draft before it was approved. The investors had no restaurant business experience so they lacked the insight to keep the budgeting process realistic, as it pertains to being profitable and sustainable.
We pretty much negotiated as things came up and I addressed the things that were important to running the operation, but I did not research or look at the big picture that allowed me to consider potential risks or clauses that protected me if the partnership was to be dissolved. In this class I have learned about how important it is to build a relationship of trust and understand your partners. This means that in depth research of who they are and potential past partnership outcomes would have really been helpful prior to forming this partnership. I have learned that weighing the complementary strengths, chemistry, and common customer-base is helpful in setting the tone of the needs and desires of forming a partnership. By failing to do this I was not prepared for the momentum shift in our partnership when their greed became greater than our ability to perform. Even though our business was thriving and numbers were good, my partners had made some poor investments and tried to pull the capital out of our partnership. I failed to understand their needs versus their desires and this lead to major partnership issues. I was a little naïve and had failed to back up all of our verbal agreements with written documentations.
This lead to a he said she said battle and soon the investors began to encroach upon my business and were trying to provoke me into a physical confrontation. Within the next 6 months they increased rent and put all of the financial loans and leases solely upon my operation. This made it impossible to cover the debt increase from business operations alone. With my signatures on the leases and loans they liquidated my stock options and forced me to walk away from everything. Their intention was always to force me out and acquire my other restaurant, which I owned with my father. My partners did not know that my family’s restaurant was incorporated, and protected from being leveraged in this situation. I realized that much of the success and financial gains made by these investors had come from these very same shady tactics, which they used upon me, used on several others in the past. Looking back on this experience I have learned so much and improved upon my tools to handle these types of negotiations. I always develop a risk management plan and set up contingencies just in case the worst occurs. I make sure to document everything and build my partnerships based upon trust and integrity.
One thing that was not set up correctly and fully disclosed was the Ts and Cs of the contract performance. I fully believe that by setting specific Ts and Cs both parties would have been able to be held accountable and understand their requirements and expectations in our partnership. I would have been able to better foresee any hidden agendas, conflicting objectives, or obstacles standing in the way of forming a solid partnership. I really failed to focus on limitations of liabilities and dissolution of partnership guidelines. Today I always use an attorney to help set up my Ts and Cs and look over all of the documents prior to signing anything. To be fully informed and aware of what you are getting into is paramount before starting any partnership. Finally I always strive for a win/win negotiation process as this is the only way to form a long lasting business partnership. After all in my situation here, while it may look like a win for them and a loss for me, it was actually a loss for all. As I walked away from my creation I realized that it was the best thing I could do for myself as the investors soon fell flat on their faces. Within one year of our dissolved partnership all of the investors suffered great losses from losing the restaurant to filing for bankruptcy. One investor suffered the greatest loss of all, and that was his life, as he passed away due to a severe heart attack caused by stress.
So as I reflect back upon my first partnership experience I would have done extensive research on my investors and would of uncovered that they were shady and used undesirable tactics when forming partnerships. I would have passed and found a different group of investors to partner with. Next I would have made sure that I developed a risk management plan that looked at contingencies and established a plan for dissolution of partnership. This would allow me to plan for the best but be prepared for the worst outcome of my partnership. One thing that most people forget to be consistent with is backing up of all verbal agreements by documenting them. This is paramount and can give you credible proof when having to support what actually was discussed or approved. Establishing Ts and Cs will give my negotiation process a legitimate set of ground rules for a level playing field and will help achieve a desired trust in a partnership.
In the meeting of the minds we are ultimately trying to reach a compromise for a long lasting partnership and to do this I am always going to adopt a Win/Win negotiation process. As we can see all of these tools could have helped me to avoid the heartache and loss caused by partnering with the wrong investors. While these tools are not perfect and cannot protect us from all potential partnership issue, they will provide us with an educated approach and knowledge based tool set that helps us to make smart and calculated decisions. This will help us from falling into traps caused by flying by the seat of our pants and believing that all partners have our best intentions in mind. I take the lessons learned here with me and will apply them to my negotiation tool belt in all future endeavors.
Garret, G.A. (2010). World Class Contracting (5th ed). Riverwoods, IL: Woltser Kluwer