We all know of family members, friends, and colleagues—so many examples of people with different relationships—who dreamt up an idea for a business, a business that actually became a successful entity—some became small businesses, some became major corporations.
Oftentimes the inspiration for a business and the work involved in actualizing the idea are undertaken quite informally. Let’s say, for example, two friends had an idea for a unique gardening tool—one that could operate, robot like, with no assistance. Let’s go further and assume that together they set up shop in a parent’s garage, built a prototype, and were ready to peddle their device. The point is not what they built or how unique was their creation. The point is that the two friends had an idea and that they collaborated in actualizing their idea. The next step was to embark on the implementation of their “brainstorm.” Clearly they had come quite far together.
But now comes the question posed in this article: Did the two friends think beyond the need to market their idea? Did they, for example, think of each one’s role in the future? Did they think of how to divide their labor, their resources, or their compensation? In short, did they think ahead about their future role in a company spearheading the sale of their device or was the device to be sold off and moneys pocketed now and/ or overtime.
In the germination of many ideas, some of them wildly successful, many of the creators did not think beyond their original collaboration. Understandable, right? Maybe their plans would never materialize or maybe their ideas were simply not good or at least not marketable. Why bother to create a business plan or a contractual agreement for an idea that might never leave the garage? Okay, that is understandable. But isn’t there some point, some time when the partners need to tackle the future of their relationship? We, at the Center for Mediation and Dispute Resolution, believe the answer is a resounding “yes.” We have worked with many businesses in which a business was created and operationalized without any time spent in formalizing the role of the principals in the business. In effect they had a kind of handshake understanding, an understanding that was not always remembered, or at least not remembered in the same way, by the key players.
It is interesting to note that in many business mediations the principals come to mediate the terms of their relationship after the business is an ongoing operation. And, even more interesting, the onset of relationships issues most frequently seem to arise when the business becomes profitable or it at least becomes apparent that the business will be profitable in the near future.
We suggest that Business partners or principals in small business enterprises consider from the outset at least some basic questions:
What are the responsibilities and roles of each principal?
Can we further define these responsibilities to avoid confusion?
Who is in charge of what or of whom? Are there shared responsibilities for certain tasks?
What are the expectations of time committed?
Does anyone work part time because of home responsibilities?
Do hours worked impact on the percentage of ownership and /or compensation?
How is compensation defined?
Are there provisions for money retained by the business?
Are there provisions for the distribution of profits?
Are there provisions for awarding stock to employees?
Are there succession plans?
What happens if a principal wishes to leave the business?
Can the principal sell his/her shares? If so, is the sale limited to co owners? To family members?
Can third parties purchase the shares?
What happens if a principal dies? Can shares be passed to family member?
How are decisions made and who makes them?
By listing examples of areas to be considered by small businesses, we, at the Centre for Mediation & Dispute Resolution, hope to spark a conversation among business principals. The structure of the business and the individuals involved will be instrumental in shaping the actual questions along with prioritizing immediate and long term needs. We believe mediation provides an effective and collaborative process for shaping the conversation and reaching agreement.