WHAT’S THE POINT?
Everyone knows the traumas of divorce, whether you’ve been through one personally or simply watched the carnage happen to someone else, the ugliness is unavoidable. In the business world, we go through much the same types of traumas when a business fails.
As in marriages, there are many reasons why a good business will go south. The odds are against you in building a business to begin with, and having a partner only increases the stresses, and increases the likelihood of a failure.
I say this not as someone who has simply looked on with objectivity, but rather as someone who has owned businesses with others. Partners can make or break you.
I’ve been lucky in my life. As a lawyer, I have a partner and we’ve been friends ever since our first weeks in law school. He’s just celebrated his 11th wedding anniversary, and I can recall being in his wedding. We’ve been in business together for a long time. I can honestly say that in all that time, even though we’ve had our fights — usually my fault — we’ve always treated each other with respect.
We operate our partnership on the honor system. Each of us works the hours we work, and we make sure our bills are paid. We take vacations when we want, by telling the other that we’re leaving. We take days off by calling each other in the morning.
On the other hand, I’ve been an investor and that makes me a partner with someone else. In that relationship, there was a definite loss of respect on his part. The good news about that is that I wasn’t the only one who was treated poorly. Pretty much everyone he dealt with had the same experience.
That business went under. It was an ambulance business. Now the ambulance business is pretty much a license to print money once it is up and running. If you think about it, there is very little negotiation going on when you are lying on the side of the street bleeding to death. The ambulance company is going to get paid by an insurer, or the county, or you.
It is always sad to me when a company goes under, particularly so when the reasons for it is ego, vanity, bad money management and selfishness.
When the car came along, the wagon wheel dealership business took a nose dive, understandably. The same thing happened when the PC revolution took over and almost put the typewriter manufacturers out of business. But when a company goes out of business, not for a sound reason, like change in circumstance, but for greed, it is just pathetic.
These days, the topic of greed is on everyone’s lips thanks to the Jeffrey Skillings and Bernie Ebbers of the world. Enron has attuned the media to the excesses of corporate spending, but the fact is, that greed kills more small businesses than large. And small businesses employ far more people overall than the Enrons of the world.
A small business might employ only 20 people, but those 20 people are likely to have spouses, children and parents, all of whom are depending on them. In America, the small business makes up the vast majority of the employers. Whenever a small business goes under, it affects many lives.
The ambulance company didn’t employ many people, perhaps a dozen or so. But they each have lives that were affected by the death of a good business.
When a good business goes under, you have to look at why. In this case, the managing partner was focused on getting his before the employees got theirs, and before the investors were taken care of. His personal spending like a drunken sailor led to the death of a business, and the loss of investments. My loss is not too bad. I’m 38 and have a lot of skills to fall back on. The other investor is a guy in his late 50s. He lost his life savings. Where is he going to get his kids college money from?
The signs were all there. The managing member was spending company money to buy himself $800 nights at a fancy schmancy hotel in Westwood when he lives in Venice. He bought $500 eyeglasses, and he loses them monthly. He bought $300 dinners for himself and his new wife. My spouse and I don’t do that, and we have a lot of disposable income. It’s no wonder the company went under.
He was a textbook example of how to be a bad partner: spend all the revenue on yourself, don’t communicate with your partners. When you do speak to them, blame them. Don’t pay the company bills, but make sure you have regular paid vacations. Spend a lot of money making sure you look good. Keep switching the bank accounts to different banks so that it is really hard for your partners to locate the money. Lie... a lot. Preferably while telling them that you “love them”, which you say at the end of all phone calls. Steal all that you can. Drive your partners away, and then blame them for “not being there.”
As an investor, I can objectively look at what I did wrong in the situation. I didn’t check out the person I was investing in closely enough. I didn’t see the warning signs. I’ve learned some mighty big lessons out of this one. I’ve learned that a bad business partner will not introduce you to his best friend of 10 years, mostly because he doesn’t have one. I’ve learned that a bad business partner doesn’t have relationships and connections that go back beyond six months. He will begin to accuse you of bad motives, and of failing to meet some unstated goal, and of having let him down. The bad partner will do this mostly out of their own guilt for their theft of corporate funds.
I ignored my gut instinct. I would get anxious when the phone would ring and he was on it. I would get anxious just thinking about calling him. I would be on the defensive in all of our conversations, I was questioning my own memory — things I have never done with my law partner.
I noticed my blood pressure would go up, and my heart rate would accelerate to the point where I could feel it. This is the body’s way of telling you that you are making a mistake. I wish I had listened to my body more, and not been blinded by the seductive lure of a winning business model.
But, as my late brother used to say, “even monkey fall out tree sometime.” (David Pisarra is a business development lawyer in Santa Monica. He
Originally published in the Santa Monica Daily Press print edition on June 7, 2005. Read the original PDF.