Small business break ups

Based on the comments I get from readers, one of the hottest topics on my blog are posts dealing with small business break-ups--be they partnerships, corporations or LLCs. As I've written before, within those disputes, one of the biggest struggles involves the inequality among partners or business co-owners, i.e., what happens when there are equal owners making unequal contributions.

What often happens in such cases is that the business breaks up. In worse cases, the disputes end in massive lawsuits, ugly recriminations, and financial ruin.

Where I've found this potential to be at its greatest is with the formation of those businesses where the co-owners are bringing different things to the table. For example, maybe one person is bringing money, another one is going to do the work, and perhaps a third is contributing an invention or patent that's going to make a million dollars. Each person is bringing something to the business, such that the whole is greater than the sum of its parts. Ironically, however, over time, these very differences can breed resentment among the partners and eventually cause business break-ups.

For example, at the beginning of the above hypothetical venture, the "worker" is getting the best of the deal: the money man risks losing capital, as, to a certain extent, does the inventor. The worker just risks losing his time, but nothing more.

Five successful years later, however, the dynamics may have changed. The capitalist and inventor are enjoying a nice return on their investment. The worker, however, is resentful: the business would stop without him. Whereas the capitalist and contributor have received back their investment (and then some), the worker continues to have to invest his time, effort and labor into the business.

I have also watched similar situations play out in a different manner. I've watched an "idea man", perhaps willing to do the work, who gathers up willing monetary investors. He's promised the investors great potential, and wonderful returns some time in the future. When things get successful, it turns out that he's issued himself so much stock, he effectively controls the company. The investors get little in the way of dividends, because by the time the idea man has paid himself a nice salary and benefits, there's little left. Theoretically, their stock is creating equity, but because their company isn't publicly listed (or, in an alternate scenario I have seen, they learn the shareholders' agreement has a provision requiring them to offer their stock back to the company at preferential rates prior to selling to a public buyer), the investors now have little hope of ever seeing a meaningful return. In other words, the passive investors' investments are held hostage.

Although attorneys do a good job of foreseeing the "worst case" scenario--i.e., what happens when things go awry--we also need to prepare for best case scenarios--i.e., what happens when things are going very well, and the equities have changed.

Here are just a few ideas to allow the continuation of a small business, even when the business contains different types of investors:

1. Provide benchmark dates at which the investments are vested, and any future contributions are paid for at arm's-length. This is a hard idea to pin down, except by way of example. Go back to my initial example of three different investors, each with a very different type of investment. Each investor, theoretically, could be benefited more than the rest, or less than the rest, depending upon how the company was structured. But they could all be treated fairly, if they come up with success benchmarks that allow them to treat their investment as having been fully paid in.

In the example of the worker, the company's organizational agreement could state, for example, that after the company reaches $X sales per year, the worker will be paid a salary--or perhaps, can hire staff and no longer have to contribute his own services. He is no longer captive: he's either now an investor and a paid-employee (in the first example), or else a passive investor like the rest (in the latter example).

For the inventor, perhaps the same agreement should state that after some benchmark (perhaps Y years), the inventor's patent will simply be licensed to the company, on a yearly basis, for a certain sum of money.

In other words, to avoid disparities later in the company's existence, you create a system so that the investors' later contributions of time, effort, or whatever, are compensated on an arm's-length basis.

2. Create, at the outset, scheduled pay-outs or buy-backs. In the other example, of the passive monetary investors, they contribute all the risk, but the idea man, as the business becomes successful, effectively shuts them out and sews up their contribution. Investors should recognize this as a risk, and ask for organizational documents that create some type of guaranteed payout--be it through a guaranteed buy-back, guaranteed dividends, or the like.

3. Create, in the organizational documents, forced buy-out or buy-back provisions. At the very least, you could place in the organizational documents provisions by which you can force a buy-out or buy-back, at an agreed upon price (or agreed upon pricing mechanism) during a certain time period or after a certain triggering event.

Interestingly, of the small business disputes I've seen, at least as many of them stem from business success as do from business failure. When setting up or starting a small business with numerous investors, don't just think about the worst-case scenario: ask yourself, what problems arise if the best case scenario occurs?

A Great Way To Relieve Stress

Chewing gum. Especially bubble gum. Especially "Dubble Bubble."

Thanks, Brandon :)

Attention All Yarn Lovers - Art Fibers has a new East Bay Location!

Thanks to Linda Sarson for passing along the following email from Art Fibers.

Artfibers has found a new place in the sun! We like to think of it as a 'multispecies habitat', a place where 'trees have standing' (many of them planted by Rox!). Fiber runs deep in the structure of nature -- somehow it seems appropriate.

Below is an invitation to an event. We hope that many of you will find a way to be there. But we know that many cannot. So we're designing a new business that doesn't require your travel. The creative process is only beginning. We have some ideas that you might find interesting, that might actually fit your world, where you are.

So please take a moment to visit the Journal section of our website. And then please take another moment to let us know how you are, what you are creating these days, and what you think of the new ideas! We miss you!

Announcing the Artfibers Studio opening Celebration!

When: Saturday, May 16 and Sunday May 17, 2009 from 10 a.m to 6 p.m.

What: All day party with swatching, music, drawings, food (barbeque, feel free to bring something to contribute or not!), and tons (literally) of yarn to savor and explore.

Where: Artfibers Studio - 632 Quinan Street (cross street: San Pablo Blvd.), Pinole CA 94564 - Phone: 510.724.0772 - Toll Free: 888.326.1112

Our new creative space will host open studio events weekends from 10 to 6 each Saturday and Sunday, beginning May 16. Each Wednesday evening we'll host an open group swatchalong from 6-9 pm. A full program calendar is posted here.
The new Artfibers creative studio is in Pinole's Old Town, occupying a house zoned commercial. The new space has abundant natural light, an organic garden, fruit trees, a gazebo, a deck with lounge chairs, a shady covered lanai, large instruction area, and of course, very cool space for yarn! Parking is free and unlimited. The studio is adjacent to forested greenspace popular with wildlife -- we occasionally see deer staring back across the fence!

The new mission of Artfibers Studio is to become an extended community resource for knit & crochet design, hosting workshops, exhibits, and offering a broad range of creative support. We've developed the space to inspire those who can be there in person and those who are far away. Like the store in SF, we hope that it will become a meeting place for fiber lovers worldwide. especially through our new program, The Yarntasting Guild.


More about the Pinole Old Town area: This is a peaceful neighborhood of charming antique cottages, many housing commercial enterprises and creative spaces. A block from our studio is the community focal point, a well-loved park where theatre, sports, and education happily coexist. A very good Farmer's Market offers many temptations each Saturday (as do the neighborhood bakery and Trader Joe's, just minutes up the street). From the park it's a leisurely stroll to the bay, where a small sandy beach awaits the adventurous.

The new studio is not as far away as you might think. Here are distances and driving times according to Google maps (http://maps.google.com):

Berkeley 14 miles, 19 minutes
Concord 18 miles, 25 minutes
San Rafael 20 miles, 29 minutes
Walnut Creek 20 miles, 24 minutes
Oakland 22 miles, 26 minutes
SF (old store) 22 miles, 29 minutes

These are all driving times by car. Of course if you share a ride, divide the time by the number of people (carry the 2) and you have -- much more fun! It can easily take 20 minutes to crawl from the freeway to the campus in Berkeley, and then the parking will eat you alive. You could be in Pinole!

We'll hope to see you soon. And if not, we'll hope that the universe will soon connect us. In fact, it does already!

-- Rox, Nyle, Heather, Brittany, the birds, the bees, and deer, oh my!

Flowers of Appreciation - Got a Bouquet You Want Share?

If so, send it along!

Job Opportunity

(submitted by Ana Costa)

I am hoping you can help me out. I am networking regarding the
two below manager opportunities. If you, or anyone you know, would like
the full job descriptions, please let me know. I am paying a $1,000
referral bonus after the 90th day of employment if I place your
referral.



1) Large, global law firm seeks an experienced Litigation
Paralegal Manager. This individual can be based in SF (ideal), LA,
Boston or NY. Below is a brief description:
Individual will manage and support the regular and temporary
paralegal staff across the Litigation Practice Area of the Firm.

Bachelor's Degree required. Minimum of 8 or more years
experience as a paralegal in a litigation practice area, including a
minimum of 4 years of management experience in a fast-paced law firm
environment and prefer prior experience in managing a remote team.

Excellent communication, interpersonal, and leadership skills;
strong customer service orientation towards internal and external
clients, a participatory management style and a consultative manner;
proven ability to interact with all levels of management, staff, and
external entities in a highly effective, respectful, and professional
manner. Ability to maintain competency and detailed knowledge of practice specific technologies.

Proficient in computer skills: MS Office, including Excel; and
Concordance. Elite accounting system experience helpful.


This is a national position managing litigation paralegals
firm-wide.


Salary $90-125K.


2)


Large, international law firm seeks an experienced Manager of
Partner Recruiting for its national offices; will also implement partner
recruiting strategies firmwide.


The Manager of Partner Recruiting will plan and coordinate the
firm's legal recruiting of partners utilizing their advanced knowledge
of hiring principles and recruiting concepts and methods.

A minimum of ten (10) years of professional recruiting
experience in a Legal or Equivalent professional environment, with an
emphasis on senior-level recruiting or executive search.


Must have strong client relations skills, enthusiasm,
initiative, creativity and proven success in implementing a lateral
recruiting program. Requires proficiency in MS Office and excellent
communication and presentation skills.

Bachelor's degree or equivalent in experience and/or training.
J.D. is a plus.


The firm offers a competitive salary commensurate with
experience; excellent benefits; career development and a casual, up-beat
work environment.

The firm has been growing over the last several years, and
continues its growth. There is an entrepreneurial Chairman who wants
the firm to be competitive with the top tier firms above them.


Salary $100-150K, DOE.


Kim Clancy
Principal
Legal Recruiting Specialist
(w) 415/954-9440 x. 225

Happy Administrative Professionals Day

Do something nice for yourself today :)

Take Time to Smell the Irises :)

I was rushing out of the house this morning and just as I stumbled down the last step of my porch, I looked right in the "eye" of this beautiful purple flower. I have been so busy - leaving early - coming home late - that I hadn't realized that my irises had bloomed and were nearly gone.

So, instead of continuing at my "break-neck" pace and nearly breaking my neck (pardon the pun), I grabbed my camera phone and snapped this shot.

Make today a great day!

Happy Birthday, Dilbert!

His face is on everything from mugs to pencils to cookie jars - Good old "Dilbert."

Brainchild of Scott Adams of Dublin, California, Dilbert turned 20 today. Here's to you, Dilbert - and many more!

Thanks for the laughs.