Having a disagreement with your company’s investors is one of the most difficult challenges that any small business owner can face. It’s stressful, time-consuming and the stakes can be very high. It’s quite common to see the founders of successful businesses kicked out of their own companies due to disagreements with their funders. Like any challenge you face, it’s important to understand your options and take a careful, gradual approach to resolving the conflict as amicably and as quickly as possible.
The first approach is to try to reach an agreement despite you differences.
Agree on what you disagree on
A friend and fellow business owner recently went through a scathing disagreement with his original investors regarding the adoption of an expansion plan. They were just one step away from litigation that would have benefitted no one (except of course for their attorneys). During one of their final attempts at mediation they realized that the real problem was not the expansion plan itself but the ability of the current investors to fund it. Had they taken the time to figure out what they really disagreed about at the beginning they would have saved months of time and many sleepless nights.
Determine why you disagree
You need to understand your own motivations and those of your investors. A client recently updated me on a disagreement with their investors that has been going on for almost a year. The founder wants to renegotiate his artificially low compensation because the company has proven to be wildly profitable – to everyone’s surprise – and his investors refuse to approve it. They are at a standstill with either side refusing to budge and the company is starting to lose customers. On the surface this is a disagreement about money but in reality it’s about something else – fairness. The founder thinks it’s unfair that he should be paid so little given his stellar performance; the investors thinks it’s unfair to change the terms of their agreement just because they company is doing well. It could have gone the other way. By understanding the “why” you can address the root cause of the disagreement and improve your chances of solving it.
Evaluate the relative importance for each side
Not all disagreements are equally worthy of a battle. When I first started my business nearly 15 years ago I had a partner. But sooner after launching he dedicated virtually all of his time to other projects and I dedicate all of my time to this one. After a while I started making decisions – like taking on new clients – without consulting him. This led to an important disagreement. I believe we handled it maturely because we both understood that the company was as important to one of us as the other. It was clear that the business was far more important to me while for him it was just something on the side. We parted ways and each of us moved on.
Discuss what is worse for you, for them and for the business
Unfortunately you can’t always make a decision based on what is best for everyone. Sometimes the best you can do is to avoid the worst. The founder of a famous fish restaurant in Miami recently retired and turned the business over to his son. Despite his “retirement” the father still shows up to work every day and doesn’t agree with the way his son is making important decisions. This disagreement between “founder and son” has impacted – dramatically – the quality of the food, efficiency of the service and enjoyment of the overall experience. If they can’t agree on what’s best for the business they have to agree on what’s worst – and that is the status quo – which will likely lead to the demise of the business.
What if all else fails?
Before going to court be sure to review your by laws or operating agreement. If these were drafted properly then the documents should contemplate what to do in the case of serious disagreements. You should also consider lining up financing from another source to buy out your investors that are more in line with your own strategy. If reaching an agreement on a buyout fails, then unfortunately you need to consider escalating. It’s best to escalate gradually. The worst decision in almost every case is to immediately pull the nuclear option and sue. No one truly wins after a long, drawn-out legal battle.
