BIZ BITS: Never, Never, Never Give Up...But Be Ready to Change Direction

Miller & Martin PLLC Blog | November 01, 2018

Summary: When you’ve given the bad guys all the cards, you can either give up or change direction.  Creativity is of paramount import.

(NAMES IN THIS ENTRY HAVE BEEN CHANGED TO DISGUISE IDENTITY)

I have the luxury of working with friends, and it truly is a luxury. As a friend as well as an advisor, I am able to gain greater insight and better understand my clients’ business and personal objectives.  I am also able to advise candidly, and tell a friend “I really think this is a bad idea.” 

Bill is more friend than client. Bill is a serial entrepreneur and is working on the current startup; has been for two years. The new concept has real legs, and Bill has the connections to make it work and to make $Millions. He needs startup capital. Several months ago, approaching the end of his rope, Bill was offered some working capital by a regional group. The terms were very aggressive, but this is a risky venture. My concerns were that the money was going to leave the venture undercapitalized, that it would become cash starved before it got off the ground, and fail, and that Bill’s financial partner would exercise its rights to remove Bill as operator and take all of his intellectual property (which they required to be assigned to the venture entity), and that they would use the noncompete (also a requirement) to keep him out of his own industry.  The terms were only part of the indicators, though.  The financial partner was cagey: not putting anything in writing, not returning calls, answering questions with questions, deflection, and redirection; also empty platitudes and “trust me” assurances.

He took the money over my cautions.

I checked in with Bill and we talked a few times briefly for the next few months, but he was in building mode and chasing business, as he should have been.

About three months in, he called me. My predictions were coming true in every way. The venture entity was out of cash, he had not been paid in a month-and-a-half, and the financial partner sent a rare written communication directing him not to make any agreements without their approval.  I didn't have to say it, he volunteered that I had told him so.

Here’s the thing: Assigning blame does not actually solve the problem.  In this case, Bill was on the verge of being edged out of not only a business, but an industry he was helping to create. So we set about assessing our tools, strengths, and weaknesses in tackling the problem.  Within about an hour, we had dual-track plan for bringing his financial partner back to the table to either live up to its “trust me” assurances, or release Bill from his noncompete restrictions, and to have a parallel structure set up with Bill’s operating partners (who were not subject to any restrictions or bound in any way) to carry on under a different aegis. I assigned him and his operating partners a “to-do” list and a set of communication protocols for dealing with slippery folks (e.g., after every phone call, send a confirming e-mail summarizing the conversation and commitments made, affirmatively apprise the financial partner of opportunities and needs in advance and in real time too, all in the interest of building a record that tells the tale they don’t want told). Renewed and with tasks in hand, they have set out to work. I feel like they are in a relatively good position.

There are lessons here about friends, creativity, and determination:

  • Even though he was embarrassed having proceeded over my cautions, because Bill and I are friends, he still came back to me to help fix it – I am always honored to be trusted at that level;
  • Bill has a network of friends who have risen to the task of helping him – they believe in him and in his mission, and they see the opportunity for this industry; generally speaking, people want to help people;
  • Bill’s financial backers could only place restrictions on the people with whom they entered into contracts, there is always another angle of approach for someone with a creative mind, determination, and true friends.

There is a time and a place for everything. Rest assured, that one day, over a fire pit, with bourbon and cigars, I will look my new millionaire friend Bill in the face and tell him “I told you so.”  I will refer, not to the time that I told him the financial people were bad people out to take advantage of him, but to the time that I told him it would all be okay because he had friends, creativity and determination to go along with a great idea and connections.

Tags: Intellectual Property, financial Partner, noncompete, partnerships, contracts

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