Human Relations Management in Young, Growing Companies : A Manual for Entrepreneurs and Executives 9780313004537, 9781567203455

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Human Relations Management in Young, Growing Companies

Human Relations Management in Young, Growing Companies A Manual for Entrepreneurs and Executives MARVIN SNIDER

QUORUM BOOKS Westport, Connecticut • London

Library of Congress Cataloging-in-Publication Data Snider, Marvin. Human relations management in young, growing companies : a manual for entrepreneurs and executives / Marvin Snider. p. cm. Includes bibliographical references and index. ISBN 1–56720–345–0 (alk. paper) 1. New business enterprises—Management. 2. Interpersonal relations. 3. Psychology, Industrial. 4. Human capital. I. Title. HD62.5.S66 2001 658.3—dc21 00–045848 British Library Cataloguing in Publication Data is available. Copyright  2001 by Marvin Snider All rights reserved. No portion of this book may be reproduced, by any process or technique, without the express written consent of the publisher. Library of Congress Catalog Card Number: 00–045848 ISBN: 1–56720–345–0 First published in 2001 Quorum Books, 88 Post Road West, Westport, CT 06881 An imprint of Greenwood Publishing Group, Inc. www.quorumbooks.com Printed in the United States of America TM

The paper used in this book complies with the Permanent Paper Standard issued by the National Information Standards Organization (Z39.48–1984). 10 9 8 7 6 5 4 3 2 1

To my parents, Harry and Yetta Snider, who were partners in marriage and a family business; and to my partner, Faye, in marriage and business for many years.

Contents Preface Acknowledgments

ix xiii

1.

Introduction

1

2.

Anatomy of Partnerships

14

I.

Qualities of Business Relationships

47

3.

Managing Teams

49

4.

Communication

55

5.

Managing Relationships

82

6.

Management of Resources

98

7.

The Use and Abuse of Power

112

8.

Decision Making and Conflict Management

127

9.

Values and Beliefs

145

10.

Benefit/Cost Balance

155

11.

Transitions

161

II.

Developing and Managing Business Relationships

185

12.

Development of the Business Culture

187

viii

Contents

13.

Implementing the Partnership ‘‘Marriage’’

194

14.

Delegation of Responsibility

207

15.

Keeping the Business Healthy

212

16.

Signs of Troubled Relationships

226

III.

When Business Relationships Are No Longer Desirable or Viable

237

17.

Evolution of a Business Divorce

239

18.

Coping after the Divorce

253

Appendix. Business Divorce: Managing the Divorce Process by Carl Israel and Marvin Snider

265

Selected Bibliography

291

Index

295

Preface My interest in entrepreneurship started with a failed experience in a partnership. As will become clear, this experience illustrates how not to approach a business partnership. In 1960 I was a psychologist working in the Department of Pediatrics at Massachusetts General Hospital and, in accordance with the accepted therapeutic approach, I saw children on an individual basis. Soon after I began my work, however, I came to the conclusion that children’s problems are often more an expression of family problems than of defects in their own personality. As a result, I increasingly began to work with families when children presented with behavioral problems. Gradually my form of practice became known as family therapy, a mode I practiced for the next nine years. In 1969, a colleague who respected my work with families proposed that we work together, and so we entered an arrangement in which we shared rented office space and expenses while maintaining our individual practices. Entering this arrangement seemed harmless enough: all we would share would be office rent and expenses. Whether we were personally compatible received only cursory consideration. We seemed compatible enough—he had a good professional reputation, and our views on family therapy practice were similar. I knew little else about him other than that we shared an interest in family therapy and visions about developing a treatment center. I naively trusted that the information I did have was sufficient to support this working relationship. The first hint of potential difficulty came soon after we began our working relationship. When our families were together socially on a day trip, I noticed how much he dominated his wife, to the point that he treated her in an authoritarian and demeaning manner. He

x

Preface

showed little empathy for her feelings. Thinking it was really none of my business, I ignored the possible implications—to my later regret. A few months into our joint venture, my colleague announced that he had come across a developer-investor who was willing to fund an office building and two residences for a treatment center for adolescents and their families. So we quickly became a three-way informal partnership. Unfortunately, we continued to pay too little attention to matters of compatibility. We saw ourselves simply as two clinicians and a successful businessman. Our clinical team soon expanded to include a third clinician—a friend of my colleague who seemed a suitable addition. We had every expectation that this combination of experienced clinicians and an experienced businessman would lay a solid foundation for pursuing our dream. My confidence gradually began to fade as I observed business practices that violated common sense. Over time, my concern deepened as I saw other indications of sloppy business practices: payables were late, accounting systems were inaccurate, and collections were overdue. The problems, though not blatant, were serious enough to begin to hurt the business. These impressions were reinforced at our business meetings, which reflected the casual way expenditures were being monitored. Being unfamiliar with business matters, however, I was reticent to express my views more forcibly. Within a year after the four-way partnership was established, I began to regret my superficial knowledge of my original office partner. His need for dominant behavior soon impinged on the partnership, making it difficult for him to respect different points of view and to negotiate solutions that would be comfortable for all the partners. Worse, a combination of accumulated emotional pressures led to his emotional breakdown, whereupon he left the partnership. Frustration had led him to feel that his partners, and I in particular, were trying to undermine his efforts. It became very difficult to work together constructively. Although the practice survived this crisis and became a three-way partnership, within three years of our group’s founding the venture failed. This bitter experience taught me several lessons: the importance of compatibility in partnerships; the need to check out assumptions very carefully; the need to follow established business practices, specifically, following a business plan; developing a sound financial base; paying attention to interpersonal relationships in managing a business; and being open to feedback. The experience also made me aware that various levels of partnerships, both overt and subtle, existed. This experience, when viewed together with my clinical work with couples in marital therapy, brought me a unique insight: a real parallel existed between marital relationships and business partnerships. Over the next 25 years this insight helped me develop a consulting practice for a wide variety of small and large businesses and a broad range of entrepreneurs.

Preface

xi

Both entrepreneurial and consulting experiences have led me to appreciate the important role of the social and psychological context in the success of an entrepreneurial venture. The literature is replete with advice on the business aspects of being an entrepreneur but says relatively little about the social psychology of being an entrepreneur. This lack, together with my discussion with Eric Valentine at Quorum Books, led to the writing of the present volume. My approach to this material is built around combining a pragmatic application of social science literature to entrepreneurship and partnership. Although this book is aimed at the entrepreneur-partner, it has wide application to the operation of any business enterprise.

Acknowledgments This book is an outgrowth of discussions on failed partnerships with Carl Israel, an attorney. I am indebted to him for his perspective and for his support that ultimately led to this book. My experience with couples in my clinical practice and consultations with a wide variety of businesses and organizations provided further insights on what makes for successful business relationships. I am also indebted to Stuart Steele, Harold Butler, Herbert Zarkin, Robert Harrisburg, Michael Rosenfeld, Craig Snider, Michael Glick, and Edward Gates for sharing their entrepreneurial experiences. The support and encouragement of Eric Valentine of Quorum Book played a major role in the evolution of this book. This book would not have been possible without his ideas, perspective, patience, and support. The quality of writing was greatly improved with the editing help of Betty Pessagno. I am particularly indebted to my wife, Faye, for her support, encouragement, and feedback in the writing of this book.

Human Relations Management in Young, Growing Companies

Chapter 1

Introduction An entrepreneur is a person who organizes, operates, and assumes the risk in a business venture. To be successful in this effort, entrepreneurs have to be skillful in managing multiple relationships—partners, employees, bankers, lawyers, and more. Each of these relationships involves some form of collaboration in service of a shared objective, which is the essence of a partnership. Knowledge and comfort in being an entrepreneur are essential to engaging successfully in these partnerships. Understanding what is involved in being an entrepreneur will facilitate this process.

THE CLIMATE OF ENTREPRENEURSHIP The allure of entrepreneurship is the challenge it presents for putting one’s abilities against the minefield of obstacles that line the path to success. My consultations with a range of entrepreneurs over many years reveal many different motivations: Pied Piper attraction of a vision: “I’ve always wanted to be a . . .” Opportunity for creative expression: “I’ve always wanted to create new things” Hopeful allure of wealth: “Being able to have anything I want” The challenge of being tested: “Can I do it?” Relentless “fire in the belly” that won’t let go Tempting challenge: “I want to see if I can make it on my own” Desire to be self-employed: “I don’t want to work hard for someone else. I want to work hard and reap the rewards for myself.”

2

Human Relations Management in Young, Growing Companies

How People Become Entrepreneurs By Intent Some people in this grouping set out to become entrepreneurs at an early age. They may get a business school education or they may wing it. In addition, a child may grow up in a family business or be coerced into becoming an entrepreneur. By Grooming An entrepreneur may groom his son or daughter to take over the family business by guiding the child’s education and apprenticeship in learning the business. This process works well only when the child shares the parent’s goal; a reluctant child translates into probable failure. By Accident A person may pursue an idea only because it is intriguing. If the idea becomes viable commercially, the choice becomes that of opting to be an entrepreneur and finding a way to finance its development. Through Evolution People may work their way up through the ranks. In the process of gaining knowledge, skills, and experience on the job, they may decide to work for themselves—either because the company constrains their creativity or because they find the idea of having their own business attractive. Approaches to Entrepreneurship With the Curiosity of a Cat Some entrepreneurs are captivated by the challenges of their product or service. This can be a driving force overshadowing all other concerns. As a Moth to a Flame The idea is compelling and irresistible: It is something one must do even at the risk of failure. With Fear and Trepidation One’s fears about becoming an entrepreneur are overshadowed by a felt obligation to carry on the family tradition. Thus, one may have the talent to be successful but not want to use that particular talent. For example, pursuing a career in the arts may become secondary to family loyalty. This reluctant bridegroom approaches honoring his commitment with anxiety and uncertainty, but with luck and persistence he succeeds.

Introduction

3

With Confidence A person armed with a good business education or extensive experience and trust in a product is likely to approach entrepreneurship with confidence and a healthy apprehension. The Variety of Rewards Wealth The entrepreneur can become as rich as Croesus or Bill Gates—there is no limit to the amount of money that can be made. But entrepreneurs will succeed only when they develop expertise in their products and can market them successfully. Once immediate financial needs and material desires are satisfied, building an estate becomes a common goal. This goal satisfies the desire to secure the financial future of children and grandchildren, in some sense satisfying the natural human desire for immortality. Power People with a valued resource (e.g., money) are influencial because of what the resource will buy. Thus it is that we have politicians seeking contributions, merchants selling their wares, or charities seeking contributions. Possessing a valued resource brings with it the benefit of prestige. Satisfaction Being an entrepreneur brings satisfying accomplishments both directly and indirectly through earnings, prestige, power, and the like. Satisfaction may also come from knowledge of what the product does for individual people or the community. The inventors of the automobile, the computer, and the television would gain much pleasure in contemplating the impact their creations have had in enhancing quality of life. Recognition and Prestige Recognition of entrepreneurial efforts is very attractive to most people in shoring up their self-esteem. The accompanying welcome prestige often leads to new opportunities. Independence Working for someone else presents many limitations: work content, the work hours, amount of earnings, standards of dress and behavior, time away from family, and on and on. Many relish being their own boss and having more control over the work environment, earnings, and lifestyle. Independence also carries with it the pride of ownership.

4

Human Relations Management in Young, Growing Companies

Creativity Being an entrepreneur means one can follow and nurture one’s own creativity, thereby avoiding the frustration of having to sell creative ideas to people who lack the imagination to appreciate them. It also permits orchestrating the combined efforts of employees, much as the conductor takes pride in the quality of an orchestra’s performance.

Deterrents to Being an Entrepreneur Financial Risk A start-up venture usually requires a personal guarantee by a bank that is willing to make a loan. It always poses financial risk, even when things are going well. The entrepreneur is always aware that success can rapidly disappear with or without his fault. The prospect of losing the family home and the possibility of facing bankruptcy is more than many families are willing to gamble for a risky venture. Reputation While the prospect of success is very attractive, the possibility of failure and the perceived loss of reputation that goes with it may not be acceptable to warrant taking the entrepreneurial risk. Negative Impact on Family An entrepreneurial venture is not only a risk for the principal involved but is in fact a family commitment. Since prospective entrepreneurs have to cope with the challenges of new ventures, they will not have an easy time of it without the support of their families. Life gets easier once the new business attains some degree of stability, but sometimes this stability may take years to achieve. And, once achieved, continuing crises in the business may create a reprise of the initial start-up anxieties. Impact on Lifestyle The demands required by the start-up business leave little time for anything else. Thus all other personal interests—recreational, community, political, and the like—will be given low priority. Uncertainty One great advantage of working for someone else is the degree of predictability that goes with it. A person engaging in a new business has to have a high tolerance for uncertainty and confidence in dealing with the unexpected.

Introduction

5

Level of Responsibility New ventures require an ability to juggle many responsibilities at the same time. Anxiety is increased when coupled with the fear of making mistakes and with the consequences of failure. Most entrepreneurs are willing to expose themselves to such pressures. Fear of Failure People who approach risk taking with a fear of failure would do well to place their energies and investments in more secure areas. This fear too readily becomes a self-fulfilling prophecy because these people focus on avoiding so-called dangers rather than investing in creative efforts with a chance of success. Contributing to the problem is the meaning attached to failure. For many failure is a demonstration of personal incompetence, and it is experienced as humiliation. For others it is an opportunity for learning. New learning is gained through trial and error. Learning from mistakes ultimately leads to success. Without this attitude we would still be in the Stone Age. A more productive view of failure is an ability to learn from experience.

Entrepreneurship within an Organization Entrepreneurship within an established corporate entity may seem a contradiction in terms. Entrepreneurship can be viewed on a continuum rather than as a binary entity. As a general guideline, the potential for entrepreneurship increases in direct proportion to a person’s rank in the organizational hierarchy. The differences between a freestanding entrepreneur and a corporate entrepreneur are more apparent than the similarities. More similarities are evidenced the higher up the corporate ladder a person climbs. Top executives are challenged to be creative. Often the largest part of their compensation is tied to the company’s performance. They gain some sense of ownership through stock options, and they have a great deal of latitude in how they use their time. They risk losing their job, however, if they don’t meet expectations. The differences between independent and corporate entrepreneurs provide quite different contexts for doing business. Corporate executives can’t go bankrupt; at worst they can be fired. They also have to be accountable to a board of directors and to stockholders. They don’t have the flexibility of their freestanding counterparts. Having to leave one’s job doesn’t have the same impact as a failed business venture. The person leaving a top-level job usually has a shiny gold parachute to ease the departure and experiences none of the humiliation or other significant hardship that attaches to a failed entrepreneur.

6

Human Relations Management in Young, Growing Companies

Life Cycle of a Business The life cycle of a business involves three phases: getting it started, keeping it running, and dealing with its ending. Chapter 11 discusses the issues involved in these phases. Chapters 2 and 13 pay particular attention to start-ups. Consideration of start-ups applies not only to the beginning of a business but to the start up of a new department, subsidiary, or major new venture. The remainder of Parts I and II apply to ongoing businesses. THE NATURE OF BUSINESS RELATIONSHIPS Businesses involve sole entrepreneurs or entrepreneurs in partnership that may involve one or more partners. The core partnership involves joint ownership and management, usually two partners. Other types of partnership are described in Chapter 2. This core business partnership is usually a longterm committed relationship that involves a shared financial commitment. It has a striking parallel to the marital partnership, which may be seen as a metaphor for the business relationship. Marriage as a Metaphor for Partnerships The marriage metaphor is more striking when applied to a business partnership. Both involve long-term relationships, joint financial responsibilities, a compatible way of relating, shared interests and goals, accountability for one another’s behavior, a legally defined relationship, and a legal and often trying process in the event the relationship is terminated. Also involved is the shared parental investment in the product of the partnership, which occurs during the partnership and can continue to be an ongoing issue even after the relationship is terminated. An added concern following termination is the issue of intellectual property—patent or copyright— much as parents relate to the development of their children during and after their marriage. Courtship In personal relationships, the courtship period is a time when the partners can test out their the intellectual and emotional compatibility. Ideally, it takes place over a long time span, ranging from months to years, and involves the partners knowing each other under a wide variety of circumstances. This length and quality of the courtship heightens the probability of a successful collaboration. Business partnerships tend to have only limited courtships. The challenge, excitement, and felt pressure to pursue a vision make it easy to ignore signs

Introduction

7

of emotional incompatibility. Too often the attitude is that relationship issues can be dealt with at some later time, and the idealized belief is that any problem can be solved. Insufficient attention to courtship enhances the likelihood that once the “honeymoon glow” of launching a new venture fades, the partnership will be in trouble.

Engagement A couple’s engagement period provides a transition period from single to marital status. It is conducted without the uncertainty of outcome characteristic of the courting period. Now that the couple has committed to the relationship, they set about to define a joint value system, and living space, as well as their emotional relationship and division of labor in conducting their marital relationship. For the business partnership, the engagement period is the time between committing to a business relationship and completing a formal agreement for conducting it. The nature of pressures involved in starting a business is likely to lead to a short “engagement.” Any noted relationship issues that arise continue to be viewed as matterts that will be dealt with later as an extension of what started during the courtship period. In my consultation work, I have often heard the comment, “I was aware of problems in our relationship from the very beginning, but I was too involved in getting the business started to pay attention to them. I presumed that we would deal with those issues after we got the business going—that was a mistake!”

Marriage The formality associated with launching the business partnership pales by comparison to that of marriage. A business partnership is usually launched in a lawyer’s office or some other subdued environment with little or no fanfare. What the two events do share, however, is a public signaling of the new relationship. In effect, the spouses of business partners become silent partners in the business relationship. A subtle but significant ingredient is how well the spouses get along. Many a business partnership has been scuttled because of friction between spouses or between a spouse and the partner. Spouses may be greatly affected by the partnership but have input only at the pleasure of their family member who is a partner. When a business partner becomes caught in a conflict between family and business needs, more than likely everyone will lose unless the conflict is resolved. These problems are usually not experienced acutely. Instead, they build gradually over time and erupt into the open when a crisis develops, making maximum demands on the time and energies of one or the other partner.

8

Human Relations Management in Young, Growing Companies

Defining the Partnership Culture Once the hoopla over establishing the partnership (effecting the “marriage”) has subsided, the partners must define the culture of their relationship and make a range of decisions. They fix on the values that will guide their relationship, lifestyle, management of finances, balance between work and personal time, and their relationship to their respective families. One of these decisions—that involving having a child—has a specific parallel in the business partnership. When the partners consider a new venture, whether a new product or a new business, the ramifications are similar to those of having a child in marriage. Either way the decision will have a profound impact on the business and the business relationship. This input will be positive only if both partners can “own” the decision independent of the outcome. When two partners accept the fact that their joint judgment didn’t work out, they can embrace constructive alternatives. When they do not reach this acceptance, the disappointment can readily develop into blame and conflict between partners: “I told you we shouldn’t have done X.” ORGANIZATION OF THIS BOOK Both entrepreneurial and consulting experience have led me to appreciate the important role of the social and psychological context in the success of an entrepreneurial venture. The literature is replete with books on the business aspects of being an entrepreneur but says relatively little about the social psychology of being an entrepreneur. This lack, together with my discussion with Eric Valentine at Quorum Books, led to the writing of the present volume. My approach to this material is built around combining a pragmatic application of social science literature to entrepreneurship. This book is divided into three parts. Part I discusses the qualities desired in business relationships; Part II discusses what is involved in developing and managing business relationships; and Part III discusses what happens when business relationships are no longer viable. The book considers how a divorce evolves and examines the adjustment involved after the divorce. A discussion of accomplishing the divorce is provided in the appendix. While this book is aimed at the entrepreneur, it has wide application to the start-up and ongoing operation of any business enterprise. Chapter 2 considers business partnerships. While the focus in this chapter is on startup, the principles apply to a business as long as it exists. For example, selection of a partner would apply any time a new partner is added to a business or if a new business is spun off of an existing business. These concepts would also have application to mergers, which embrace many aspects of partnerships. All of the remaining chapters in Part I apply as much to ongoing busi-

Introduction

9

nesses as they do to start-ups. The phases described in Chapter 11 clearly refer to all aspects of ongoing businesses. In addition, the chapters in Part II on keeping a business healthy and signs of trouble are more applicable to ongoing businesses than they are to start-ups. Part III and the appendix are totally focused on ongoing businesses. The following case vignettes in addition to other case examples relevant to particular topics will be referred to throughout the book to illustrate concepts. Four of the case illustrations involve multiple partnerships in addition to my own situation referred to in the preface. Also reference is made in the text to problems in multiple partnerships. All the material in this book is applicable to any number of partners. Case Illustrations Construction Company Jerry and Ernie inherited equal shares of a construction company from their father. They were successful in business and got along well for many years, and as they got older they began to bring their children into the business. Eventually, Ernie’s son Marshall became the general manager and began to consult and make decisions with his father to the exclusion of his Uncle Jerry. Jerry became increasingly alienated. Marshall and Ernie, who were absent too much of the time, began running the business down to the point of near bankruptcy. Jerry hired counsel to try to work out the sale of his interest to Ernie or, alternatively, to buy Ernie out or sell the business to an outsider. Marshall, who had few assets of his own, wanted to buy Jerry out, but his father, Ernie, did not want to borrow the necessary money and become personally liable on a guarantee to the bank. The accountants began to shift from their original position of favoring Ernie to favoring Jerry when they saw how mismanaged the business was with Marshall in charge. The showdown came when Jerry was asked to sign personally on additional borrowing from the bank. He refused to do so without Marshall’s removal. Jerry convinced Ernie that Marshall was the problem, so Ernie fired Marshall. Jerry and Ernie regained the management jointly and promptly returned the business to profitability. Two years later they sold the business to a third party. Medical Group Practice The practice was started with little or no discussion as to how it would operate and, in particular, how the profits would be carved out. The practice involved just two partners, Alex and Peter. Both worked hard, but Alex put in many more hours with his established patients, whereas Peter spent more time in management and marketing for new patients. At the end of the first year, Peter expected to split the profits evenly. Alex, on the other

10

Human Relations Management in Young, Growing Companies

hand, expected to receive significantly greater compensation because of his billed and collected fees. Alex was extremely upset when Peter couldn’t see Alex’s side. To deal with the numbers after the money had already been distributed on a 50/50 basis created an intimidating situation from Peter’s standpoint and a very frustrating one from Alex’s point of view. Unfortunately, before they sought legal counsel, they exchanged unpleasant words. The end result was a split-up along mutually agreed-upon terms. Law Firm The practice was started with little discussion about how it would operate. The partners had very different work ethics, which led one of them to split with the other three lawyers. Jean was the workhorse but was receiving only 25 percent of the profits based on an even split among the four equal shareholders. Eventually, she worked out a separation from the practice so that she could practice her specialty on her own. Management Consulting Firm Three businessmen, Gregory, Jeffrey, and Michael, formed a partnership to provide organizational development consulting services. Their shared enthusiasm led them to bypass attention to the details of how their partnership would be managed. The three partners had quite different personalities and personal value systems, though they all wanted to have their own office building and a large cadre of consultants. While they managed to acquire both, in their enthusiasm they didn’t pay enough attention to business practices and to managing their different views. Gregory developed an illness that resulted in his increased difficulty in coping with the cumulative pressures of business and unresolved conflict with his partners, which ultimately resulted in his having to leave and a buyout of his share of the business. Jeffrey and Michael continued to run the business for a few years when financial difficulties led to selling the business to a third party. Sporting Goods Company This was a family business managed by third- and fourth-generation members. The business was started by the grandfather of the third generation. The father, John, continued the business as a small neighborhood store in much the same way his father had run it. John’s son, Paul, joined him in the business when he graduated from high school. Paul enjoyed the business. After a few years in the his business, his father made him a partner. No formal partnership agreement was drawn up. Paul gradually developed the vision of pursuing a major expansion, which his father quickly vetoed. Ten years later John became ill and was confined to a nursing home, giving Paul the opportunity to pursue his vision. Following in his father’s footsteps, Paul formed a partnership with his four sons on an informal

Introduction

11

basis. For several years the business flourished. The original store was greatly enlarged, and other stores were added. Paul had a special relationship with his son, Ethan, who majored in business in college, and eventually, Ethan was made president of the company. Paul and Ethan managed the company’s finances with little input from the other three sons, who quickly incurred more debt than the business could support. This development, coupled with higher salaries for the partners than the business could support, led them to the brink of bankruptcy after an economic recession set in. Pressure from the bank led to drastic reorganization and termination of executive positions. As a result, the other three sons were forced to leave the business. The problem was compounded when these partners realized that trust in their father and brother was violated both by poor judgment and by their not being apprised of what they were doing. Adding to the problem was their potential vulnerability to personal bankruptcy, which eventually was narrowly avoided. Family relationships were fractured beyond repair. Nursing Home Company A group of five partners established a group of nursing homes in two states. Three of the partners had worked together successfully in another business, which they sold before getting into the nursing home business. The dominant partner, Sheldon, was charismatic and creative and he also had the largest financial resources. He was committed to working with his partners and practiced respect and fair play with them. The three partners brought in two new partners who had experience in the nursing home business. The more senior of these partners, Jim, was given responsibility for the daily management of the company. Shortly after opening their first two homes, one of the original partners, Jeff, had serious disagreements with the way the business was progressing. He was constantly critical, which resulted in a very stressful period in the partnership. Failure to resolve their differences led Jeff to sell his interest to the other partners. Although the company did well for two years, their business gradually deteriorated. Sheldon and the other remaining original partner, Howard, didn’t understand why the business was getting into serious financial trouble. Their investigation revealed that Jim was grossly mismanaging the finances. He was summarily forced into selling his share in the business. The remaining partners were able to return the business to a stable financial operation. Two years later the business was sold and the partnership was dissolved. Advertising Business Two partners started an advertising business. They had very different personality styles. Kurt was very assertive and was often insensitive to how his behavior affected others, particularly subordinates, whereas Fred was

12

Human Relations Management in Young, Growing Companies

laid back and more conciliatory in his manner. Nonetheless, they complemented each other: Kurt’s assertiveness and imagination were useful in building the business, and Fred was effective in managing the quality of the work product. Fred became increasingly unhappy with Kurt’s brusque way of treating employees, fearing that this manner was responsible for the frequent turnover of staff. Employees were fearful of Kurt, which resulted in low morale. Fred’s attempts to address the problem were dismissed as being too soft. Characteristically, Fred tended to defer to Kurt because he was uncomfortable dealing with conflict. They would discuss their differences, and for the most part Kurt’s views would end up prevailing. In the earlier years, Fred’s business’s success more than overshadowed Fred’s discomfort. Gradually, however, Fred’s toleration of Kurt’s dominant ways diminished, and he increasingly began to challenge Kurt, who each time would agree to try to be more considerate. His behavior would change briefly, only to return to its more natural state. After a long process, Fred confronted Kurt on his inability to follow through on his commitments. This led to a struggle that resulted in the sale of the business. Furniture Company Two sons inherited the business from their father. Although they had very different personalities, they got along at least while their father was alive. Once he died, however, the tensions between them began to mount. George, the younger brother, was personable and conscientious, fair, and very attentive to the business. Manny, the older brother, was dour and more casual about his business responsibilities. In addition, he was often aloof and curt with his customers. He regularly violated their agreement not to put personal expenses through the business. Manny was often noncommunicative with George, and when he did converse, it was usually to criticize. George’s sense of loyalty to his father’s memory and his felt obligation to his brother led him to overlook his grievances with his brother for a time. Ultimately, George was so deeply bothered by his brother’s behavior, on both a personal and business level, that he sold his share of the business to him. Insurance Company A woman inherited her husband’s business upon his unexpected death. She did not work in the business, but her two sons did. The older son, Bill, was more competent and committed to the business than his brother, Sam. Intense sibling rivalry over the years had made their relationship more difficult. Their mother, who was not well versed in the ways of the business world, found it difficult to cope with her unexpected and newfound responsibility. She put Bill in charge of the business but was very concerned about how Sam would deal with favoring his brother. Sam was angry and

Introduction

13

accused her of favoritism, spending much of his time at work working on personal deals unrelated to the business. Sam ultimately left to pursue his interest in raising horses. The sibling relationship was fractured beyond repair, which was very painful for their mother.

Chapter 2

Anatomy of Partnerships PARTNERSHIPS DEFINED A partnership is a relationship, either formally or informally defined, between two or more people engaged in a cooperative effort to reach a common goal for mutual benefit. Partnerships have the best chance of succeeding when each of the following variables is considered. How Well Prospective Partners Know Each Other before Committing to the Partnership Partnerships commonly occur when people come together fueled by a shared vision. This enthusiasm and desire for fulfillment often obscure the need to give due consideration to the compatibility of the partners. Part I discusses various aspects of relationships that affect the compatibility of partners. Most people take a dim view of people who enter a marital partnership on impulse after just a brief courtship. Yet, this often happens in business partnerships without notice. In both cases the prospect for a long-term successful outcome is high risk. Definition of Working Relationship Partnerships in business, as in marriage, can easily result in struggles for power and control to the detriment of the business. Showing clarity in working out a mutually meaningful division of labor will contribute to a healthy collaborative relationship. A major source of conflict will be

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avoided if partners are able to agree on goals for their respective responsibilities but do not attempt to micromanage one another on how they are implemented. Agreement on the Goal to Be Achieved The goal of making money finds ready agreement but does not address how profits will be used. Initially this concern doesn’t command much attention given the pressures of start-up and the uncertainty of whether there will be any profits. Agreement on goals becomes more critical once the prospect of making a profit becomes a reality. The potential for conflict arises if the partners have different values on how profits should be used. Agreement on How the Goal Will Be Achieved Partners’ agreement on goals doesn’t necessarily translate into agreement on how to get there, either in terms of method or the time frame to achieve it. Differences in how to achieve these goals will seriously affect the development of the business unless the partners have evolved ways to constructively deal with their different views. (Chapter 8 discusses decision making and conflict management.) Periodic Review of Partnership Relationship What works at one stage in a partnership relationship does not necessarily continue to work as the partners’ needs and those of the business change over time. Making time to review the status of their relationship free from the competing demands of the business gives the partners the opportunity to evaluate and nurture the quality of their relationship. This review is especially productive when the partners have a relationship of trust in which they are able to share their feelings and vulnerabilities regarding their working together. Completing this review prevents the buildup and erosion of psychic energy and trust that exist when partners feel it is not safe to speak their mind without fear of creating conflict. The breakdown in the quality of a relationship is analogous to what often happens in marriage when spouses allow other interests and personal needs to interfere with the relationship. Making time to ensure that the marital partners’ needs are getting adequate attention is essential. A relationship needs proper care to survive. Every partnership has its own unique characteristics. Active Partnership The most demanding form of business partnership, which involves both partners actively participating in the daily operation of the business. These partnerships are characterized by the following:

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• Partners have joint ownership that may or may not involve equal shares. Ownership contributions may take any combination of financial, time, expertise, ideas, special skills, and other characteristics. Determining the ownership portion is difficult when the contributions are not equal on any of the dimensions that define the partnership. • Partners share the risks, responsibilities, and rewards. • Partners are liable for the behavior of each another. • Both partners likely have to sign personally for any loans in all but wellestablished businesses. • Departure of a partner terminates the partnership.

Silent Partnership A partnership that is not formally announced and in many cases is not public information. • The silent partner is not involved in the daily operation of the business. • The role of the silent partner can vary widely from solely financial participation to advisor to close involvement behind the ostensible entrepreneur/manager. • Silent partner involvement may be time limited. An investor may participate in helping a business get started or for a specified time period.

Corporate Partnership Closely held corporations that function like partnerships in practice. • This partnership applies to closely held businesses in which partners are actively engaged in the daily operation of the business. • Requires two officers with legal responsibility. • Liability is limited to investment in the corporation. • The corporation survives a change in partners. • The partnership is governed by laws pertaining to corporations.

Limited Partnership A partnership in which the managing partner operates the business. • Limited partners do not participate in business operation. • The partners’ liability is limited to their investment. • The partnership is governed by laws pertaining to limited partnerships.

Professional Partnership Different from the active partnership in that the partners operate primarily in parallel on individual cases rather than collaboratively on a single objective such as a particular product or service. In other respects, these

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partnerships operate like business partnerships—for example, law firms, medical group practices, and others. • In other respects, these partnerships function like active partnerships. • These partnerships usually have many partners. Unlike a small business partnership, partners may leave without affecting the status of the partnership.

Family Business Partnership These often involve the dream of passing the family business from one generation to the next. The hopes of many entrepreneurs have been greatly upset when their offspring do not choose to follow their vision of following in the family business. • The business often functions with an informal business plan that evolves over time. • Accountability is often ambiguously defined. Problems frequently develop when family members are unable to separate family relationships from business relationships. This usually results in family conflicts that are expressed both in the business and the family. • Resentment often develops among non-family employees when family members gain positions of responsibility and perks based on relationship rather than on merit. • It becomes difficult, if not impossible, to fire family members because of conflicting commitments between business and family and pressure from non-involved family members, particularly if the complainant is the entrepreneur’s wife.

Product Partnership If the essence of partnership is collaboration in the interest of attaining a common objective—provision of a product—then this form of partnership should be considered. This kind of partnership is not about ownership but about a joint collaborative effort both for the benefit of the entrepreneur and employees. This form of partnership occurs only when the partners are able to develop a working environment in which employees feel they are partners in the joint effort. This involves seeking out and acknowledging opinions, and treating the employees with appropriate respect. In the absence of this respect, there is no collaborative partnership, with employees giving less than their capability and content just to do their job as required. • Partnership is usually defined informally. • The work relationship becomes a partnership when management encourages creative involvement and is accepted by employees. Employees become invested in the success of the company outside of their personal compensation. Personal satisfaction and success become identified with company success.

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• Employees do not share ownership except as equity is unilaterally granted by owners as a reward for services rendered. As an example, one business man gave small amounts of equity to deserving employees instead of bonuses in the belief that this reward encouraged motivation and commitment and led them to think and act more like owners. This approach worked well for all concerned when he sold his business. • Profit-sharing is utilized in some companies to encourage a product partnership mind-set without involving equity ownership. • The partnership is based on an individual relationship between owners and an employee. It can generalize to all employees when the concept of a product partnership becomes part of the work culture.

Collateral Partnership This is a partnership with professional service providers, such as lawyers and accountants, and others as dictated by special needs. • They are not involved in ownership, nor do they have any financial responsibility or accountability. • They share the goal of helping the business to succeed. • They function in an advisory capacity within limits of their respective professional ethics. • Their functions are clearly defined. Accountants participate on a regular basis, whereas lawyers participate on an as-needed basis, as do other consultants.

Collateral Partnership with Banks • Banks share goals with owners to the extent it serves the bank’s interest of having a productive account. • Banks do not become involved in the business’s operation unless it represents a potential threat to the bank’s investment. It has indirect impact on business operation when it does not see fit to lend money for purposes it feels will put the bank’s investment at risk. • Banks define clear expectations of accountability—timely payment of debt service and provision of financial records as required.

Collateral Family Partnership • Family members do not have any active involvement in the business. • Family members enter a collateral family partnership when they become supportive of the family members in the business. This involves learning when participants are not able to be available when desired, understanding when the financial needs of the business may put financial restraints on family needs and activities, and being willing to help out in the business when needed. This partnership has the effect of freeing up the partner’s psychic energy to attend to business that would otherwise have to be utilized in dealing with family conflict because of business demands.

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Collateral Partnership with Customers • Customers indirectly participate in formulating the concept of the company’s product through market research, focus groups, and other groups. • Such partners share the goal of providing a product that meets consumer needs. • Consumers have influence on owners when they act in sufficient numbers to affect the company’s profitability. • Partnerships exist only when a capacity for dialogue exists between company and customer in which customers are acknowledged for their concerns.

Problems in Partnerships The potential for a business’s success is enhanced when all of the relevant partnerships are functioning at the needed level. An active partnership will do well when relations with business partner, employees, family, banker, accountant, lawyer, and customers are working well. The conceptual framework of defining various forms of partnership is useful both in building a business and in diagnosing the source of difficulty when problems arise. Understanding what is needed to make each of these partnerships function provides a basis for determining the source of problems and thereby how to prevent conflicts in multiple partnerships. Sources of problems in a partnership are in one or more of the following areas: Partnership Agreement Problems Ambiguities or misunderstandings in what two prospective partners have agreed upon. Two partners may agree to work together in concept but run into difficulty when their agreement has to be translated into behavior. This conflict may involve personality clashes, different views on division of labor, different expectations of what each partner will contribute, and different work habits. Methodological Problems Disagreements as to how to accomplish their common goal both in concept and in how respective responsibilities are to be performed. One example occurs when partners have different standards for the behaviors they consider appropriate necessary and necessary. Adaptability to Change Problems Inability to jointly adjust to changing circumstances that evolve in the life of the partnership. Partners may start out in agreement as to method and objective but may run into trouble when they try to adjust to changing circumstances.

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Goal Definition Problems Disagreements about the vision of the partnership. The common vision that partners have at the start of their partnership may change over time, which is similar to what happens in marriages. A review of my own experience, described in the Preface, illustrates how analysis of a partnership provides insight on why the partnership failed. Our greatest strength was that we shared a goal—to create an innovative outpatient and residential treatment program for individuals, couples, and families. We were also in conceptual agreement on how to accomplish it. We ran into trouble when we clashed on the appropriate way to implement our goals. One partner was insensitive in his treatment of employees. Struggles over these issues led to the realization that we hadn’t paid enough attention to partner compatibility and to negotiating the terms of our partnership. Our partnership was doomed from the outset because we allowed the collective enthusiasm of our vision distract us from the essentials.

Advantages in a Partnership Sharing of Risks Sharing financial risk increases available resources for business start-up. It is also likely to help attract outside financing. There will be less to lose should the business venture not succeed. • Sharing anxiety relating to uncertainties. • Sharing the emotional stresses and exhilaration of moving a vision into reality. • Sharing the anxiety involved in managing a business. • Helping to cope with fear of failure and how it might affect the future. • Joint decision making: Having the affirmation of another respected person to ease the emotional strain of uncertainty in making decisions. It provides a check on one another’s judgment.

Division of Labor The partnership enables a division of labor that permits partners to divide the areas of expertise. Each partner therefore becomes more competent than would be possible if expertise in all aspects of the business were required. Shared Resources A partnership may permit an entrepreneurial effort that would otherwise not be possible, particularly when neither partner has sufficient resources necessary to launch the desired business venture. A common combination

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includes one partner who has technical or creative resources and the other partner who has the business experience. Companionship As noted earlier, engaging in a business venture can be more attractive when it is shared with another person. The shared experience becomes an added bonus to whatever success the business may have. It also permits each partner to serve as an emotional support for the other. Other Advantages These include potential for increased chance of success, provision of more time with family than would otherwise be possible, and greater commitment than would be expected from an employee and insurance of continued participation. The combined intellect and experience of partners able to work collaboratively also provides an increased chance of success. Disadvantages in a Partnership Coping with Difference Difference in point of view can be an asset or liability. It is an asset when the parties involved have the means to resolve differences that are acceptable to both. An added value accrues from their combined wisdom. Conversely, it becomes a liability when inability to reach consensus leads to unresolved conflict that often gets expressed in shifting priorities from the joint venture to personal interests. Competition develops that results in power struggles. The more psychic energy that gets drained into coping with polarization the less is available in the business. It doesn’t take too long before the business suffers. Sharing of Profits Having to share profits does not inspire warm feelings when the partners believe that greater profit could be made without the partnership. The attitude is quite different when profits depend on their joint effort. Problems develop when profits are not shared equally, even if they are done so by agreement. A partner may initially agree to an unequal division of labor for whatever reason. Over time, the basis for originally agreeing to the inequality may no longer be considered relevant. Changing the basis for sharing profits is difficult to do once established. To avoid these problems a procedure must be in place for reviewing how profits are managed. Potential for Limiting Creativity Creativity is a personal experience; what is creative for one partner may not be for the other one. Differences between partners in what constitutes

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creativity is a potential source of problems. This may result from the inherent content, envy, competition, desire for power, or differences in priorities. Defining a mutually acceptable process for dealing with this issue at start-up will help prevent later problems. Partners’ Accountability to One Another Since partners are legally accountable for each other’s beh0avior, it is essential that they define a process for making decisions that affect the business. Also needed is a definition of how the partners can pursue individual needs and interests that are compatible with partnership ethics and goals. Risks in Having Multiple Partners All of the aforementioned risks of having a single partner apply to having multiple partners. A potential problem with multiple partners is the possibility that destructive alliances may develop among them. The most destructive of these alliances may develop in a three-way partnership. Three-way relationships are unstable because they readily split into a “pair and a spare.” This does not apply to differences of opinion when the threesome has a good working relationship. Serious problems occur when the split is based on an ongoing alliance between two partners who collude to dominate the remaining partner. Ultimately, this strategy is used to get an undesirable partner to leave the partnership. The greater the number of partners, the more difficult will be the politics in managing the relationship and in making decisions. Firms with many partners manage this problem by having a manager or management committee and established procedures for decision making. SELECTING A PARTNER A partner should be chosen with the same care one uses to select a spouse. This can be difficult to do when a promising financial opportunity comes along and two people find themselves feeling very compatible in the glow of a shared vision of financial prosperity. This situation is analogous to that which obtains when a couple fall in love and marry on the strength of passion without having explored their compatibility on the range of dimensions required to sustain a long-term relationship. Chapter 11 provides some discussion of how the different developmental phases in a relationship place different kinds of pressures on a partnership relationship. Comfort levels in dealing at one phase may create problems at others. Entry into an active partnership should be approached with the same attention one gives to entering marriage. The probability of having a suc-

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cessful partnership is enhanced when careful attention is paid to the compatibility of the prospective partners. DESIRABLE QUALITIES IN PARTNERSHIPS Making the decision about seeking a partner should include an evaluation of a prospective partner’s personality style, such as the following: • Is this person more comfortable working alone or more suited to working with someone else? • How well does he or she communicate? • How important is it to this person to be in charge? • How well does the prospective partner function in a cooperative venture? • How important to this person is accomplishing his or her vision?

PERSONALITY CHARACTERISTICS Temperament Temperament refers to a person’s characteristic manner of thinking, behaving, or reacting. An effective and satisfying partnership depends on the compatibility of the partners’ temperaments. There is no set combination that works, but complementary temperaments often work well. A partner who doesn’t do well with managing emotions is a good match for one who does. A partner quick to jump to conclusions works well with one who is more considered in his judgments. In contrast, partners who are inclined to be both short tempered and impulsive are likely to have a stormy and unstable relationship. If both tend to be indecisive, they will have difficulty making timely decisions. If both are guided by the pursuit of perfection, they will fall far short of their goals. We cannot presume that such incompatibility will be obvious in exploring a potential partnership. Often, some aspects of temperament may gain expression only under the impetus of stress or a crisis. The only way to know a person’s temperament is to see how he or she copes with a wide variety of both emotional and intellectual experiences. Integrity Integrity is the foundation of any relationship, providing the stability and predictability necessary to a mutually satisfying relationship. Integrity invites trust that is critical to an effective collaboration. It takes time and experience to demonstrate integrity and trust, and very little violation is needed to destroy it. Once violated, it takes time and effort to rebuild. Business relationships work when the participants have confidence and

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trust that the other will behave with integrity. Prospective partners would do well to agree on an explicit code of ethics for their relationship. Even though one may presume some things, such as honesty, to be self-evident, people have different standards regarding how honesty translates into behavior, and the same is true with other commonly held ethics. Example Jeff, a partner in an auto dealership, professed the ethic of honesty and forthrightness but did so in a manner irritating to his partner, Charles. Jeff tended to withhold his opinion in a business conversation, thereby giving the impression of agreement. Then, just as a conclusion was about to be made, he would interject a significant objection. This behavior infuriated Charles. They went through a protracted struggle until they were able to negotiate behavioral clarity with honesty and forthrightness.

Accountability to Self Accountability to self is a major contributor characteristic to a successful partnership. People with this trait have clearly defined ethics that guide both their personal and business life. A positive sense of self is experienced when behavior is consistent with ethics, and conversely, a negative sense of self develops when ethics are violated. This negative experience leads to behavior that corrects the deviation. People with a strong sense of accountability to self have the ability to pursue their convictions in the face of criticism from others. Strong convictions are accompanied by the ability to seriously consider the views of critics. One is able to accept what seems appropriate and to reject the inappropriate. Accountability to self gives a person the confidence and courage to forge new directions that to others may seem inappropriate. Partners with this trait can work out their differences and thus apply their combined energies maximally to the pursuit of their business. Patience There is something to be said for the adage, “Patience is a virtue.” Occasionally, pressure is exerted to make an immediate decision. The challenge is to resist pressure to make a premature decision. Patience is needed in evaluating the risks of making a decision based on too little information versus the prospect of losing an attractive opportunity. The ability to exercise patience is enhanced when one has confidence in one’s own judgment. Commitment Long-term commitment is essential to any business effort. Assessment should be made of a prospective partner’s ability to make the desired long-

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term commitment. Attention should also be paid to a person’s past history of long-term commitments. This history is not limited to business experience. Clues can also be obtained from everything from relationships to athletic interests, investment in organizations, and so on. It is easier to generate commitment and staying power when the partnership is believed to have the necessary emotional, material, and personnel resources to overcome the trials and tribulations inherent in business. Insecurity and lack of self-confidence will undermine commitment. A prospective partner’s ability to maintain a commitment during times of difficulty must be determined.

Self-Awareness of Strengths and Limitations Partners who have the wisdom to acknowledge their own strengths and limitations minimize the chance of getting into trouble by presuming they can do it all. This insight enables them to put their energies into areas where they will by most productive. This awareness is enhanced when they use knowledge of their limitations either to improve on their capabilities or employ those who have the needed abilities. Realistic assessment of their own and their employees’ strengths and limitations can only strengthen the partnerships. Managers will be most effective when they have knowledge of their subject and can communicate it in a way that invites trust and confidence in others. Self-confidence is reflected in a person’s ability to have a clearly defined point of view and the ability to constructively defend it, while remaining open to receiving information that may warrant modification of this view. This capability is essential for a productive partnership.

Judicious Risk Taking Venturing into any situation whose outcome is uncertain always presents risk, and risks naturally involve making mistakes. People who view making mistakes as failure will never be successful entrepreneurs. Success comes precisely from taking calculated risks and learning from one’s mistakes. The hackneyed maxims “no risk, no gain” and “no pain, no gain” contain a lot of truth. Understanding why mistakes were made is the basis for new learning, and in this context they are stepping stones to success. Of course, adequate homework must be done before taking risks so that the uncertainty, number, and severity of consequences will be at a minimum. Successful entrepreneurs learn to take risks when they have enough information to determine the likelihood of a successful outcome. Also of concern is whether the consequences of failure are manageable. Yet another consideration is whether achieving the goal will cost too much in terms of time, money, or energy.

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Example Charles, a software engineer, was so convinced that his e-commerce concept would succeed that he didn’t feel the need to evaluate the risks involved. In the beginning it looked like his prediction was correct. But success quickly evaporated when a competitor produced a better product, and he went broke.

Persistence Projects that are plagued by mistakes end up in disappointment when these experiences are not offset by any successes. Entrepreneurs who maintain their faith and confidence in their abilities will not as a result be deterred from their goals. Persistence is facilitated when the ultimate goal is divided into subgoals. Achieving each of these subgoals provides a sense of accomplishment and adds to one’s confidence and desire to persevere when the ultimate objective seems far off. Dealing with Frustration Partners must be aware that moving in new directions breeds many frustrations and that they must deal with them in ways that will work for them rather than create new problems. Bosses who take out their frustrations on their employees not only fail to solve their problems but also undermine company morale and productivity. A better approach is to vent anger at the problem and involve staff members in finding a solution, thereby stimulating productive interest and focusing energy. Being made a part of the solution enhances motivation and heightens commitment. Need for Personal Recognition Insecure partners always need to enhance their self-confidence and often blur the boundary between taking credit for company accomplishments and giving acknowledgment to those who actually did the work. This disruptive practice creates tension in employee relationships and ultimately undermines productivity. The astute partner will soon learn that giving the appropriate kudos to others is a far better way to achieve recognition. Gaining recognition in this manner may take a while to come to fruition but is offset by the long-term gain. Need for Power The concept of power is discussed in detail in Chapter 7; the present discussion relates to its use in selecting a partner. The constructive use of power, the ability to influence, is a necessary prerequisite to functioning

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successfully in any business or profession. Ideally, it is a skill in the service of some objective: to get customers or clients, to convince a jury, to get a contract. For some people it becomes an objective in itself. The satisfaction of being able to wield power becomes secondary to the manner in which it is exercised. A person with a need for power will not make a satisfying and productive partner. The way a person relates to power is readily visible in day-to-day experiences. For example, being in charge of an activity becomes more important than getting a job done. Pursuit in winning a point becomes more important than the mutual satisfaction of those involved. A potential partner should be evaluated based on his or her attitude regarding the use of power, whether in service of the business objective or personal gain. One would expect and even desire a partner who seeks personal gain but only when it is accomplished in the context of meeting business objective objectives rather than subordinate to it. Evaluating issues related to power surfaces quickly in pursuit of a business relationship. It starts with the pattern that develops in resolving disagreements. When mutual satisfaction is the criterion for resolution, the prospects for a good working relationship are enhanced. It is essential that the evaluator be sensitive to indications that the need for power may be a problem. An early sign of this problem can crop up in the discussion of what name to give to the partnership. This problem is heightened when competition arises over what order is to be given to names in identifying the company, as is done in law firms. Other examples include consideration of compensation, office space, and parking space and amenities. A persistent pattern in these deliberations in which personal needs supersede other considerations is a warning of conflicts to come, and it should be heeded. RELATIONSHIP CAPABILITY Communication Skills Communication skills represent one of the most critical variables in the success of a partnership. They are the cement that binds the various parts of a business effort into a productive whole. The following characteristics are a sample of what should be evaluated in a prospective partner. These items are elaborated in Chapter 4. • Use of assumptions • Active listening ability Regular eye contact Sympathetic eye contact Body language Periodic vocal affirmation

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Request for information or clarification • Active speaking ability Eye contact Manner of speaking Periodic feedback Balancing the conversation Validation of the listener Use of stories • Behaviors that enhance communication Constructive feedback Affirmation of accomplishments Respect for others’ opinions • Behaviors that impede effective communication Making use of silence to intimidate Teasing and sarcasm Joking Making decisions for others

Willingness to Accept Critical Feedback Partners demonstrate competence by the way they accept feedback from peers and subordinates. Insecure partners who hear negative feedback reflecting on their competence are likely to turn the problem back on their subordinates. In contrast, secure entrepreneurs accept the negative feedback by addressing the issue presented and use it as an opportunity to enhance their relationships with their subordinates. They show appreciation for valid criticism or gives reasons why they feel the feedback is not wholly warranted. As a secondary benefit, they present a model for accepting feedback. Modeling Behavior Expected from Others Partners can best educate employees by demonstrating desired behavior through example. They also gain respect by holding themselves to the same standard they impose on others. This modeling encourages commitment to performance and heightens morale. Respect for the Contribution of Others This manner of relating also arouses employees’ commitment to their work. Myriad opportunities to show respect for others’ contributions are

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available: one can affirm positive behavior, provide critical feedback in a respectful manner, value opinions, accept criticism graciously, and be sensitive to employee illnesses or personal crises. This process will encourage employees to develop and utilize their creativity. In addition, it is a critical ingredient in a successful partnership. Another necessary component of any working relationship is respect and sensitivity for the feelings and views of others. Attention to how a prospective partner has managed relationships in the past and how he does so now will give ample indication of how this person respects the views and feelings of others. Respect and Be Respected for Difference A question for prospective partners to consider is their joint ability and comfort level in being able to respect and constructively relate to contrary views. Ability to do this occurs when partners have a good sense of their own competence and recognize the benefit that is to be gained from collaboration. This collaboration occurs when the focus is on reconciling differences rather than on a competing for who will prevail. The objective is to adopt a win-win approach to resolving differences. As noted earlier, differing views in a partnership can be both an asset and a liability. It is an asset when partners can find a way to incorporate the benefits of their respective views to their joint satisfaction. It becomes a liability when differences are so divisive that they interfere with their ability to constructively pursue jointly defined business goals. In some situations individuals have the capacity to deal with conflict when acting alone but are unable to do so in a partnership. In considering a potential partner, it is necessary to test whether individual capacity to deal with conflict works in the partnership. Individual capability does not necessarily carry over into partnerships when individual styles are not compatible. For instance, one partner may have a successful history of dealing with conflict by using a confrontational style, while the other successfully approaches conflict with a laid-back style. Inability to find a mutually satisfying method for dealing with conflict will handicap the partnership. Example Management Consulting Firm: The enthusiastic jointly held vision of Gregory, Jeffrey and Michael led to the formation of their partnership without any consideration given to the compatibility of their personalities. They inherently presumed that the merit of their cause would override whatever difficulties they would face in their interpersonal relationships. It did not take very long for the impact of this oversight to become apparent. The major personality incompatibility occurred between Gregory and his two partners. Gregory was quick tempered and impulsive,

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and often failed to control his anger. Though very bright, he found it difficult to attend to the views of others, especially when they clashed with his ideas. Jeffrey and Michael were more alike temperamentally but had problems of their own. Jeffrey created problems in the partnership because of his inconsistent work habits, and Michael got into difficulty because of his tendency to procrastinate. Jeffrey was also dishonest. In addition, none of them was an effective decision maker. Frequently, they would approach decisions by lobbying with one partner behind the scenes to coerce the other partner to accept a given point of view. If they had made the effort to evaluate the compatibility of their personalities, the partnership likely would never have been formed.

Compatibility of Values, Beliefs, and Goals The basics of these concepts are discussed in Chapter 9. Our concern here is on how these concepts apply to partner selection. Value/Belief Discrepancy When a significant discrepancy exists between a value and the belief related to it, a state of tension exists. There are three ways to cope with this discrepancy: change the value to match the belief; change the existing conditions that give rise to the belief so that the belief matches its associated value; or learn to live with the discrepancy. Dealing with value/belief discrepancy becomes more complicated when it involves two partners. Each person has to deal with the discrepancy individually as described above and then deal with discrepancies with the partner’s differing views. Suppose that a widget maker decides he needs a partner and finds that his prospective partner has a different view about the relationship between quality of product and profit. The prospective partner holds the value that they should organize their business around the principal of profit as the priority and quality of the product as secondary, while the widget maker holds the opposite view. These views reflect differences in their beliefs about how the marketplace functions and values about the quality of their product. The first partner wants to feel good about his product even if it lessens the profits. The second partner views quality as important only as it affects profits. Their business relationship will flourish only if they are able to find a common value and belief system that is realistic in the marketplace. Stress develops in the presence of a significant discrepancy between a given value and a belief about it. If the value is honesty in communication and the belief is that a partner is not being honest, the resulting stress will need to be addressed. Doing nothing will only result in heightened tension, which will at some point surface inappropriately and create a new problem and not resolve the original issue. If the discrepancy is addressed at the

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time it is relevant, constructive resolution becomes possible. Failing this, there is clarity about an unresolved issue between partners. Values, beliefs, and goals are like links in a chain. The strength of the chain is no stronger than its weakest link. A partnership can have compatibility of values and beliefs and all the other resources necessary for success but encounter major problems if the partners do not pursue the same goal. It is not sufficient to have a general goal such as making money. It requires observably stated goals so that all needed resources can be properly focused without ambiguity.

Priorities Once goals are mutually defined, the remaining task is to determine agreement on priorities among goals. These are not fixed but should be viewed as a first approximation. There needs to be flexibility in modifying priorities as circumstances and experience dictate. The partners’ ability to define and modify priorities in a compatible manner inspires confidence in achieving a viable business relationship.

SOCIAL CONTEXT Personal Habits Personal habits such as promptness, appearance, and manners, and addictions such as smoking, drinking, or use of drugs play a major role in determining the compatibility of partners. Potential partners should get to know each other well enough to determine whether personal habits might negatively impact on a working relationship. The presence of these problems has only a minimal impact when the partners are able to acknowledge their existence and make an appropriate accommodation.

Work Habits Having compatible work habits is also necessary. Examples include predictable work hours, organization, timeliness in following through on commitments, decisiveness, promptness, sensitivity to the impact of one’s behavior on others, willingness to share in routine tasks, adherence to jointly agreed upon procedures, and promptness. Knowledge of work habits can be gained prior to considering a business relationship. A useful approximation can be gained during the period when the business relationship is being explored. Negotiation of the relationship should include discussion of work habits, keeping in mind that words do not necessarily translate into behavior.

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Lifestyle Lifestyle becomes important when it impinges on the partnership. A person whose outside interests are likely to interfere with the needs of the partnership becomes a potential problem, especially when such interests conflict with partnership duties. For example, a person may become highly involved in community activities, believing these activities will enhance the image of the business relationship. Doing so, however, may interfere with carrying out work responsibilities. Similar problems arise when one partner’s family responsibilities are great or when excessive substance abuse or gambling are involved. These behaviors do not inspire a high level of trust within the business relationship or among clients. Stable and Supportive Personal Life The demands of conducting business require the concentrated attention of all the partners. A partner who is having severe personal difficulties is vulnerable to distraction and ultimately to poor judgment. Some weight should be given to the possibility that a prospective partner’s personal life might interfere with his or her work performance. Such concerns are best assessed by viewing a person’s current situation in the context of past history and evaluating the implications of current circumstances for the future. Specific attention should be paid to determining how supportive the partner’s spouse is likely to be when the demands of the partnership interfere with family participation. Also worthy of interest is whether there is a history of significant chronic personal or family problems and whether they are likely to continue to be a problem. A history of marital problems, or the existence of a chronic debilitating illness among a parent, spouse, or child are examples of situations that warrant attention. Although the pursuit of these evaluations may be considered as invasive, unnecessary, unreliable, and awkward, they should still be made. The guiding principle is to determine whether there is a significant probability that any personal problem is likely to chronically interfere with the business relationship. Evaluating a prospective partner’s personal life for it’s impact on the business relationship is on a par with evaluating his financial capability. Willingness to Commit Needed Time, Energy, and Resources It is one thing to have a vision, but quite another to make the total commitment needed to make it happen. This is particularly the case with start-ups and will likely continue until the business achieves enough stability to permit a more balanced commitment. To be successful, partners need to be willing to invest all the resources required to accomplish their goals. During the start-up phase of their busi-

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ness, they face many demands on their physical stamina and suffer emotional stress. This stage is better tackled when they have the support of their families. The long hours at work and unavailability to spouse and children, both physically and emotionally, will strain marital relations unless family members are made aware of the sacrifices that a new business requires. Each partner must find the time to understand what is happening and why. Each will have to understand the sacrifices that may be required. Sometimes the spouses will have to play the role of both parents. They will therefore have to know that their concerns are understood and will have some impact on what happens. The partners will have to make time on a regular basis for family commitments and know when families must take priority and get their share of time and needed attention. The spouses also need to be party to the financial risks involved. Without such interaction, the partners are caught between the competing demands of business and family. Being unexpectedly confronted with the loss of all family assets, including one’s home is a real threat to a marital relationship. The potential for problems related to family responsibilities increases when the family needs of the partners are quite different or when one partner is unmarried. Once the business is established and stabilized the impact on the family diminishes and partners will continually need to maintain a balance between their commitment to business and family. This becomes a greater challenge when marital or family problems are downplayed in the interest of business demands. The unwary business person may wind up with a thriving business and poor family relationships. Of particular importance is compatibility between partners in how they manage differences in their commitment of time, energy, and resources. Any chronic imbalance left unattended for very long will breed resentment that will threaten the partnership’s viability

MANAGEMENT SKILLS Management skills include both personal resources and business credentials.

Personal Resources • Does the partner have the motivation and physical ability to meet the demands of hard work and long hours? • Does he or she have the appropriate relationship experience? • Is the partner able to cope with the emotional challenges of risk, stress, conflict, and uncertainty?

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Past Business and Professional Experience Since past history is the best single predictor of future behavior, prospective partners should assess the resources they bring to formation of a partnership. Intellectual Do the partners collectively have the intellectual skills needed to engage in the partnership? Are they intellectually curious? Are they intuitive or creative? Do they prefer working in a structured environment, or are they more comfortable in a more flexible environment. Emotional Any business venture needs to understand that it will face many challenges that will tax the partners’ emotional resources. This will involve the partners’ capacity to control their anger and frustration when all their instincts compel them to lash out at the offending source. An assessment of individual capacities is needed to constructively manage intense emotions and to help one another through the difficult times. Careful attention during the period of courting will likely give a reasonable assessment of this capability if the prospective partners are straightforward about their feelings and concerns. Their comfort level and skill in dealing with conflict and other people’s emotions should be assessed. Political The business relationship will need to assess the extent to which they can gain access to political contacts—namely, potential referral sources for customers/clients, legislators, community contacts, and the like. The partners also need political skill in communicating with those outside the business in order to accomplish their objectives. Business Experience Do the partners have the necessary experience to run a business? Do they have adequate knowledge of business management: finance, marketing, strategic and tactical planning, and personnel management? What history do the prospective partners have with other business relationships? Example A major handicap for the members of the Management Company was their lack of experience in running a business. Although they were well versed in the technical areas of management consulting, which they had gained by working in consulting firms, they had little experience in the mechanics of running their own business. In addition, none of the partners had previous partnership experience. In the glow

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and excitement of starting a new business, they got along comfortably, but this comfort level began to diminish as the realities of running a business set in.

Technical Knowledge Do the partners have the technical knowledge required for conducting their responsibilities in the business? Financial A preliminary assessment should be made of whether they can obtain the financial resources needed to launch the business relationship. Financial viability must finally be determined in the development of the business plan. Example The Management Company’s major asset was their intellectual resources—their ideas, knowledge, and ability to help others solve their problems. They also had excellent political skills, including good contacts, skill in networking, and knowledge of the business community and professional organizations. Their major disadvantage with regard to personal resources was their inability to obtain the necessary financing to conduct the partnership. While they managed to acquire the necessary financing to get the business going, their preoccupation with the technical side of the business, at the expense of sufficient attention to business practices concerning collections, payables, and contracts with associates, led to problems. Ultimately, it resulted in the dissolution of the original partnership.

Relationship Skills What prior partnership experience do the prospective partners have? How well do they relate in business, social, and family contacts? Each of these situations can provide clues that can be tested for their application in the business relationship. Skill and Comfort Level in Managing People Partners must accomplish a defined objective in the most effective way possible. They must accordingly relate to subordinates in a manner that will motivate them to make the most effective use of their energies, and they must give attention to the following components. Respecting Employee Boundaries between Work and Family A surefire way to generate tension in a relationship with partners or employees is to make excessive work demands on them. When this problem becomes chronic, problems in family relationships are the result. When a person is regularly pressed to choose between work and family responsibilities, the work product will be affected either in lowered morale and diminished productivity or in employee loss. It is in the partnership’s in-

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terest to respect this boundary, always being cognizant that families are in a sense silent partners. Keeping them happy is simply good business. When excessive time demands need to be made, the resulting stress can be minimized if families understand what is happening. Some form of concrete acknowledgment can be made in the form of a day off, a bonus, and special events to acknowledge family contributions. Setting Realistic Expectations With the pressures of a start-up or running a going business, expectations tend to be guided by what is needed rather than by what is realistic. When the distinction between the two begins to blur, chronic feelings of frustration develop in all concerned or criticism of management begins to be heard. The result can also be burnout. In such cases, the short-term gain becomes a long-term loss. A collaborative feeling can quickly give rise to an exchange of criticisms to account for the shortfall. Setting realistic expectations that can be met will have the opposite effect. Focusing Criticism on Behavior, Not on the Person The best way to get a person to accept critical feedback is to address the behavior, not the person. “What is the matter with you?” “You are a liar,” “Don’t be stupid,” “You have a lousy sense of humor,” and “You are insensitive and selfish” are better left unsaid. Far more effective are “You made a mistake,” “I am angry at what you did,” or “I disagree with what you said.” Shaming employees is destructive and will be reflected in their work; it is doubly destructive when done in the presence of other people. Witnesses to such an experience are also affected because they naturally conclude that they could be the next target.

Time Management Skills Time management is a common source of stress in the workplace. Partners need to ensure that projects are never undertaken without adequate consideration given to the amount of time the new task will take and how well it fits in with existing commitments. The overloaded employee feels overwhelmed and fears he or she will never catch up. Additional stress occurs when tight deadlines need to be met. Under these conditions, the temptation is to cut corners. The result is problems and burnout that could have been avoided if better time management had been exercised. Partners are always interested in getting their employees to be as efficient as possible. Necessary to accomplishing this is applying basic time management principles. The best results are obtained when the partners can work with their employees to accomplish this objective. The following discussion addresses managing this effort from a relationship point of view.

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Define Work Objectives in Observable Terms Problems develop between partners and subordinates when objectives are defined in conceptual rather than behavioral terms. People can agree on a given objective and have different views on how to express it in behavior. Without a concrete statement of a work objective, it is unclear when the objective is reached. This is likely to result in both an annoyed partner and frustrated employees whose satisfaction in feeling they did a good job is shattered by a manager’s displeasure. This problem is avoided when manager and employee have a common understanding of what observable behavior is required—for example, generating a certain amount of income, building a particular object, or getting a certain number of clients. Set Priorities on Work Objectives An employee cannot be expected to know a manager’s priorities. Sometimes it may be obvious and some times it may not be. Employees will impose their own priorities unless the manager and employee agree on setting priorities. The process is complicated when the employee is responsible to more than one manager. Then the process involves a three-way negotiation, complicated by conflicting agendas. It is to the manager’s benefit not to let the employee get caught in the crossfire; otherwise everybody loses. Set Realistic Estimates of the Time Needed for Task Completion Stressed relationships between managers and employees often result from the unrealistic time estimates they set. Managers will do well to educate their employees about how to set realistic time estimates. Employees can get into trouble making unrealistic time commitments in hopes of impressing their boss, only to have the reverse happen when they aren’t able to realize their objective. This is less likely to happen when employees learn to make time estimates that start with the ending of another task and include the time needed to complete the new task. This task in turn is considered completed only after the work space is cleared for the next one. Employees will benefit from the often used rule of thumb of doubling one’s best estimate. Place All Activities on the Work Schedule Helping employees learn to manage their time will benefit both manager and employee. This starts with helping employees to start with a Monday through Friday calendar, based on the information discussed in the first three items, and to enter fixed commitments such as lunch hours and meetings. The remaining hours will form the time bank for allocating time to work projects. Employees sometimes have difficulty recognizing that bor-

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rowing from this bank is not an option; once the available time is allocated, no new work commitments should be undertaken. Attempting to do so is inviting stress, diminished work performance, lower efficiency ratings, and missed deadlines. Employees have to learn to avoid the temptation to accept new responsibilities when presented with a desirable new task unless the determination is made that the new task warrants bumping or delaying an existing commitment. Deal with Interruptions Interruptions are the nemesis of efficiency. Partners can enhance their relationship with employees by helping them deal with interruptions in their work and creating an efficient work environment in which employees are respectful of one another’s work patterns. Major culprits are phone calls, visits from people wanting to chat, and an inability to say “no” to requests for time. A ringing telephone may portend a great opportunity, but the price for picking it up is most often lost time as well as a break in concentration. Either negative or positive contents will make it difficult to resume the work that was ongoing before the call. The more calls that are taken, the less chance that much concentrated work can be accomplished. The best way to deal with phone calls is simply to allocate them a fixed time of the day, a routine that will have to be passed on to potential callers. The difficulty in accomplishing this may be minimized when it carries the prospect of reducing telephone tag problems. The down side is the discipline required in carrying out such a schedule and in keeping it despite the anxiety it may cause. Another option is to use voice mail to pick up calls and then return them at a convenient time. Employees need to understand that an open door is an invitation to interruption. It is a signal that it is okay to interrupt. Employees who share a work space usually set up guidelines for interaction. People who negotiate and insist on the conditions under which they can be interrupted will be more productive and will develop better work relationships. Fear of offending people will not be a problem if the interruptee makes needs known in a congenial, respectful manner. Those who are reluctant to set limits on interruptions in order not to offend usually communicate their discomfort with this situation nonverbally and so reveal the very message they attempt to keep hidden. A closed door simply signals “do not disturb” and is not an offensive approach. Adding “Do Not Disturb” signs is even more effective in setting limits on interruptions. Fending off disruptions by saying “no” is complicated when one fears the implications of doing so. Can you in effect say no to a supervisor, board member, major client, or customer? This might be easier done than expected if the other party is able to see how doing so is useful to him. You

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save a lot of aggravation and get more work accomplished simply by finding a comfortable way to say no if you temper it with an alternative. “I’m sorry I can’t talk now. Can we set another time that would be mutually convenient?” Employees often need help in learning how to manage demands on their time that can become overwhelming. Sensitivity to an employee’s existing work commitments is helpful when a new assignment needs to be given. There are many approaches to organizing work tasks. One common approach is to keep up-to-date lists of jobs pending and to prioritize what needs to be done, starting with the more difficult items. Some problems result from putting off the most difficult or unpleasant tasks: this procrastination will get employees in trouble with their supervisors. Achieving a satisfactory level of productivity depends on understanding how effectively one can work. Research by Rossi (1991) and others has demonstrated that people can work at maximum efficiency for just 90 minutes to two hours at a time. Work continued beyond this point usually results in decreased efficiency: jobs begin to take longer and to be less complete. Rossi recommends a 15- to 20-minute break every 90 minutes to two hours. Lost productivity during these breaks is more than made up for by the increased productivity achieved after resuming work. How the break time is used is the key to effectiveness. Ideally, the break should take some form of quiet time—meditation, a walk, a power nap, or fresh air. Talking with a colleague about work over coffee or otherwise being involved in work-related matters is not helpful. The guiding principle should always be to relax the mind. The facilitation of these findings will benefit the relationship between entrepreneur and employees. Example A managing partner of a law firm was chronically frustrated because the stream of interruptions limited his productivity. He engaged a consultant when he began to treat all interruptions as equally important requiring immediate attention. The consultant recommended that he set aside two hour blocks when he was not available except for emergencies, which were rare. The partner also accepted a similar suggestion for managing phone calls. The managing partner followed the prescribed suggestions and was pleasantly surprised that he was able to produce an increased amount of work.

Balance between Strategic and Tactical Functioning An entrepreneurial venture starts with a vision, which is the beginning of strategic thinking, and leads to a consideration of how the vision can be made a reality. Next, tactical considerations are established to make it happen. The strategic planning should be reviewed and modified periodically as circumstances in both the company and the marketplace change.

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Partners who recognize that a team effort will be more successful when all of the players understand the long-term goals and how their immediate efforts contribute to achieving them. They need to be able to achieve a balance between strategic and tactical functioning and learn how to involve their employees for the benefit of all concerned. Relationship between Structure and Function Understanding the relationship between structure and function is helpful in creating an effective partnership. It involves appreciating the value of a clearly defined organizational structure that facilitates accomplishing the business mission. This involves defining a table of organization, job descriptions, marketing plan, and the like. The table of organization should be defined with enough flexibility to permit adaptation to changing needs. Problems develop when the comfort and convenience of doing business in a certain way becomes a goal in itself. When this happens, the convenience of operating in familiar ways competes with the need to change the existing structure to adapt to changing goals and market conditions. Resistance to changing the structure may result from fear of losing power, experiencing uncertainty about the future, or taking on undesirable responsibilities or giving up desirable ones. This resistance runs the risk of inhibiting the successful pursuit of business objectives. A prospective partner’s ability to keep structure subordinate to function is evaluated by reviewing the partner’s previous track record. Many businesses fail when partners are unable to adjust their familiar way of doing business in response to changes in demands of the marketplace. A recent example at the corporate level is the emergence of the reengineering concept that companies faced in adjusting to changes in the economic climate. Effective Skills in Delegation No entrepreneur can do everything alone. Skills in delegating work and responsibility to others therefore becomes crucial. This not only relieves the workload but also gives managerial depth to the company. (Delegation is discussed in Chapter 14.) Decision-Making Style Making timely decisions is another essential component of success. Whereas Chapter 8 discusses the principles involved in decision making, the present discussion focuses on its application to partner selection. Attention should be paid to a prospective partner’s past history in decision making and to an evaluation of how it is expressed in exploring the partnership. Particular concern should arise when prospective partners are hes-

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itant about committing themselves to a point of view or are overbearing in their desire to make their views prevail. Decisions don’t always work out the way they were intended. An important aspect of relationships among partners is how they relate to mistakes. Little tolerance for making mistakes, either one’s own or those of one’s partners, creates an aversive environment that breeds anxiety destructive to the partnership. Decisions should be judged not on the basis of outcome but on the process in which they were made. This position is warranted because the decision outcome generally involves variables that may be unknown at the time the decision was made. It is also relevant that the person making the decision has no control over these variables even if they are known. The fairest way to evaluate a decision is to determine whether it was based on having relevant information and on making an appropriate evaluation. Judging the merits of a decision based on information that was not available at the time it was made is an injustice to all concerned and runs the risk of undermining a person’s confidence in his judgment. Ability to Adapt to Changing Needs There are two kinds of entrepreneurs: those who like to build businesses and those who like to run them. Builders thrive on meeting the challenges of the unknown and enjoy handling the many changes needed to get a business started. Comfortable in adapting to change, they are not threatened by the uncertainties that go with it. Runners are more comfortable with the greater stability that issues from having a business that is up and running. They too need to adapt to change but do not have to face as much uncertainty as their builder counterparts. The success of both types of entrepreneurs depends on their ability to form relationships that support their missions. Builders do best when they can recruit creative people who can identify with their vision and be comfortable taking risks. Runners depend more on people who are more comfortable with a stable working situation. For both, there is the challenge of keeping employees motivated. WHEN ACTIVE PARTNERSHIPS OCCUR Starting a business can be both exhilarating and frightening and involves making a choice between doing it alone or with a partner. The following conditions affect when and if a partnership is desired. A. A partnership is desirable at the beginning of the business when: Combining a shared vision is the basis for the start-up.

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B. Acquiring a partner after the business is established is desirable when: There is a desire to lighten responsibility. Certain resources or skills are needed. The advantage of defining partnership terms may be greater than at a joint startup. C. Acquiring a partner is required to save the business: Gaining a partner under these conditions leaves the entrepreneur vulnerable to commitments made under pressure that would not have accepted under normal conditions. An entrepreneur who is pressed to seek a partner under these conditions should consult an objective third party (lawyer, accountant, etc.) to guard against making unrealistic commitments.

EVALUATING THE COMPATIBILITY OF PARTNER ATTRIBUTES Prospective partners would do well to consider the variables described above when evaluating one another. Each partner should review them in terms of their importance to the contemplated partnership. This evaluation should be conducted on each of the prospective partners, and the most obvious place to start is with current knowledge. This will give some direction as to which priority must be pursued in learning about the significance of past history. The accumulated information will provide a basis for estimating what behavior could be expected in the future.

Development of a Trial Business Plan A trial run in developing a business plan gives a first estimate as to the viability of partnership. It provides an opportunity to determine whether prospective partners will be able to work together. Specifically, this will involve checking out compatibility of values, beliefs, and goals. It will also help determine whether the agreement in concept will hold up when translated into the specifics of implementation. Even the best of plans and partner compatibility can go awry for various reasons. To cover this possibility, the business plan should define how the partnership would be terminated should that become necessary. In the absence of this process, an initially warm and friendly relationship can end up being adversarial. To minimize this possibility, the business plan should define a process for resolving disputes, a way to place a value on the business, a procedure to terminate the business relationship, and a buyout agreement that includes how it would

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be paid. A more detailed discussion of the trial business plan is found in Chapter 13 and in the appendix. Developing a prospective business plan will help the prospective partners decide whether the chemistry between them is sufficient to pursue the business relationship. They should reach a common understanding of the emotional, material, and physical commitment that will be required to make their joint venture successful.

Guidelines for Conducting a Pre-partnership Evaluation Each of the following characteristics of a prospective partner should be evaluated, using the questions that follow this listing. Temperament The partner’s characteristic mode of emotional response, including emotional sensitivity, degree of irritability, characteristic expression of emotions, inclination toward impulsivity versus reflectivity, and other behaviors. Personal Habits Predictable work hours, skill in time management, follow-through on commitments, decisiveness, promptness, sensitivity to the impact of one’s behavior on others, and comfort in working with others. Lifestyle Attention to personal health, which includes achieving balance in one’s work and personal life, practicing good nutrition, working regular hours, and not being involved with drugs or alcohol abuse. Communication Skills Capability in active listening, shown in the use of “I” instead of “you are” statements; balance in the ability to communicate with thinking and feeling; attention to particular behavior and not to the person as a whole; ability to give positive acknowledgment appropriately, predictability and stability in ethical behavior; patience; commitment; respect for the feelings and views of others; self-awareness; use of power; and decision-making style. Compatible Values Decision on what values are important for a satisfying and productive partnership and whether these values are compatible with those of the partner.

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Compatible Beliefs Determination of whether there are any problems in the way the prospective partner perceives existing conditions that are pertinent to an effective partnership. Compatible Goals Sharing compatible goals for the partnership and the business, including financial goals, personal satisfaction, and lifestyle. Compatible Priorities The degree to which the partners share priorities relative to how they will achieve their common goals? Past Business or Professional Experience The extent to which the prospective partner is well suited based on past business and professional experience, including assessment of management skills, technical knowledge, relationship skills, and business experience. Nature of Personal Resources Assessment of needed intellectual, emotional, financial, and political resources. Ability and Commitment to Cope with Differences The prospective partner’s ability to respect differences and commit to finding solutions that reflect the concerns of both partners. A person who needs to “win” to feel successful will not make a good partner. The following questions relate to the above characteristics: 1. Are there significant differences between the prospective partners? 2. How important are these differences? 3. Are these differences likely to present a problem for the relationship? 4. If the answer to question 3 is yes, how resolvable are they? 5. How important is this characteristic likely to be to the success of the relationship?

Once these specific items are evaluated, they need to be considered as a group. Are the assets of sufficient magnitude to offset the deficiencies? Although it is easy to focus on the desirable traits and to minimize the negatives, the prospective partner should remember that relationships work

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only when both parties can relate to the total person and not just to the desired characteristics. REFERENCE Rossi, Ernest L. (1991). The 20-Minute Break. New York: G.P. Putnam’s Sons.

Part I

Qualities of Business Relationships

Chapter 3

Managing Teams The partners’ ability to work together effectively is fundamental to a successful partnership. Accomplishing this relationship requires creative leadership and informed management of group dynamics. Leadership is manifested in two ways: as leader and manager. Every partnership needs to decide on the best way to relate to leadership and managerial abilities. Accordingly, the partners will need to define where their energies and talents best fit and what they will require from others. This allocation is not a static, unchanging process; once defined, it must have the capacity to change as circumstances dictate. The partners must understand how the functions of being a leader and manager overlap. Leaders inspire subordinates, are guided by a vision of their goals, and are able to anticipate when and what will be needed. They help their subordinates find ways to meet their personal objectives consistent with company objectives. The ability to motivate others to perform is especially needed when the task to be achieved is demanding or unpleasant. Leaders also learn to balance their attention between strategic planning and coping with tactical concerns. Bennis (1989: 18–23), in a five-year study of 90 of the most successful leaders in the country, describes four competencies of leaders: meaning— the ability to make ideas tangible and real to others; attention—clarity in desired outcome, goal, or direction; trust—reliability that derives from being constant and focused; and self-knowledge of one’s skills and effective deployment of them. Bennis views empowerment as the collective effect of leadership that is expressed in four themes: people experience feeling significant, learning and competence matter, people are part of a community, and work can be

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exciting. Creating an environment of empowerment invites employees to give their maximum effort in terms of time, energy, and capability. Bennis reminds us that effective leadership sets the pace and energy level for the work and empowers the work force. Shefsky (1994: 167–190) provides yet other perspectives on leader and manager functions. For example, he views an entrepreneur as one who seeks opportunity and a manager as one who preserves existing resources. As a lawyer who specializes in cases involving entrepreneurs, Shefsky believes that leaders operate from the perspective of a positive-sum game: they generate new talents, markets, and capital resources. In contrast, managers operate from the perspective of a zero-sum game: they deal in an existing environment and attempt to increase their share, thereby reducing someone else’s share. Leaders focus on “what to do,” whereas managers concentrate on “how to do.” Leaders ask for help in reaching a goal, whereas managers explain how to solve a problem. Leaders create an atmosphere that converts the optional to the imperative and the improbable to the likely. Leaders help to make rewards more certain and desirable. Managers help to evaluate risks and rewards. The following characteristics contribute to effective leadership. Many of these characteristics are common to both leaders and managers. Non-competitiveness in management role values and respect for the competence of others Sensitivity to feelings of others Awareness of how the leader’s behavior affects others Sufficient knowledge to supervise Skill in conflict resolution Self-confidence and skill in acting on strengths and limitations Ability to meet personal needs in the context of assigned tasks Good listening skills Good communication skills Skill in giving balanced feedback Provides affirmation Gives critical feedback in a constructive manner Ability to express feelings in a constructive manner

Some characteristics of leaders are different from those that enhance being a manager. Desirable characteristics in a leader are charisma, clarity of vision, and ability to achieve goals. Desirable characteristics in a manager are good organizational skills, attention to details, and satisfaction in fulfilling objectives. People working together in a business may use one of two models: the

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department or team. A department is hierarchal and is characterized by a manager and a number of people who are given individual assignments. They may work together in combinations of two or more on an ad hoc basis as needed. The manager’s responsibility is to ensure that the responsibilities of his department are fulfilled in a timely fashion. In contrast, the team is more collegial and tends to have a more narrowly defined objective. Completing an assignment involves more shared responsibility by all the team members. The team leader is more a coordinator than a manager. Working on a team requires greater social and communication skills than working in a department. Working in teams is useful when a collaborative effort is required, when a synergistic benefit is desired, when there is pressure to meet a deadline, when coordination of many people’s skills is needed, and when the assignment is too large for one person.

EXISTING TEAMS The decision to give an assignment to an existing team will depend on the team’s level of experience, technical skills, and ability to work together. The advantage of an existing team over a new team is its established working relationships. Teams are usually formed with a designated leader in place. Generally, assignments are made on the basis of formal organizational structure— managers and department heads—rather than on ability as a team leader. One mistake partners make in defining their organizational structure is to presume that competence in technical skills makes good managers and leaders. Technical proficiency has no necessary bearing on a person’s capability in managing relationships. Placing a competent technical person in a management position is a double loss when this person doesn’t possess the needed relational skills. The consequence is an ineffective leader and lower technical productivity. Everyone—entrepreneur, leader, and leader’s subordinates—winds up being unhappy. Partners are wise to develop promotional tracks and benefits that do not require assuming managerial positions. Formation of a new team involves making a decision on how to select the leadership and membership. The leadership may be designated by management, which is usually the case, or it may be defined by team members. Leaving the team to define its own leader is considered when • Team members are mature, experienced, and of equal stature • Designating a leader would not be welcomed • The team would do better naming its own leader

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• There is confidence in the group’s ability to define its own leadership • Team members are believed to have the ability to work together

Teams are productive when its members possess • Good communication skills • Confidence in their own skills and identity • Comfort in working collaboratively • Ability to meet personal needs in the context of team assignment • Ability to give and take constructive criticism

MANAGING A TEAM The new team’s first task is to define itself. A good place to start is with an operational definition of its goal because this will impact on how the team defines itself. A related question is whether the membership includes needed talents. Members will also be jockeying for positions of influence in the group. Leaders are tested by how well they manage this process. They will gain the respect of team members if they demonstrate confidence and competence in managing both content and relationship issues. Their leadership will be compromised if they appear weak, passive, uncertain or give undue deference to some members. If this happens, informal leaders will rise up in the group to fill any void. These are members whose views gain more influence than those of others. Another phenomenon is the development of alliances which gain power through their number and perceived influence. They tend to form around the compatibility of views or around people who have status and power in the group. To function effectively the group should define norms necessary to accomplish their mission, including when they meet and how their meetings will be conducted. Norms for how they interact with one another as well acceptable standards of behavior will be defined, and what they can expect from one another will be delineated. Once the structure of the group is defined, a division of labor should be outlined, spelling out who responsible for what tasks. The team leader’s responsibility is to ensure that responsibilities are being fulfilled. Members are encouraged to meet their obligations when they know they will be held accountable. Hesitation in responding quickly to the development of problems will diminish team members’ respect and trust for leadership capacity. Conversely, demonstrated competence will encourage trust in leadership. Of particular importance is the leader’s ability to manage conflict in an even-handed manner. This creates a work environment in which team members feel intellectually and emotionally safe in expressing themselves. Creating this kind of atmosphere encourages maximum attention to the job

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at hand. Otherwise, unresolved tensions, complaints and resentments will compete to dissipate the psychic energy needed for productive effort. The team’s productivity is enhanced when members have an ongoing sense of how their efforts contribute to the team objective. Regular team meetings should be held to review progress and resolve problems as they develop. Participating in this process contributes to team spirit, loyalty, and cooperative spirit. Problems are viewed as something to be solved, not judged. MANAGING PROBLEMS IN TEAM RELATIONSHIPS Alliances in a team setting usually reflect problems that arise from competition and struggles for power. Team members support one another to win a point of view. Alliance in itself is not a problem as long as it helps to accomplish the team mission. It becomes a problem when the team mission becomes subordinate to personal gain. Alliances consist of more than just two or more people agreeing on a point of view. Rather they involve an agreement to join forces in pursuit of a specific objective. The pressure to conform to alliance commitments can override what is in the best interest of the team’s work. An effective team leader anticipates the evolution of disruptive alliances and does what is necessary to remove the need for them. The risk of interfering with the team’s mission is likely unless this is done. As mentioned earlier, work in teams may sometimes yield disagreements. Resolving these differences can be creative and satisfying, especially when team members respect differences and are committed to finding mutually acceptable solutions. Conflict results when personality clashes take precedence over resolving differences. Team leaders can address relationship issues through conflict resolution methods (see Chapter 8). Scapegoating often becomes a divisive force on teams. It occurs when a team member is blamed for objectionable behavior that exceeds what the misdeed reasonably warrants. Example Phoebe was manager of a telemarketing department. When Carol, one of her subordinates, made a mistake in how she responded to a client’s request, Phoebe blew up at her. What Carol didn’t know was that Phoebe’s anger was fueled by the fact that she had to deal with the same problem from several other people before Carol.

Prejudice is an expression of scapegoating and takes various forms— racial, religious, sexual, or ethnic—often resulting in people being treated for what they represent rather than for what they do. Prejudice is illegal in the workplace and is especially powerful and disruptive when a group of

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team members jointly engage in the process. When not promptly addressed, it undermines security and trust in the group and carries the implication that it could happen to anyone in the group. The leader can interrupt the process by illuminating the inappropriate basis for the behavior and holding offending members accountable for their behavior. REFERENCES Bennis, Warren. (1989). Why Leaders Can’t Lead. San Francisco: Jossey-Bass. Shefsky, Lloyd. (1994). Entrepreneurs Are Made Not Born. New York: McGrawHill.

Chapter 4

Communication Constructive communication coordinates all the elements of business in the interest of producing a successful relationship. Problematic communication creates an unnecessary obstacle to success, if it doesn’t actually sound the death knell. Through constructive communication a business relationship presents an unambiguous statement of needs, expectations, desires, and concerns in a manner that is respectful to everyone involved. A major, underrated part of this process is the critical contribution that nonverbal communication makes in accomplishing desired objectives. CHOICES IN COMMUNICATION People have widely differing views of the options they have in communicating with others. Some people express themselves without regard to how they will be received. At the other end of the continuum are those who are guarded in expressing their thoughts, and in between these polarities are those who utilize some combination of forthrightness and caution. Upon entering a new relationship, most people are very conscious of their behavior. The choice of what the person chooses to say is a composite of what is comfortable, what the person thinks is needed, and what the person is able to do. Once people develop a comfortable communication style, they no longer need to consciously monitor their behavior. This behavior will be interrupted only when evolving circumstances require a change. Communication develops in three stages: (1) What is comfortable (a person’s natural way of communicating—both verbally or non-verbally); (2) what is possible, with varying degrees of discomfort (e.g., having to be diplomatic when not so inclined, expressing disapproval or approval, or

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giving an apology); and (3) what is very unpleasant, if not impossible (e.g., expressing anger). Communicating in one’s comfort zone should not be confused with being effective; rather, it is doing what is familiar. The natural tendency in communication is to stay within one’s comfort zone. For example, in entrepreneur–customer relationships, both parties seek to develop a comfortable way of communicating in order to satisfy their own needs. As their relationship develops, each party is vigilant about how its way of communicating is being received by the other until a comfortable pattern evolves. This pattern continues unless changing circumstances for either person requires an adjustment. Adjustments can result for a variety of reasons: lack of progress in making a deal, the entrepreneur’s or customer’s increased anxiety about not making a deal, pressure from either party, and other obligations. If making a deal is important enough, both parties will be under pressure to reestablish stability in their communication. The way a person interprets what he or she hears is determined by the context in which it is heard. The way a person interprets a compliment depends on whether it is heard in the context of sincerity, insincerity, or sarcasm. Similarly, a person may hear criticism as constructive or destructive, depending on whether the context is experienced as helpful or demeaning. In both cases, the context will be defined by the way the comments are made.

PERSONALITY CHARACTERISTICS Accountability to Self The importance one gives to approval from others has an important influence on communication. When this approval determines one’s values, beliefs, and behavior, the result will be an uncertain sense of self. Under these conditions, one’s self-approval will depend on who one is with and how one feels he or she will be judged by others. This undermines the ability to attain a consistent sense of self, inhibits the pursuit of goals, and reduces the effectiveness of communication. As discussed in Chapter 2, partners have a greater chance of success if they have a well-defined sense of self, which is enhanced when their behavior is guided by selfaccountability—that is, the behavior is consistent with their values. This provides a context for accepting feedback from others. This process is important with respect to challenges that entrepreneurs face. They must be able to communicate self-confidence and inspire confidence in their vision if they are to get support from banks and investors or they attract high-quality employees needed for success. People who are confident in their sense of self and respect the views of others will more likely achieve their objectives.

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Mutuality/Empathy as the Basis for Communication The quality of communication between people is not the responsibility of just one person; the parties involved should take joint ownership of both potential accomplishments and potential problems. The best long-term outcome is achieved when both parties are satisfied. Communications based on one party prevailing at the expense of the other (win-lose) are unstable and ultimately constitute a loss for both parties (lose-lose). This occurs when the unsatisfied party (loser) seeks to recoup losses or prestige. In so doing the win-lose process continues. The “winner” ultimately loses because the relationship forged in the course of victory is likely to suffer from the experience. Empathy involves identifying with and understanding another’s situation, feelings, and motives. Being able to achieve empathy contributes to the goal of mutual benefit in communication. It has nothing to do with liking or agreeing with the person; rather, it means one is able to understand the way another thinks or feels. Example Myrna, a department head in an advertising agency, was in a power struggle with a subordinate colleague, Karen, who complained that Myrna was autocratic, unrealistically demanding, and insensitive as a manager. Myrna, meanwhile, considered Karen too sensitive, complaining that Karen didn’t ask for help when it was needed and took too long to complete assignments. Having reached this impasse, Myrna turned to her boss for help. By having them role play being in the position of the other, the boss helped them see that neither appreciated the other’s perspective. Myrna, being focused on getting the work done, saw Karen’s work style as an obstacle, whereas Karen focused on her mistreatment by Myrna. Once they were able to appreciate their respective positions, they vowed to take the time to attend to how they were communicating, in addition to getting the work done. They soon found a way of communicating that was comfortable for both.

Trust Trust is basic to the successful outcome of any communication. Specifically, it means that people will behave in a manner consistent with their verbal commitments and with whatever established norms exist within the context of their relationship. It also involves reliance on a person’s integrity, ability, and character. Words are promissory statements that appropriate action will follow. When trust is violated, confidence in ones’s word becomes fragile and results in high vigilance for further disappointment. Trust takes time to build but is quickly lost when it is violated. Rebuilding it can take a long time because of the concern that violations will recur. The

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length of time involved in regaining trust depends on the importance attached to its violation. Example Two partners in an investment firm, Paul and Edward, became good friends, and as their friendship grew, so did their sharing of confidences. Paul unwisely violated a confidence about a sexual problem Edward was having, and Edward got wind of it. As a result, Edward distanced himself from Paul for some time. When he realized that Edward had not violated the trust with malice, he decided that the relationship was important enough to risk reestablishing trust.

At times an executive may unwittingly give an overly optimistic estimate of a product’s capabilities, and when these expectations are not met, trust in the product is diminished, becoming a burden in future negotiations. Usually, this problem is not solely the executive’s fault. It can result when one’s effort to be supportive and optimistic coincides with a client who is happy to grasp any promising option. This may lead to losing a customer under circumstances that may not seem fair, but it illustrates that an executive must avoid misleading clients. Giving encouragement needs to be tempered with how the customer will hear the information. ASSUMPTIONS An assumption is made when a person considers perceptions about another person’s thought, feeling, or behavior as true without knowing the validity of these perceptions. Many communication problems develop as a result. For example, in a contract negotiation, one party may assume that the other party to the contract shares the meaning of a particular clause and therefore doesn’t believe that it’s necessary to specifically define expected behaviors. The first party finds himself or herself face-to-face with a problem when it turns out that the assumption was based on a false premise. Consequences of Making Assumptions People make assumptions for various reasons: For example, they are not sure their perceptions are correct; they are not interested in whether they are correct; they don’t feel the need to check them out: there are no consequences to being wrong; or they simply aren’t aware they are making assumptions. Some people hope that an assumption will be treated as a fact, especially in ambiguous cases. For some partnerships, making assumptions is a tactical maneuver expressing the hope that it will be received as a fact. To check out the assumption would invite question. A company that functions on the basis of assumptions is engaging in

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risky behavior. Being wrong, even just once, could result in major undesirable consequences. The degree to which a person is willing to risk being in error affects his or her readiness to take risks. Frequently, entrepreneurs have no choice but to operate on assumptions. They therefore have to decide how far they are to proceed on the basis of assumptions. The answer is as little as possible until they are able to obtain adequate information. Example An entrepreneur was interested in buying a small company that would enhance his production capability. He made assumptions about the status of the building and equipment, and made an offer he assumed his bank would support based on past dealings. He was angry and embarrassed when the bank thought otherwise. The bank informed him that they rejected his loan application because of problems in the quality of the company’s equipment. Clearly, he looked inept to them and to the company he was trying to purchase.

More difficulty seems to arise from what people don’t talk about than from what they do talk about. Discussing a concern provides an opportunity for both parties to relate to it; not discussing a problem prevents even the possibility of determining whether a solution is possible. It is likely to ensure perpetuation of the problem, which will soon be intractable. Reluctance to discuss a problem also leaves each party holding on to his or her unchallenged assumptions, which might or might not be correct. A businessperson reluctant to share a concern with an attorney for fear of being judged unfavorably exchanges momentary comfort for the greater problem of providing the attorney with insufficient information. Checking Out Assumptions • Don’t take it for granted that perople are aware of how they are behaving based on an assumption. This is not always as obvious as it may seem. Often people may feel so committed to a particular viewpoint that they discount the possibility of any other perspectives. A handy rule of thumb is as follows: Never assume that a given perspective is the only one without checking it out, even when it may seem obvious. The possibility of other perceptions should always be considered until determined otherwise. • Checking out the obvious sometimes appears redundant. While it might make the person feel foolish, it is the safest option. Doing so tells other people that their point of view is being respected and that their view was heard correctly or was accurately inferred from their behavior. The least effective way of checking out the obvious is to ask,“What do you mean by X.” A better way is to ask, “Do I correctly understand that you X.”

The second approach puts the burden on the listener, whereas the first may come across as a challenge. The effort to achieve a common understanding

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is more likely to result in constructive communication. The down side in not clarifying understanding is that it increases the possibility of conflict that is based on a misunderstanding rather than a true difference of opinion. In my consultation work I most often encounter conflicts based on misunderstanding rather than on real differences. Example Sam and Helen, partners in developing a marketing plan for a new shoe design, got into a major struggle over the design of a brochure to promote the new product. Working together on this project seemed impossible until they discovered that the problem lay not in their different values but in their different assumptions about their goals. Once this problem was clarified they were able to resume their usual way of collaborating.

Perceptions that are not subject to multiple interpretations need not be checked out. Declarative statements such as, “There is a package for you on the table,” Obviously fit this category. In general, the greater the ambiguity in a statement, the greater the importance of checking out assumptions. In negotiating a contract, entrepreneurs must be careful not to make any assumptions that will permit loopholes and thereby undermine the document’s objective. Clarity in communication—both written and oral—is paramount. Assuming Good Faith Productive communication starts with the assumption that the other person will relate in good faith to openness and honesty. Behaving in this manner will elicit the same behavior in return. At the same time, it is prudent to be alert to behavior that suggests a person is being less than honest. A useful guideline is to check whether a person’s statements are consistent with the individual’s speech and conduct. A person’s good faith in communicating should be questioned when the following occurs: • People give you a compliment in a tone of voice that sounds insincere or patronizing. • People tell you they are not angry when their tone of voice and facial expression tell you otherwise. • People do not honor their commitments.

What are appropriate responses when these questions arise? How should a person respond when this happens? Feedback should be given in a way that will invite a constructive response. For example, one might say:

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• “I’m confused. You said you weren’t angry, yet you look and sound angry.” • “I’m confused. I thought you were committed to doing X, and I’m wondering if I misunderstood you, since it didn’t happen.” • “Thank you for the compliment, but I’m not sure how to take it.”

If people respond defensively to any of these comments and deny their anger, there is no point in pressing any further. It may be sufficient to acknowledge their feelings and conclude that they are either unable or unwilling to reconcile the contradiction between their words and demeanor. Next, the listener should determine whether this kind of response is a onetime occurrence or a general characteristic of this person’s communicating style. Values, Beliefs, and Goals Understanding a person’s values, beliefs, and goals enhances one’s skill in communicating. Value is a statement of what ought to be. Values, beliefs, and goals (VBGs) are discussed in more detail in Chapter 9, but a brief summary is presented hear. VBGs act as a compass that guide us concerning a person’s thinking and behavior. An example of a value statement is, “All people should be honest.” In contrast, a belief statement concerns what a person understands actually occurs, such as “Not all people are honest.” The goal would be to relate to people who behave in a way that is consistent with the value of honesty; otherwise, the goal would be to get people to do so as a basis for a relationship. An inner state of tension results when a contradiction arises between a value—the ways things ought to be—and a belief—the way things are. The degree of tension felt will depend on the importance and size of the difference. People can decide that their long-held value is unrealistic or is no longer relevant and change it to coincide with their beliefs. Another may try to change the belief so that it coincides with their values. For example, to attract new clients, an accounting firm may have a policy stating that its accountants should on occasion engage in pro bono work. If this policy does not have the desired effect, the firm must next decide whether the value needs to be changed. Corrective efforts would result in changing either the value or the way it is implemented. A common problem in communication occurs when a person erroneously assumes that another shares one or more of his VBGs on a particular subject. Example Two partners in a software business, Gerry and Michael, discovered that they did not share the same ideas about training methods for their employees. For Gerry,

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the best training was to let the employee get in trouble and then help him see his error. Michael argued that it was better to help the employee avoid making the mistake in the first place. Both mentors defended their values based on their respective experiences and beliefs that their method worked best. After a struggle, they worked out a compromise they could both accept.

Problems develop when one partner holds firm values and is incapable of changing behaviors inconsistent with them. The problem is exacerbated when the discrepancy between value and behavior arouses tensions that cannot easily be overlooked. Ultimately, the person must learn how to live with the disparity, which requires a shift in focus from whether the disparity should exist to how best to cope with it. Example An entrepreneur in the moving business prided himself on his forthrightness in all his dealings. He expected others to do the same but was too often disappointed. Adding to his frustration was the frequency with which his integrity got him into trouble. Eventually, he concluded that he needed to modify his forthrightness to fit the particular circumstances. He was not happy with his compromise but decided it was necessary.

Problems Associated with Assumptions Behavior should never be based on assumptions about what the other person thinks, feels, or intends by his action or behavior. People are very protective of their privacy and do not like to discover that their thoughts are transparent. It should be their choice as to whether they will share their thoughts or feelings, especially when perceptions about their thoughts or intentions are correct. This behavior is the emotional equivalent of being stripped naked. As a corollary to assuming what is in the other person’s mind, one should never assume that other people can read the speaker’s mind. This happens when people so preoccupied with their own thoughts that they don’t track whether the listener is with them. They assume that the listener can read their mind. They may even be irritated if the listener asks for clarification. One way to guard against this presumption is to watch for non-verbal cues that the listener is confused or bored. These cues might include a look of discomfort or a glance out the window or at the ceiling. Noticing such cues should be followed by an inquiry into whether what is being said seems clear or presents a problem. Another indication of confusion is a person’s inappropriate response to what has been said. When people work together, they naturally assume that everyone knows what is meant or needed. Often this is indeed the case, as when a secretary has learned to read subtle cues and can anticipate the boss’s needs or

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thoughts. It can backfire when two partners who work together presume that the other partner will know what is needed or intended based on past experience. Tensions created by these misperceptions can be minimized by checking out assumptions.

Assumption of Topic under Discussion People engaged in conversation may believe they are talking about the same subject when they are actually talking about two different things. Some people react by taking offense, getting angry, or becoming defensive. A better response is to check early in the conversation the assumption that both people are talking about the same thing. When the difference between subjects isn’t very clear, an underlying confusion in the topic under discussion is likely to be expressed in a power struggle. As long as the focus is on the power struggle, the original issue will not be addressed, resulting in heightened conflict and a blurring of the issues. This further strains the relationship until the issue underlying their conflict is resolved. Example Two partners in a small manufacturing business, Ed and John, were having a discussion about marketing strategy. After some time it became clear that they were not talking about the same approaches. This went on for a while until one partner said to the other: “You don’t know what your talking about.” “What makes you so pompous?” responded the other partner. This led to a power struggle in which they exchanged accusations and lost sight of the purpose of their discussion. After a while it became clear, even to them, that they were behaving like children. This realization led them to revisit their differences in a more mature manner.

MANAGING FEELINGS Telling a person what he or she thinks or feels is an invitation to troubled communication. It is intrusive and carries the message that the speaker knows what is in the listener’s mind. A more productive approach is for the speaker to ask whether his or her impressions are correct. This shows respect for the listener’s integrity and provides an opportunity to gain the desired information. It also prevents the problem of making embarrassing mistakes and will encourage the listener to be more receptive. Sometimes entrepreneurs, despite the best of intentions, get into trouble when they tell their colleagues or customers how they should feel or think about their concerns.

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Example An attorney told his client—an entrepreneur in a contractual dispute—that she should be angry at another company’s attempt to manipulate a change that had been agreed to verbally. The lawyer was surprised to find the entrepreneur was angry at him for his intended act of support. What he did not understand was her resentment at being told how she should feel.

Sometimes the effort to provide feedback can be a problem in the way it is done. Rather than saying something like, “What you mean is,” “You’re angry,” or “You’re trying to confuse me,” it is better to ask, “Is this what you, mean, feel, or intend?” Telling people what they think, feel, or intend will likely create an adversarial climate in the course of a contract negotiation. Sometimes, however, this approach is used as a tactical maneuver to distract or take advantage of perceived uncertainty in the other. This works well when arousing a negative reaction is a way to shift attention from discussion that is not moving in the desired direction. Example Two businessmen, Victor and Alex, were arguing over the interpretation of a contract. Victor was frustrated by his failure to get Alex to agree with him. Victor knew that if he got Alex angry enough he would lose his temper, which he didn’t like to do. When this finally happened Alex, as always, was apologetic and became open to making amends. This position left him vulnerable to being swayed in a way he might not have been otherwise.

Relationship between Feelings and Action Reacting to another person’s feelings should not be considered until the parties to the conversation understand the feelings relating to the behavior. Only after an understanding is reached should consideration be given to potential action. Example Two partners, Harold and Sid, were having an argument about a decision Harold had made. Harold felt Sid wanted him to reverse his decision. Harold said, “I don’t want you to do anything about it; I just wanted you to know how I felt about it.” Another level of problem would have developed if this discussion hadn’t taken place and Harold had reversed his decision. Sid would have the added grievance of being misunderstood. This kind of misunderstanding can lead to a compounding of problems if clarity from the expression of feelings is not achieved.

There are times, then, when feelings run high enough that they will short circuit intellect. Attempting to get an upset person to respond to logic is an exercise in futility. A more appropriate approach is to address the per-

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son’s feelings before any attempt is made to communicate on any logical basis. It also follows that results will be more productive when feelings about an issue are addressed before anything is done about the substance of the issues. Attending to feelings usually involves acknowledging what the person is expressing and responding sympathetically. Speakers do not always know what response they are after when they express their feelings. Accordingly, it is important to recognize that all communication has two components: a cognitive mode and a feeling mode. The cognitive mode refers to statements of logic, analysis, or intellect, whereas, the feeling mode refers to an expression of feeling without any concern to make any sense. The cognitive mode is usually dominant and may be tempered by the feeling mode, as happens in rationally oriented discussions. The situation is quite different when the feeling mode becomes dominant, as occurs when people are more concerned about expressing their feelings than about what they think. Every so often I run across a person who gets so angry they say, “I don’t care whether or not it makes sense, this is the way I want it.” This statement is an expression of frustration without any regard for logic, and it should not be presumed that an action is necessarily expected in response. Such statements require acknowledgment of the speaker’s feelings before any attempt is made to address the source of the listener’s frustration. Frequently, this is all that is needed. A listener’s erroneous interpretation of the speaker’s words can lead to a negative attitude in the listener. A speaker should let the listener know what expectation goes with his or her expression of feelings. The listener also shares the responsibility for achieving clarity when he or she asks the speaker what form of response is desired: whether sounding board, acknowledgment or validation of feelings, suggestions, or critical feedback. Confusion about whether to attend to feelings or to substance can complicate the settling of disputes. Communication is more productive when feelings about a given issue are addressed separately from any necessary action. The problem involved in dealing with them together is that failure to attend to feelings can bias consideration of an appropriate response and make it hard to know whether the outcome was based on substance or emotion.

Example A businessman, Karl, asked his partner, Larry, to work with Kelly, a subordinate who needed help with a customer. Larry got angry and told Karl he had too many other things to do. As Karl had learned from previous experience, to get the work done he knew he had to address Larry’s feelings. Larry accepted the assignment only after he understood that the basis for the request was his expertise on the subject.

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The situation is simpler when the expression of feelings doesn’t require any action by the listener. In this situation, it becomes easier for the listener to understand the speaker’s feelings without having to be concerned about the expectation of a particular behavior. If the listener jumps to inaccurate assumptions and conclusions and takes action without sufficient clarification, the resulting behavior will be inappropriate. Chances are that the speaker will view the listener as not listening, and as being presumptive and impulsive. People Are Responsible for Actions, Not Feelings People often struggle needlessly against their feelings, making comments such as “I shouldn’t be angry,” “I should respect,” “I shouldn’t feel guilty.” Trying to forcibly change one’s feelings is a futile exercise. The primary concern should be with what one does as a result of one’s feelings and not whether one should have the feelings in the first place. The challenge in coping with anger is to communicate feelings in a way that will gain a constructive response from the targeted listener. Listeners cannot be expected to respond constructively unless they understand what the speaker finds troublesome. If listeners want to maintain the relationship, they will respond in a manner that is respectful to all parties. Sometimes one person holds another responsible for his or her anger. “You made me angry” is a commonly heard remark. All too often the accused person accepts this responsibility at face value. But doing so may be an injustice to both, as happens when a person allows his or her behavior to be defined solely by another person. A more desirable approach is to recognize that a person is responsible only for speaking in a respectful manner. If a listener takes umbrage at such behavior, then the speaker can be sympathetic but is not responsible for the other person’s anger. To do otherwise gives the listener unwarranted power at the expense of the speaker. There may be other reasons for the person’s anger than the issue at hand: leftover anger from an earlier unpleasant situation involving the speaker, the listener’s refusal to accept responsibility for his or her behavior, or illness. Not knowing what combination of reasons has made the other person angry, one should simply be accountable for one’s own behavior. Outlet for Feelings Not Expressed It is a common misperception that one can divorce feelings from behavior. Although people can avoid vocalizing their feelings, that doesn’t prevent them from expressing feelings indirectly (expressing anger at someone other than the source that stimulated it) or nonverbally. Feelings are reflected in facial expression, body language, and especially tone of voice.

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Research data and personal experience demonstrate that when verbal and non-verbal behavior conflict, non-verbal behavior will carry the message. Who has not experienced hearing a person claim not to be angry when his or her flushed face and angry look give the opposite message? One’s feelings may be suppressed when they aren’t too strong. The effort becomes more problematic when the feelings are strong and chronically held. Under these conditions, feelings that are intentionally suppressed will ultimately be expressed in behavior. Other forms of expression include physical symptoms, diminished performance, and lack of interest in the subject of concern. An entrepreneur may have a difficult time communicating with a supplier. The entrepreneur may contain feelings of anger for the sake of maintaining their relationship, but eventually they show through. It may take the form of a slow response to phone calls, delays in payment of invoices, or some other forms of expression. Comfort with Feelings and Intellect Our culture places a high priority on developing cognitive competence. Large allocations are made for education from nursery school through college and graduate school. For a very large segment of Americans going to college is a given. No comparable systematic effort is made to develop emotional competence. This is mainly the parents’ province. The school environment and the health community pay greater attention when deficiencies are expressed in undesirable social behavior. Constructive communication is dependent on the balance between guidance by one’s emotions and one’s intellect. At times one’s behavior is ruled primarily by feelings, with intellectual considerations playing a lesser role, as noted earlier. More often the reverse is the case. Ideally, a person should be as comfortable in expressing feelings as that individual is in developing intellect. Communication improves when speaker and listener use their feelings and cognitive abilities in concert. An earlier discussion referred to the importance of developing the capacity to be as aware of a person’s feelings as the person’s thinking. A good illustration is the lecturer who has a lot to say but is ineffective because the material is presented in a dry, steady monotone rather than a stimulating and dynamic manner. Directing Anger at the Wrong Target People can vent their anger at an offending person’s character, the behavior or issue that stimulated the anger, or some object by throwing something or hitting a wall. Attacking a person’s character involves generalizing from a particular statement or behavior to the person as a whole. Examples are: “How could you say such a stupid thing,” “I can’t believe you would say such a thing,” and “You are stupid.”

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When such statements are made, the focus shifts from the immediate issue to a personal attack. The result is a conflict of two wills seeking to preserve self-esteem instead of dealing with a particular issue or behavior. This establishes a context in which future conversations are conducted in the same manner unless conscious efforts are made to interrupt the process. When the anger is confined to the situation that gave rise to it, effecting a mutually acceptable resolution stands a better chance. Both parties are left with the positive experience of resolving a difficulty, a heightened selfconfidence, and a positive attitude toward future communications.

Communicating Thoughts and Feelings of Others People whose thoughts and feelings are considered will become more constructive listeners and producers than those who give little consideration to what they think or how they feel about what happens in the workplace. People do need to have a sense that they are being acknowledged.

BEHAVIORS THAT ENHANCE COMMUNICATION A person must speak in a language that is comfortable and that the intended listener understands. A person may understand the words but have difficulty listening to the message because of the quality of the message, especially when the language is crude, offensive, ambiguous, erudite, full of jargon, alien, or on a subject of no interest to the listener. In order to communicate in a given situation, speakers should have basic knowledge about the people with whom they wish to communicate. When this is not possible, the situation should be approached in a manner that the widest audience can understand. Hence, one should speak in simple, clear language delivered in a way that is warm, respectful, and nonjudgmental. In this way, the person will probably be heard as intended. A classic turnoff occurs when entrepreneurs speak and don’t make the effort to find out if they’ll be understood. They talk at people, not to them. This communicates lack of empathy and puts their clients in the position of having to acknowledge their deficiency. This only shows insensitivity to a customer. Another facet of language is how a person speaks. Speaking in a manner that invites listening will gain a more positive response than if the manner is offensive, superior, demeaning, critical, or hostile. Speakers should examine whether they said anything offensive. If in doubt, getting feedback will remove any ambiguity, providing a clearer message and communicating an interest and respect for the listener. Some entrepreneurs actually believe that jargon enhances the client’s confidence in their business dealings; it’s more likely a burden than asset, however.

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Avoiding “You Are” Terms One of the most common problems in communication is to hold other people responsible for their experience. Statements such as “You are wrong,” “You made me angry,” or “It’s your fault.” usually provoke defensive and reactive statements in kind. A far more constructive hearing is likely when the same experience is stated differently: “I disagree,” “I got angry at what you said,” or “I think you made a mistake.” Everyone must take responsibility for his or her own experience. No one likes to be made accountable for another person’s thoughts, feelings, or behavior.

Responsibility for How One Speaks People are responsible for what they say and how they say it; they are not responsible for how someone hears them. “What you said hurt me.” When confronted with this accusation, the listener takes responsibility. After all, the presumption is that this person would not have gotten angry if the speaker hadn’t said what he or she did. Wrong! Not necessarily. When speakers are faced with this accusation, their first reaction should be to decide if their manner of speaking could reasonably be construed as offensive. Only if they decide that this is not the case they should consider that the basis for the listener’s anger lies elsewhere. The way people respond to what they hear is determined by more than by what is said to them. For example: 1. The speaker’s comments triggers an unpleasant association or memory. 2. The listener doesn’t like the content of what was said. 3. The listener doesn’t understand what was said and is reluctant to let it be known to avoid embarrassment. 4. The listener is not feeling well. 5. The listener has a low tolerance for frustration. 6. Anger at another situation spills over into the current conversation.

Lawyers frequently serve as the messengers of bad news to entrepreneurs: “The contract has been rejected.” “The bank has refused the loan application.” Not surprisingly, the entrepreneurs vent their anger at their attorneys. When this happens, the attorneys have to decide whether they have any responsibility for their client’s feelings. Lawyers make their job unnecessarily more difficult if they don’t separate out the times when they provoked their client’s anger from those times when they were a convenient target for the client’s anger.

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Vulnerability in Communication Sharing of thoughts and feelings, as well as the experiences that give rise to them, is basic in meaningful collaborative relationships among partner, lawyer, and some subordinates. This sharing may not be understood or appreciated, or it may even be abused; there are no guaranteed outcomes in communication. People take the risk knowing that a meaningful relationship can only be had when they can be forthright in expressing their thoughts and feelings. They will take the risk when they feel there is reasonable likelihood of a satisfactory response to warrant potential vulnerability. The same principle applies to communication in business relationships with banks, colleagues, customers, and competitors. Entrepreneurs need to risk communicating their needs, concerns, and feelings in a forthright manner that takes into account the political realities of what is and isn’t possible. Making clear relevant information to banks, suppliers, or in negotiations provides the best chance for a desired outcome. To do otherwise breeds ambiguity and mistrust. Starting a partnership is an anxiety-provoking enterprise for most people. The risk it poses can be minimized by the approach to a prospective partner. Getting to know the other person starts with very modest risks of exploring surface interests and goals. Finding the absence of positive attraction leads to quick termination of the effort, with minimal negative impact. Success in initial overtures invites taking the greater risk of sharing more about oneself and indicating interest in furthering the relationship. When this experience is shared by the other person, the relationship deepens with an increased ability to share more of one’s personality. A partnership evolves when sufficient compatibility is discovered on both a personal and business level. Being able to reveal one’s vulnerablities is an important ingredient in a partnership’s success, enabling the partners to use each other as a sounding board, to get help when needed, or to be supportive in times of difficulty. This sharing is possible only when the partners have trust that sharing their vulnerability will not be violated. Partners need to remember that violating the trust of shared vulnerabilities will compromise the relationship. Behavior Carries the Message Some people erroneously expect to be treated on the basis of their intentions rather than how they act. This happens when they presume their intentions are obvious. When challenged about a bothersome behavior, the person typically responds with “That wasn’t my intention,” but this response does not address the concern about the objectionable behavior. Defending the behavior on the basis of intention only compounds the

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problem. Communication improves when a person remembers that other people judge a person on the basis of behavior, not intention. There is the added complication that the listener cannot know the speaker’s intention unless it is explicitly stated. Example A businessman, Peter, wants to be helpful to his partner, Tom, by giving him advice about his denigrating way of giving feedback. Peter presumes that his partner understands his intention is to be helpful, but he gets into trouble when he doesn’t make sure that Tom understands this is the case. Without this assurance the only thing that Tom has to go on is criticism of his behavior and the intentions he reads into it. Peter’s letting him know his intentions does not guarantee Tom will be any more receptive to his feedback, but it does help to keep the focus on the behavior and not on intent.

Conflict of Words and Behavior People do not always get the expected response to their communication, as when it is presumed that the response is determined solely by the content of what is said. As discussed earlier, non-verbal behavior carries the meaning when a conflict occurs between the message’s words and how the message is said. In his research study, Birdwhistle (1962) found that 55 percent of the messages received were accounted for by non-verbal behavior—facial expression, eye contact, and body language. We are all familiar with the power of the “dirty look.” A speaker can quickly become unnerved when the listener begins looking out the window, looking bored, angry, fidgety, or showing other behavior suggesting lack of interest in what the speaker is saying. Another 38 percent of the messages were accounted for by tone of voice. Different meanings can be attached to the same word simply by tone of voice. A simple example involves the word “dear.” Whether this word is heard as an expression of affection or anger depends on the tone of voice. Another example occurs when someone offers a compliment but in a tone of voice conveying that the message is insincere. The remaining 7 percent of the study sample was attributed to the content of what was said. A message will have the greatest impact when the tone of voice and body language carry the same message as the content. Communication of Respect Giving compliments, though a well-known means of showing interest and appreciation of another person, is not one of the most effective ways to communicate appreciation. Too often compliments come across as superficial, perfunctory, too readily given, or self-serving. A more effective

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way of communicating respect for another person is to show genuine interest in that person’s thoughts and feelings. This applies across differences in power, economic and social status, intelligence, and experience. This is the case whether it involves subordinate-to-superior, superior-tosubordinate, or peer-to-peer relationships. Asking for opinions provides the opportunity for extended conversation, whereas compliments are more likely to lead to dead-end conversations. And when compliments are perceived as insincere or manipulative, a double problem results. The compliment is not believed, and trust in the speaker’s sincerity is compromised.

Importance of Validation in Communication The speaker’s point of view should be acknowledged independent of its agreement with the listener. This acknowledgment carries a message of respect between speaker and listener.

Positive and Negative Feedback People more readily accept critical feedback when they also receive appropriate positive feedback. Doing this indicates a commitment to a balanced assessment. Managers can maintain their perspective by linking critical feedback to positive feedback. This effort is rewarded by heightened respect and attention to what the manager has to say.

Pursuit of Individual Goals in the Context of Company Goals Managers will inspire more loyalty when they demonstrate interest in encouraging subordinates to pursue personal goals in a manner consistent with accomplishing company goals. To accomplish this managers help subordinates clarify their personal goals and then work together to see how these goals can be furthered in performance of company objectives.

The Two-Time Rule Sometimes repeated efforts to end objectionable behavior are not successful. The more the unsuccessful efforts continue, the greater the problem becomes. In time the person who is feeling offended is viewed as a nagger, and the offending person gets tacit permission to continue the behavior. The two-time rule can be used to avoid this problem. This rule states that if an effort to correct an offending person’s behavior fails after two attempts, the offended person should not repeat the same behavior a third time. The third attempt should be something qualitatively different.

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Example A manager was having difficulty with an employee who was chronically late in meeting his work deadlines. The manager’s repeated efforts to address his concern met with promises that were never kept. The longer it went on, the angrier the manager got. He felt it undermined his authority with his subordinates and made him look inept in the eyes of his boss. He therefore decided to apply the two-time rule. The next time the offending subordinate was late in meeting his deadlines, the manager went to his office and again was greeted with promises. The manager responded by saying, “You chose not to fulfill your commitment at your convenience, so I need you to do it at my convenience, which is now.” The subordinate protested that he had important work to do but complied. His promptness improved markedly from then on.

Active Listening To be most productive a speaker should speak in a clear, interesting manner and use language that the audience will readily understand. The listener should be involved in active listening, giving the speaker ongoing feedback. This attention is communicated in a variety of forms, as follows. Regular Eye Contact The way a person looks can communicate warmth, interest, or boredom. A glazed look, for example, signals boredom and, “I’m somewhere else.” In addition, attention focused on other objects than the speaker is distracting and is likely to suggest disinterest. Sympathetic Facial Expression A pleasant facial expression accompanied by a smile, as appropriate, communicates interest. The interest must be genuinely felt, however; a smile can be offensive when the speaker hasn’t said anything to warrant a smile. A fixed frozen smile also conveys a negative message. Attentive listeners will know that they are doing something wrong when the speaker gives cues of discontent: irritation in his or her voice or facial expression. Body Language Periodically nodding the head in affirmation, sitting in an upright alert position, or slight leaning in the direction of the speaker are also positive signs for the speaker. To be avoided are distracting audience behaviors such as doodling, foot rocking, finger tapping, picking at finger nails, and toying with objects. Periodic Vocal Affirmation Periodic statements such as “uh-uh,” “yes,” and “good point” are welcoming, but they should not be made so often that they become distracting.

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Request for Information or Clarification Such requests carry a message of interest, though they can become distracting to the speaker if too numerous. However, if listeners anticipate that frequent interruptions may be necessary, they should negotiate with the speaker the best way to relate to this concern. This is respectful to the speaker and helps to preserve a positive relationship. There is no established “correct” formula for constructive listening. One objective is simply to be aware of the many ways that listening contributes to satisfying communication. Communications skills will improve when as much attention is paid to listening skills as to speaking skills.

Active Speaking A speaker can do several things to encourage a positive response. Eye Contact Eye contact is just as important for the speaker as it is for the listener. A person who speaks while glancing around the room or who talks to the walls or ceiling soon loses the listener’s interest. Holding eye contact with a particular person for a complete thought before moving on to another person is helpful when speaking to a group. Manner of Speaking Speaking at a pace that is comfortable to follow, with appropriate expression of affect and emphasis encourages the listener’s attention. Periodic pauses should be included to give the listener time to absorb the significance of what is said. Also helpful is repetition for emphasis. Speaking too fast, too slow, or in a monotone, or at a level of language unfamiliar to the listener will lose the listener’s interest. Periodic Feedback The speaker should periodically ask for feedback unless the listener volunteers comments along the way. The feedback gives the speaker some indication about how comments are being received. This is especially important in one-on-one conversations. When one person dominates the communication, it becomes a lecture. Balancing the Conversation Communication is mutually beneficial when views are exchanged. The speaker should present views in a manner that will acknowledge the listener’s interests and perspectives.

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Validation of Listener Validation of the listener’s comments will communicate the speaker’s interest in what the listener thinks. This is likely to invite continued attention to the speaker. When the listener’s comments approach being disruptive, the speaker should request that comments be postponed until the speaker has completed his or her thought. Then, the listener should be given time to be heard. Use of Stories Stories engage the attention of any group. The presentation of even the most boring material can be made interesting when laced with anecdotes. This taps into people’s natural love of stories, which is fostered by what they read and their theater and movie experiences. BEHAVIORS THAT IMPEDE EFFECTIVE COMMUNICATION Interruption of the person speaking distracts the speaker from his or her train of thought. It can also be seen as criticism or an announcement that the interrupter’s comments are more important than what the speaker is saying. As a result the pattern of communication can shift from one of where information is exchanged to a power struggle for control and superiority. The Power of Silence Silence is one of the most powerful ways of undermining the quality of communication. It resolves nothing, and it leaves the door open for too many conclusions. Silence can be interpreted to mean any or all of the following: 1. Anger 2. Disinterest 3. Fear of giving a response 4. Lack of knowledge of what to say 5. Failure to understand what was said and reluctance to ask for clarification

Each of these possibilities has quite different implications. Recipients of the silence are left to draw their own conclusions, which are often wrong and simply make matters worse. When one is not prepared to respond in a conversation, one would do well to inform the other person of that fact, followed by some indication

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of when a response could be expected. It is also helpful to give some indication of why a response is not possible at the time. This is respectful to both parties and encourages trust in the relationship. Killing the Messenger Getting bad news is never welcome, but expressing anger at the person delivering the news only adds a new problem. Recipients may discuss their reaction to the bad news but should clearly state that it is not directed at the messenger. Sometimes the anger at the messenger is expressed in criticism of the timing, the way in which the message was delivered, or who should have delivered it. The Obstacle of Past History Communication is most productive when it deals with current issues. People who invoke past history in a conversation create a problem when the presumption is that a person’s past behavior will necessarily be repeated in the present. This becomes frustrating because it doesn’t give the other person the opportunity to behave differently. Response to objectionable behavior should therefore include only current behavior. Reference to past history will help only when it can be stated in a constructive way that is helpful in the current situation. Reminders of past behavior sometimes are used to divert attention from one’s own behavior. Getting involved in this way impedes attending to current concerns. Example Two partners, Chad and Frank, were involved in a discussion about a pending financial transaction. Chad was having an increasingly hard time defending his position, and he didn’t like the criticism he was getting from Frank. Instead of staying focused on the issue or the felt criticism, Chad launched into an accusation that his critic was doing it again: “There you go again, criticizing before you bother to find out what I mean. You always do this!”

Breach of Confidence Communication between people is conducted on a wide variety of levels. The better two people know each other, the more likely they are to exchange confidences, including those touching personal vulnerabilities. One sure way to violate a relationship is to express anger by reminding the other person of past vulnerabilities. This behavior can severely dampen trust in future communications, and it limits discussion to superficial or safe content. It also hampers constructive attention to the issues at hand.

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Example Two partners, Sally and Helen, were having an argument. As their exchange grew more heated, Sally told Helen, “You are trying to beat on me in the same way that you said you used to treat your first husband.” This made Helen angrier and shifted the conversation from the issue at hand to violation of trust. Angrily voicing her feeling of betrayal, Sally stormed out of the room. The tension between them lasted long beyond this conversation and forever changed the quality of their relationship. The partner who had shared her vulnerability felt she could no longer trust her partner.

Teasing and Sarcasm Generally, the person who teases does so in a friendly spirit, and sometimes the recipient experiences it as it was intended. More often than not, however, teasing comes off as derogatory and demeaning. When the recipient makes these negative feelings known, the evolving damage to the quality of communication can be averted, providing that the perpetrator receives the feedback in a respectful manner. When this doesn’t happen, the perpetrator responds with denial and judgment, “You are too sensitive” or “You can’t you take a joke.” The result will be guarded communication or interruption of the relationship. The result is also negative when the recipient, for whatever reason, does not feel safe enough to give the feedback. This happens when the perpetrator is in a superior position or when the recipient fears showing vulnerability. This reluctance hampers the quality of future communication, for the perpetrator may continue teasing, thinking it was accepted in the intended manner. Sarcasm generally possesses a hostile or critical tone. At times it may be expressed in a jocular tone, and if all of the participants can use this kind of communication, there will be no problem. But when the recipient of the sarcasm experiences it as hostile, judgmental, or demeaning, the outcome is the same as that of teasing. Joking As is true of teasing and sarcasm, a joke is not a joke unless it is funny to everyone who is privy to it. A joke becomes abusive when it is expressed for the speaker’s amusement at the recipient’s expense. When the recipient is able to give immediate, constructive feedback and get a satisfactory response from the jokester, the problem is resolved. Otherwise, a negative climate for future communication develops. Making Decisions for Others No decision should be made without considering its impact on the other person. Failing to do so can convey various messages:

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1. Being taken for granted 2. Not caring 3. Not being aware that it will impact another person 4. Being self-absorbed 5. Fearing response in consulting

Failure to consult runs the risk of creating a relationship problem that could easily be avoided. By consulting the other person, one can also gain information that might significantly affect the decision. In addition, the person affected will have the opportunity to anticipate and prepare for the anticipated consequences. When a person avoids such consultation in order to prevent the person affected from preparing a response, conflict and retaliation are inevitable. Problems Are to Be Managed, Not Judged A common reaction to being confronted with a problem is to judge it— that is, to blame self, another person, or something else. The net result is that the problem isn’t solved, and there is the added problem of dealing with the frustration that results from judging. Managing a problem involves the attitude, “Something is wrong.” “How can I fix it?” “How can I make the most of what is possible?” This approach focuses energy on constructive resolution, minimizes getting into the dark hole of blaming, and provides an atmosphere that invites constructive communication. The distinction between judging and evaluating is pertinent here. Judging involves blaming and serves the purpose of avoiding one’s own accountability for a given situation. Evaluating is data gathering for the purpose of understanding what went wrong as a basis for correction. A convenient phrase to keep in mind when confronted with difficulty is: “Manage, don’t judge.” COMMUNICATION AND CHANGE Communication styles are a dynamic process. The way a person communicates in a given situation depends on various considerations: • Goals to be achieved: Asking for information Giving information Expressing feelings Negotiating differences Negotiating a contract

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Sharing a confidence Giving direction as an entrepreneur to employee • Comfort level in speaking: people vary in the ease with which they speak, especially to a group. • Needed skills and information to convey the desired message. • Past experience: the quality of past experience in communicating sets the context for future efforts. • Nature of relationship to whom communication is addressed: Formal and informal relationships greatly affect the nature of communication. • Concern about and priority attached to the outcome: The priority attached to the outcome of a conversation will impact the nature of the communication. The outcome of a job interview will receive a great deal of anticipatory attention, whereas a conversation with a friend will be spontaneous. • Anticipated response of recipient and felt ability to relate to it: Anticipating the response of a communication’s recipient will impact what is said and how it is said when there is concern about how the message will be heard. An entrepreneur may give considerable thought to how to give feedback to a valued employee who will be sensitive to what he or she has to be told. • Communicator’s state of mind: People who are very upset will communicate in a different fashion than when they’re in their usual frame of mind. • Impact of communication on other people privy to information or affected by it: People will temper how and what they say when they suspect that what they will say will be repeated to other people whose reaction would matter. Employee may be very careful in how they express their complaints to an entrepreneur about their supervisor.

These variables in combination give rise to established patterns of behavior that become automatic. However, people frequently find they need to change one or more aspects of their communication style. Frequent examples include: people who are too passive, too aggressive, too sarcastic, too insensitive, and so forth.

Changing Communication Patterns Changing established patterns becomes difficult because these behaviors have become automatic and are not consciously monitored. The challenge in bringing about desired changes is to interrupt an established pattern and replace it with a more desirable one. This is usually more easily said than done. The process becomes more readily manageable if the following five steps are followed. These have been described elsewhere but warrant review here because they apply to communication. Understanding the process of accomplishing change is helpful in making this adjustment.

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Step 1: Determine an Observable Definition of What Is to Be Changed The first requirement is a clear operational definition of what needs to be changed. Often an object of change needs to be divided into discrete goals in order to develop a strategy for change for each goal. The process can be perceived as tedious, but persistence is necessary if change is to take place. Suppose the goal is “I want to get along better with people.” This goal is too ambiguous because it doesn’t define observable behavior. An evaluation would lead to defining what behaviors are necessary to accomplish this objective. One of these behaviors might be to pay more attention to other people’s ideas. Another would be to accept critical feedback respectfully. Step 2: Define What Kind of Change Is Desired What kind of changed behavior is desired? This behavior requires the same level of specificity as that in step 1. One possibility for achieving these revised goals is to be a better listener and to give constructive feedback. Step 3: Define How to Go from Step 1 to Step 2 This involves defining what steps need to be taken to achieve the state defined in step 2. Thus, a specific course of observable behaviors needs to be set out. One step is for the listener to tell the speaker what was heard and to ask for the speaker’s confirmation that the message was heard correctly. Step 4: Determine the Degree of Motivation for Change Even the best strategy for accomplishing change will not succeed without sufficient motivation to overcome difficulties that may arise. The energy and commitment it takes to pay mindful attention to interrupting established automatic behavior are often more than a person is willing to call forth. As a result, people retain familiar behavior even when it is undesirable. A test of a person’s motivation is indicated by the degree of discomfort and inconvenience he or she is willing to endure to accomplish the change. Step 5: Monitor to Ensure That Change Is Implemented This step is often the most critical one in the change process. Good ideas and good intentions go to waste unless a defined process is established for ensuring that the professed changes are implemented. Suppose the entrepreneur is committed to treating her secretary in a more respectful manner. She might feel comfortable with steps 1–4 but under the press of business her good intentions may get sidetracked. This difficulty can be avoided if she makes a commitment to end each business day with a review of how

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well she progressed that day. The times she feels she has done well will reinforce her satisfaction and commitment to proceed further. The times she has slipped back to old habits can be addressed by understanding why it happened and what she might do the next time to improve her behavior. When the monitoring process is maintained consistently, the targeted behavior is incorporated into behavior that decreasingly requires conscious attention. The length of time it takes for a new behavior to become established depends on the complexity involved and the discipline of the person in following the defined process. The Power of Familiarity Why do people continue in relationships or behavior that they find unpleasant, and sometimes even odious? The simple fact is that some people are more willing to deal with what they know than deal with the unknown and with the struggle it takes to change. They also may anticipate that the effort for change will be too great, or they may fear failure. Complicating the process of giving up a negative behavior may also include giving up the positive experiences that go with it. The combination of confronting the unknown and giving up the positives of the current experience can be too formidable to overcome. Example An entrepreneur had a secretary with whom he was quite unhappy. More than once he vowed to replace her but he never got around to doing it. He found it easier to put up with what he knew than to find and train someone new. After he experienced yet another major disappointment with her, he finally confronted his reluctance to face the problem. He concluded that he had two reasons for his procrastination: (1) He had little confidence that a new secretary would be any better, and he felt he would simply have to get used to a new set of problems. (2) He realized that he would miss her calming effect on his customers.

REFERENCE Birdwhistle, Ray L. (1962). “An Approach to Communication.” Family Process 1(2): 194–201.

Chapter 5

Managing Relationships Obviously entrepreneurs cannot do everything by themselves. They need to master the management of relationships, which may be described in two categories: internal and external. Internal relationships refer to people within the business—executives and employees. External relationships involve people outside the business—consultants, banks, government agencies, customers, professional organizations, and the like.

INTERNAL RELATIONSHIPS Between Partners The following principles of relationship are necessary for a partnership to become successful: Respect for Differences in Points of View, Style, Personality, and the Like The absence of respect for differences result in control struggles that would draw energy from attending to business. It also provides a poor model for employees and makes it difficult to recruit and maintain needed personnel. Commitment to Finding Joint Solutions for Differences Respect for differences facilitates finding solutions that will be acceptable to both partners. Accomplishing this provides the opportunity to bring to bear the experience of both partners.

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Flexibility in Division of Labor A successful business requires partners to be flexible in their division of labor, especially in the start-up phase. Rigidity places individual needs ahead of business needs and results in distracting tensions. Consultation of Partners before Making Decisions Partners need to be on the same page to effectively implement decisions. Making a joint decision requires joint ownership of the consequences. To do otherwise invites the exchange of blame for undesired consequences and distracts attention from where it is needed. Accountability for One’s Behavior Accountability offers the best safeguard that people will honor their commitments. This applies to partners as well as to all members of the company. This is most readily accomplished when partners model the desired behavior. Between Entrepreneur and Employees The following principles are essential in preserving a healthy relationship between entrepreneurs and employees. Define What Is Expected of Subordinates within a Realistic Time Frame Expecting work to be accomplished within an unrealistic time frame is a familiar problem in today’s workplace. This unrealistic expectation occurs when goals are defined in terms of concepts rather than in observable behavior. For example, employees are asked to complete a project by a certain date without being given concrete criteria that define the end point of the project, such as meeting sales projections, completing a certain number of interviews, or submitting a written report. When expectations are ambiguous, they invite frustration for both entrepreneur and subordinate, leading everyone involved to feel righteous in terms of their own interpretation. Involve Subordinates in Solutions to Problems That Affect Them When Possible Employees will be more responsive when they have had the opportunity to contribute to solutions. This also encourages committed and satisfied employees. Be Tolerant of Subordinates Who Perform Their Duties in Ways Other Than the Entrepreneur’s Style Entrepreneur’s encourage greater productivity when they give their employees some latitude in how they are to accomplish their work assign-

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ments. It also facilitates the development of the employee’s unique talents, which might otherwise never be tapped. This is particularly relevant in helping retain creative employees in a tight job market. Institute a Single Standard for All Subordinates Favoritism is destructive to a constructive relationship between entrepreneur and employee. This often takes the form of double standards of behavior for favored employees that is expressed in having different levels of accountability for employees, depending on their relationship to the entrepreneur. This is not to be confused with different standards for different levels of competence or responsibility. Provide Constructive Feedback with Attention to Positive and Negative Behavior An entrepreneur enhances employee motivation when the employees know they will receive constructive feedback on their performance. Performance ratings should therefore be given in a respectful manner that focuses on a person’s behavior and is not a judgment of the person. EXTERNAL RELATIONSHIPS Businesses also need the services of outside agents. Their services are required on a periodic basis that does not warrant their being part of the company. These agents include accountants, lawyers, financial consultants, human resources consultants, compensation and benefits management consultants, insurance consultants, public relations consultants, and organizational consultants. Businesses vary as to the combination of consultants needed. Use of Consultants The word “consultant” is a familiar one, but it means different things to different people. Generally, consultants can be described as people with expertise in a particular area who are usually independent contractors. They may be involved on a full-time, part-time, or as-needed basis, and they may or may not have formal authority. In recent years, consultants have been used in line positions. This arrangement suits employers because it does not involve payment of benefits and carries no long-term commitment to employment. It suits consultants because it provides greater control of their work. Consultants’ responsibilities may range from making recommendations to having line authority and responsibilities. A consultant is used (1) when a company requires skills that are not found among the permanent work force or when the requirement of a needed task exceeds their capabilities; (2) to oversee a special project that

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requires unusual security and limits exposure to sensitive material by employees; and (3) to evaluate the operation of a project or department or to provide an independent assessment of a work product. Such a consultant can give feedback without fear of retaliation and without the bias of protecting a special interest. A number of resources are available for finding consultants: referrals from colleagues; head hunters; professional organizations; professional schools at universities, retirees; and ads in newspapers and professional journals. Consultants, like most employees, are ultimately chosen on the basis of their resumes, recommendations, interviews, and demonstration of competence. The following are useful in reviewing the resumes of prospective consultants: 1. The range of experiences that are either directly or indirectly relevant to the needed task. 2. Experience in doing the kind of task needed. This applies not only to the content of the work but also to the kind of work relationships involved. A consultant may have a lot of experience working on solo projects but may have limited experience working with others or in certain kinds of environment. How a person fits into a particular environment can be as important as the content of the work. 3. The length of project for which the consultant is being considered. Some people do better with short-term projects, while others prefer longer ones. 4. Gaps in employment or experience. Have the consultant account for the time or employment gaps or experiences that are minimized on the resume. Unsatisfactory experiences are often omitted or minimized.

Recommendations from previous clients can be helpful if they provide a balanced view of the candidate. The only way to determine this balance is through conversations with the recommender. Given the current litigious climate in the United States, people are very cautious about what they put in writing. These conversations often produce non-verbal cues about what was written. A consultant’s excellence will be reflected in the recommender’s tone of voice, enthusiasm or lack of it, overcautious demeanor, and the freedom with which comments are offered. Guarded and restricted comments may suggest limited satisfaction. The nature of the recommender’s relationship with the consultant can also be gleaned through these conversations. Whether the recommender had first-hand experience or whether the views are based on the report of others will soon be apparent, as will the degree to which the relationship was solely professional or personal. A recommendation that comes from a friend will of course need evaluation for bias. A talk with the interviewee should also make clear whether the appli-

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cant’s strengths in the recommendation are in needed areas. It is quite possible to get a glowing recommendation that may not be related to needed skills. Speaking to the recommender also provides the opportunity to gain information relevant to a particular situation that was not in the recommendation or the resume. Conversations will also make it easier to learn about limitations or problems than is likely to be obtained in written communication. Clues can be gained either by making explicit statements and qualifying comments or by explaining why a situation was problematic. A minimum of three candidates should be selected for interviewing; this provides a reasonable basis for comparison. Whereas resumes are useful in learning about technical qualifications, interviews are the only way to determine whether there is suitable “chemistry” or prospect for a good match in the working relationship. Specifically, the interviews should explore how the consultants’ work styles would fit the people with whom they would work and the company’s culture. Interviews should also determine interviewees’ ability to communicate, especially if he will be working with others or will be involved in instructing others. Being an instructor mandates more than technical experience. It also requires patience, organization, respect and sensitivity for different levels of capability, understanding how people learn, being supportive, and a good balance between presenting concept and concrete examples. A combination of individual and group interviews is an effective way to gain needed information. Individual interviewing is useful in the initial screening to review background and to fill any gaps, screening for personality compatibility with the company, determining whether proceeding further is warranted, and providing an opportunity for more in-depth interviewing by the person with whom the interviewee would be working. Individual interviews may also be needed, since information gained on an individual basis provides a better sense of how the person communicates on a one-to-one basis. Group interviewing, on the other hand, is an economical way to have multiple people participate in the interview process. It gives perspective on how the interviewee deals with the pressure of a group interview; it avoids the possibility of the interviewee giving different messages to different people; and it provides a common base of information for a group evaluation of the candidate. Inquiry should be made into how the consultant would handle certain situations. These should include both substantive and relationship issues as well as circumstances that might interfere with the consultant’s work. In addition to interviews, the prospective consultant should be given an opportunity to demonstrate competence. This might involve giving a lecture or working with a staff member for a brief period of time. Once the prospective consultant’s expertise and skills have been established and recommendations have been checked, the final decision should

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be made, with major consideration given to the person with whom the consultant will be working. This increases the benefit gained from the consultation. The consultant chosen should be given a written contract or letter of agreement that includes at least the following items: • The objective to be accomplished in behavioral terms, including standards for assessing performance. • A written report, if required, in what form and when due. • The time frame for delivery of services and a consideration of whether any penalties are needed for not meeting defined objectives. • The amount of compensation and when it will be paid. • Any confidentiality requirements. • Conditions under which either party may terminate the agreement. • Any other conditions deemed necessary by either the company or the consultant.

The consultant should be given the opportunity to refine the objective and method for accomplishing his assignment. This will maximize the possibility of the consultee benefiting from the consultant’s expertise and creativity. In addition, consideration should be given to whether more will be gained by giving the consultant current thinking before the work is done or letting the consultants do the work before sharing any current thinking. Both pros and cons can be found in either approach. The advantage of giving the thinking ahead of time is that the consultant will then not go over ground already covered. The disadvantage is that it may bias the consultant’s approach to the problem. The advantage of giving the company’s current thinking after consultants present their views is that it provides a better chance of getting a fresh perspective. The disadvantage is repeating work already done. However, on the positive side it may affirm the work already done. Potential benefits from the consultation can be lost if the focus is limited to getting a particular project accomplished. The greater benefit from a consultation may come from understanding the thought process that went into the project rather than the outcome itself. Gaining the benefit of the thought process can be accomplished by building into the consultation agreement a means of gaining this information. It may take the form of demonstrations, lectures, seminars, or having relevant people work with consultants. Emphasis should be placed on having consultants provide the basis of their thinking. CONSULTANT SERVICES When consultants are called in because of an uncertain situation or a felt inadequacy in a company, it is easy to give them more power than may be

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good for the business. The consultants may collude in this process when it serves their own needs, even when they recognize it may not be in the business’s best interests. A good consultant is one who doesn’t accept more power than is needed. Entrepreneurs must remember that they will have to live with the results of any consultation, so they should not accept any advice that doesn’t make sense to them. There should be great wariness of the consultant who responds to questions with “Trust me” or demeaning comments such as, “This is too complicated to explain,” in place of valid explanations. Always remember that the consultant works for the entrepreneur, and not the other way around. Among the considerations that executives should pay special attention in soliciting a consultant are the following:

1. It is cost effective to engage a consultant who is familiar with a business similar to that of the entrepreneurs. Otherwise, the entrepreneur will have to pay to educate the consultant about the business. 2. It is prudent to select a consultant with whom the “chemistry” feels right for the entrepreneur. One should therefore speak with two or three consultants to guarantee the best fit possible. This exploratory process should include a discussion of what consultants and entrepreneurs expect of each other. 3. It is essential to check out the prospective consultant’s reputation, background, and experience. Getting recommendations will simplify the process.

Accountants The services of accountants are necessary to comply with the complexities of state and federal requirements and tax laws. Companies that are too small to have in-house accountants utilize bookkeepers to provide day-today financial information and prepare information for the accountant. Businesses involved in loans from banks are most likely to need the services of these consultants. Accountants design and provide broad financial services, including:

1. Assisting new businesses in establishing systems for managing their finances. 2. Providing regular and as-needed financial statements. 3. Conducting audits as needed. 4. Consulting on the merits of purchases and investments. 5. Consulting on tax matters and preparing tax returns. Frequently, they are given power of attorney in businesses undergoing any tax audit. Periodically, accountants and lawyers work together on tax questions and the merit of purchases and investments.

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Accountants tend to be conservative and to emphasize caution. They help entrepreneurs understand available options and the financial consequences of proposals. Such information helps entrepreneurs decide how much risk they are willing to take.

Lawyers Lawyers perform a multitude of functions for firms: 1. They provide formal documents such as agreements, contracts, partnership agreements, articles of incorporation, bylaws, and other documents necessary to give an organization its legal definition. 2. They consult on tax-related issues and represent companies in dealings with the IRS. 3. They initiate legal action on behalf of their client or defend against actions brought against the business. 4. They serve as mediators in disputes between partners. 5. They provide legal services related to the sale and purchase of real estate and other entities. 6. They assist businesses in relationships with banks concerned with loans and legal issues. 7. They consult on patent, copyright, and intellectual property matters. 8. They consult on matters related to filing or avoiding bankruptcy. 9. They assist in the dissolution of businesses. 10. They consult on the general boundaries of legal behavior. 11. They consult on labor related issues.

The lawyer is the legal counterpart of the accountant. When the entrepreneurs select an attorney, they make their choice based on the kind of legal needs they anticipate. This will determine whether they will opt for a firm that can handle any conceivable need or whether a small firm will be sufficient. With a large law firm, the partners will probably be serviced by an associate under the supervision of a senior partner unless they are a high-profile clients. As a result, the partners are less likely to have a personal relationship with the senior partner. In contrast, a more personal relationship is likely in smaller firms, as is the chance that the partnership’s work will be done by a partner. The usefulness of attorneys depends on their having full disclosure of information regarding any action they may become involved in. Withholding information because of embarrassment or fear of judgment will likely create more serious problems than it will avoid.

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Financial Consultants The financial consultant’s services overlap those provided by accountants and lawyers. Businesses periodically need consultation on how to finance or refinance their business. Financial consultants may also be useful in raising investment capital for an expanding business or for new product development. Their services may also be needed for new acquisitions or mergers. They provide a more unique service in raising capital; brokering loans, mergers, purchases, and sale of businesses or property; and consulting on restructuring a company. A similar process should be followed to the one described for selecting accountants and lawyers regarding reputation, experience, familiarity with the entrepreneur’s area of need, and comfort level in the relationship. Human Resources Consultants A human resources consultant provides services on matters relating to personnel recruitment and management, specifically: 1. Establishing recruitment, hiring, and firing policies and procedures 2. Defining personnel practices and policies 3. Managing problem situations 4. Complying with federal and state laws regarding personnel matters 5. Handling environmental issues 6. Establishing grievance procedures 7. Formulating compensation policies 8. Defining policies and procedures for performance reviews

A human resources consultant is very helpful in dealing with start-up planning and should be retained until the business gets large enough to warrant an in-house employee. Investment in this consultation from the beginning helps the entrepreneur avoid problems that become costly. Compensation and Benefits Managements Consultants Entrepreneurs compensate themselves and their employees through a combination of salary, benefits, perks, and bonuses. The kind of benefits package chosen for their employees is an important business consideration. Consultants in this area have the expertise to help a company determine the kind of benefits that will best suit its needs and financial capability, which are particularly relevant as regards pension plans. Establishing compensation guidelines is especially helpful when competition with other com-

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panies is a consideration. These consultant services include designing and implementing compensation and benefits programs, monitoring programs for modifications, providing actuarial information as needed, and distributing information on standards in the marketplace. Consultation is needed when the business becomes sufficiently established to require attention to developing a sound compensation and benefits program. The nature of this program will depend on the kind of culture the company wishes to define for its employees. The selection of a consultant should be compatible with this point of view. Insurance Consultants Insurance consultants provide information on how a company may protect itself against financial disasters. These consultants should not be the same persons who sell the insurance unless there is confidence that this will not compromise the business’s best interest. Businesses have a variety of insurance needs, some of which are mandatory and others voluntary. Workers’ Compensation insurance, for example, is required of all businesses. Other examples of insurance are the banks’ requirement for insurance to protect their loans and the insurance of business owners to protect themselves from fire or property damage and liability from accidents on their premises. Insurance also protects companies from theft or embezzlement from employees who have access to finances. Often, the business insures principals and critical employees as protection against their death or disability. In addition, a common insurance benefit package today may include some combination of medical, dental, life, and disability insurance. In the recent climate of cost reduction, consultants have devised various ways to help companies reduce or limit such coverage. For example: 1. Helping companies determine what insurance is needed and in what amounts. This would include recommendations on defining levels of deductibles. 2. Assisting in finding the best carriers, making sure that this doesn’t involve some form of kickback to the consultant. Getting the names of more than one possible carrier sometimes helps deal with this possibility. 3. Providing companies with changes in insurance industry developments. This might involve changing companies or the type of insurance selected as well as changes in laws that might have impact on insurance. 4. Periodically reviewing a company’s insurance program to ensure that company objectives continue to be met.

Insurance consultants should be flexible enough to adapt insurance needs to a business’s changing needs. Such consultants should view their relationships to firms over the long term, recommending increases or decreases

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in coverage depending on the businesses’ needs and educating their client about how to use insurance, not just selling it. Marketing Consultants Marketing consultants provide an outside perspective on the company’s marketing program, assist the house marketing staff in developing new markets or marketing strategies, and participate in hiring of marketing personnel. They are especially helpful in the early stages of start-up and at points along the way when in-house capabilities are inadequate or special projects have to be launched. Public Relations Consultants These consultants help a company develop and maintain its best image to the outside world. They also help recruit and hire public relations personnel, recommend and assist in the preparation of materials, prepare press releases and press conferences, make presentations on the company’s behalf, lobby for the company, and act as spokesperson for the company. The company that can present itself in a unique and creative way has a better prospect for success. The public relations consultant must be personable, creative, effective in communication in both written and oral media. Organizational Consultants Organizational consultants generally consult with companies in more than one capacity. While these consultants describe themselves with the same label, they may differ markedly in the services they provide. As a result, a company may find the need for more than one consultant. The types of services consultants provide are varied. Organizational Development and Structure of the Organization Changing business conditions or a decrease in profits can lead management to change the nature of the organization and structure of the company. An organizational consultant with an outside perspective and no vested interest in the company may help facilitate this process. Management Practices A change in organizational structure is likely to be accompanied by modifications in managing skills to meet changing needs and objectives. For example, executives may seek help in changing their management style.

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Specifically, they may change the way decisions are made, modify job descriptions, develop new positions, or eliminate others. Personnel Issues A company’s long-term success may determine when it needs help in coping with one or more personnel-related issues, especially morale problems, conflict management skills, stress reduction, incentives for performance, and team building. Strategic and Tactical Planning Long-term success may depend on a company’s ability to balance the needs of its day-to-day operation with those of strategic and tactical planning. Getting an outside perspective may sometimes be helpful in this regard, especially when areas of special expertise are needed. Organizational consultants are generally in contact with many people in the company. They should therefore understand the culture of the company, be sensitive to issues of confidentiality, and possess good communication skills. RELATIONSHIP TO CUSTOMERS Customers can be viewed in many different ways. First, they may be seen as people who can be persuaded to buy as much of the entrepreneur’s product as possible. The idea is to maximize sales without regard to whether or not the customer needs it. The salesperson does not take into account how this approach to selling affects the customer. Second, customers are those who can benefit from your product and in this way the salesperson is one who helps the customer fill an unmet need. Third, customers are potential partners. The customer and salesperson work as a partnership, with the salesperson’s product solving the customer’s problem. Fourth, customers are contributors to the success of the business. Value is therefore placed on having good relationships with customers in the long term. These views are not mutually exclusive. Basically, salespeople should recognize that they are there to be of service to customers in one form or another. The customer is not there to take care of the salesperson. The customer’s need and those of the business are not mutually exclusive. When the relationship to the customer is handled properly, the needs of both will be met. PROFESSIONAL ORGANIZATIONS There are two categories of membership in professional organizations. One involves membership in one’s own field and can be useful in estab-

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lishing connections. This membership also serves a continuing education function, enabling the executives to keep up with development in their field as well as recruit new partners or employees. The other category of membership in organizations is related to their business and is very useful in establishing visibility in the community. This category includes Chambers of Commerce, the American Business Association, and specialty organizations relevant to the entrepreneur’s business. These memberships can help build goodwill for the company and produce new business. COMMUNITY RESOURCES A company is part of a community, and as such, the entrepreneur has the choice of relating to it in either a mutually compatible or an antagonistic manner. Choosing the compatible route will create an environment in which good neighbors help one another. For example, the company can show concern about how its business may affect the community by instituting a policy regarding noise, traffic, or air quality. In turn, the community will be motivated to be supportive of its neighbor. In contrast, taking the antagonistic route invites an adversarial response. The potential for being a helpful resource becomes a problem that drains resources, and the value of creating good will is replaced by ill will. Not surprisingly, when such a business makes expansion plans that require community approval, the only response may be delays and resistance. COMPETITORS Although competitors are clearly adversaries, they are also a resource. Competitors can learn from one another and at times cooperate in ventures of common interest. For example, a group of competitors involved in manufacturing machine parts were upset at the Occupational Safety and Health Administration (OSHA) for imposing safety and health requirements they felt were excessive. This group of manufacturers banded together and were able to negotiate a modification of these standards. In addition, competitors routinely learn from one another at trade shows and meetings. These meetings provide the opportunity to demonstrate one’s competence without divulging proprietary information. PRO-BONO INVOLVEMENT Many companies view pro-bono contributions to community efforts, organizations, or other causes as an investment that at the very least creates good will. For many companies, these investments are viewed as marketing. Lawyers have elevated this to an art form. They serve in organizations and

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community projects, knowing that the personal contact will pay off when people need a lawyer. Indeed, they know that it is much easier to turn to a known entity than the Yellow Pages. The same applies to businesses that donate their product; familiarity with a product leads to increased sales. RELATIONSHIP TO BANKS The new business is under a handicap when it seeks financial aid from banks, which are traditionally leery of supporting new, unproven ventures. The best chance for gaining support can come from a carefully presented proposal and application that takes into account how the bank evaluates applications. The bank’s primary objective is to make money, which it accomplishes by making loans to low-risk ventures. The challenge to aspiring entrepreneurs is to demonstrate why they are not a high risk. They can accomplish this in the following ways: Surface Credibility This refers to physical appearance, radiation of self-confidence, and manner of speaking. Dressing in attire that is familiar to bankers suggests one is part of the community and understands what is expected. Uncertainty or hesitation in presenting the application suggests self-doubt, which feeds their doubt. Communicating self-confidence and speaking in a language familiar to bankers will encourage their attention. Preparation of Business Plan Surface credibility may get an entrepreneur in the door, but a solid business plan is the way to get a loan. All elements of a business should be thought through in detail, with as much backup data as possible to support the assumptions that are being made. The most difficult area to deal with is the projection of income, which will get close scrutiny. Bankers are very aware that projections can represent more hope than realistic likelihood. Therefore the more substantiation that can be provided to support the projections, the better; it will add to the banker’s confidence that the entrepreneur is a good risk. Letters of Recommendation Although letters will not make up for a problematic business plan, they can help in borderline situations. Recommendations have increased impact when they come from influential people or from people who have personal relationships to the bank.

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Maintaining Credibility Getting the loan is only the first step. Maintaining credibility with the bank is an ongoing process. Bankers don’t like to be surprised. The relationship will be enhanced when the bank is informed of any events that affect the viability of the loan. It is best for the banker to learn of problems from its customer rather than such information coming through the community or other departments of the bank. Keep in mind that once a loan has been given, the supervising banker has a stake in the business’s success, since failure reflects on the banker. Prompt payment of all obligations will help keep the relationship constructive. A breech of trust can take a long time to repair, or might even be irreparable. RELATIONSHIP TO GOVERNMENT AGENCIES The relationship to government agencies usually means problems. One of the most harrowing can involve the IRS. For example, sometimes unwary entrepreneurs with cash-flow problems are tempted to use withholding taxes as a temporary banker. The IRS does not take kindly to this behavior and can be very punitive, ultimately leading the government to padlock the door and seize the company’s assets. Once a company is accused of this transgression, the business becomes an ongoing target of scrutiny. States are no less forgiving, although their punishment is somewhat more negotiable. The Department of Labor can be another source of problems when dissatisfied employees seek its help. Conditions surrounding firings, working conditions, and other dissatisfactions can become causes for seeking the department’s involvement. These problems are minimized, however, when companies clearly state working conditions and personnel policies and take care to apply these policies scrupulously. Concrete documentation of company actions is also very helpful. Injuries suffered in the workplace raise Workers’ Compensation issues. Disputes about whether injuries are related to work often lead to litigation, causing the attendant legal costs to pile up over long periods—in some cases, years. Knowing the emotional distraction and financial cost involved, many companies opt for early settlement even when the price seems excessive. The reasoning is that it will be cheaper in the long run. Keeping accurate records regarding any work injury can have a major impact on the outcome of a dispute. These records should include, time, place, circumstances surrounding the injury, company’s response, and any witnesses to the event. Safety and environmental issues can also bring the uninvited involvement of government, notably, the Occupational Safety and Health Administration (OSHA) and the Environmental Protection Agency (EPA). Prevention

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is the best approach to avoid problems with these agencies. Accordingly, companies should avoid taking short cuts in matters that might bring these agencies to their doorstep. Seeking advice from them proactively can prevent costly future problems. THE INTERNET The Internet continues its explosive growth, and its business potential, though still in its infancy, is already generating business in the billions of dollars. E-commerce has expanded the potential for new markets. A business will do well to consider whether and how to utilize the Internet. Farsighted executives will treat the Internet as a very valuable resource. Proper exploitation of this resource may create a global marketplace for their business. Accomplishing this will require that executives be well versed in the use of the Internet. Also likely to be needed is technical support for this effort—either in the form of employees or through some readily accessible outside source. This is necessary to keep up with the rapid rate of technological innovation. For example, a new computer language is evolving (XML) that will permit communication between businesses’ and suppliers’ computers, which once programmed will need a minimum of human involvement. The Internet is not a panacea for success. Like any tool, it should be used with caution and understanding of what it can and cannot do.

Chapter 6

Management of Resources A company’s ability to thrive is a function of the resources that are available to it and its ability to mobilize outside resources. A resource is any material, psychological, personal, or business relationship that can contribute to achieving the entrepreneur’s mission. The present discussion considers those aspects of resources concerned with work relationships within the company. (Those external to the company were discussed in the previous chapter on managing relationships.) The prudent entrepreneur emphasizes character traits when choosing a partner and hiring employees. (For discussion of these traits see Chapter 2.) The present discussion considers managing stability and change, selfassessment capability, past successes, and talents and interests. People can have varying reactions to the work environment. Whereas some people prefer a predictable, stable situation which is inherent in an established work routine, others enjoy the challenge of meeting and mastering new situations. The ability to deal with the new is a desired quality in an entrepreneur, especially during the start-up period of the business. Between these two extremes are various combinations of coexisting attitudes toward change and stability. People are open to change in some areas and maintain the status quo in other areas. Preferences for stability and change also vary with time and circumstance, so that what is desirable at one time may not be at another. Difficulties may arise when a person professes change on an intellectual level but resists it on an emotional level. In business, this conflict commonly occurs when an entrepreneur wants to change certain aspects of the company and yet behaves in ways that will only maintain the status quo. At times, coping with change is not an option. This often happens with

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changes in the economy, decreased need for the company’s product, loss of key personnel, and so on. Adapting to change in the workplace must often be done quickly to avoid disaster. Many a business has failed as a result of an inability to adapt to changes in a timely fashion in a company’s product or way of doing business. This inertia may be the product of fearing consequences or not knowing what to do. Commonly, in times of economic downturn, the discomfort involved in laying off valued employees becomes expressed in procrastination, which only magnifies the problem and invites bankruptcy. Whereas some people have difficulty coping with change, others cannot seem to maintain stability when it is needed. Example Eric and John were partners in a high-tech software business. While working on a program for operating a robotic machine in a machine tool plant, Eric ran into a difficult problem. Characteristically, when unable to solve the problem in what he considered a reasonable time (which was usually too short in John’s estimate) he would switch to doing something else. Because they had a deadline to meet, with John’s support, Eric was able to work through his frustration and stay focused on solving the problem that eluded him. They would have failed had John not been able to help Eric stay focused. Example An entrepreneur was trying to find a solution to a technical problem that prevented his launching an Internet company he was convinced would go big. Undaunted by his initial lack of success and even after considerable expenditure of energy, time, and money, he refused to give up and he continued to focus on the problem. His tenacity and single-mindedness ultimately cost him his business.

Adaptability is the ability to appropriately modify one’s behavior as required by changes in a given situation. Therefore, a person can be very open to change in some areas and very resistant in others. Self-confidence and past experience play a major role in the performance of this trait. In contrast, undesired consequences have an inhibiting effect that discourages adaptability. These conditions reflect the need to consider all influencing conditions when making an assessment of one’s adaptability to ensure that this capacity is not overlooked. The major consideration in the stability/change balance is the ability to shift from one to the other as circumstances warrant rather than to pursue stability or change for its own sake. Example An entrepreneur was a master at coping with problems. His business reached a level of success so comfortable that he became bored and began to create problems

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where none existed. Eventually, he recognized the need to develop the position of COO (chief operating officer) and devote his energies to issues that were more suited to his personality.

Basic to the survival of any company is its capacity to evaluate itself either through self-assessment or through information provided outside its system. This applies to all levels of business: individual, teams, departments, and the company as a whole. This self-evaluation enables the entrepreneur to take corrective action. The first step in self-evaluation is to ensure that the availability of information is followed by an adequate process for making an assessment. Also needed is a procedure for implementing needed changes. People vary as to how much input they can absorb at a given time independent of the source or value of the input. Too high a rate of feedback is threatening and will overload one’s capacity to process information constructively. Too much feedback on too many things at the same time can overload and undermines the stability in a person’s self-concept. With overload, the defensive system kicks in, which takes one or more forms of denial—attacking the source of information, defending one’s self, creating distractions to other subjects, and so on. Example An entrepreneur with a very strong sense of his own identity became increasingly bothered when given too much feedback by a consultant. The consultant made two mistakes. First, he missed the cues revealing that on overload was occurring, and second, he failed to provide an adequate balance between acknowledging the entrepreneur’s positive accomplishments and those areas that needed correction.

People vary in their ability to accept feedback. Some people need a lot of recognition for what they accomplish in order to take in a little criticism. But those who have a strong sense of their own competence prefer to focus on the critical feedback, although it is always helpful to get some positive feedback. The person who is giving feedback needs to show sensitivity to what is an appropriate balance in each situation. Another important consideration when one is giving feedback involves whether it is requested or whether it is volunteered. Requested feedback implies a person’s openness to receiving information. In contrast, volunteered feedback may or may not be welcomed, depending on the recipient’s state of mind and the nature of the relationship with the person providing the information. Some people can accept feedback better when it is written than when they hear it directly from the source. Written feedback, unlike verbal feedback, does not require an immediate response. Time to digest the feedback

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both cognitively and emotionally permits a response, which is not always possible when one has to react immediately to verbal information. COGNITIVE RESOURCES Cognitive resources include creativity, communication and cultural skills, past experiences, and talents. Cultural skills include social skills and knowledge of community norms and values; past experiences refer to learning gained from past events; and talents refer to any unique abilities that may be applied to one’s occupation. Examples include art talent, knowledge of photography, computers, history, or any other special knowledge. A company’s success depends largely on its greater creativity relative to that of its competition. This creativity is set in motion when the partners’ vision is brought to fruition through hiring creative people and providing an atmosphere that will allow their talents to flourish. It involves a physical environment and the tools that will allow the company’s mission to be accomplished and provide an emotional environment that will make it safe to explore ideas and resolve differences in a way that will be acceptable to all parties. Accomplishing the company’s mission also requires that people communicate with one another. The way entrepreneurs communicate their needs has an important impact on whether the company succeeds or fails, as does their ability to respectfully encourage and accept feedback from employees. Personnel Practices Personnel policies provide a blueprint for the entrepreneur’s relationship to employees that defines the benefits and ground rules for their relationship. (This topic is discussed further in Chapter 13.) When this is accomplished with employee participation, which defines an atmosphere that reflects flexibility, sensitivity to employee needs, and openness to feedback, the result will be a motivated work force. Examples of flexibility involve hours worked and the time vacations are taken. Sensitivity to employees enters in when allowance is made for time off for family crises and personal days, and when the work environment is made more comfortable through physical means (air quality, lighting, furnishings, etc.), when a place for coffee breaks and lunch is provided, and when a openness and a constructive response to suggestions and criticisms prevail. Authority Authority may be unidirectional (“Now hear this! This is the way things are to be done!”) or collaborative (“Here is what needs to get done. Let’s

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consider the best way to do it.”). The first method stifles communication; the second invites it. Authority, like any tool, can be used to advantage or become a source of problems. The wise entrepreneur learns how and when to use it to advantage. Code of Respect Management practices that show respect for employees’ intelligence, contributions, and feelings in turn yield respect for the employer. Critical feedback is best given in a private setting. Acknowledgment of significant contributions such as exceptional effort, creative contributions, and willingness to work extra hours or travel should be given as much attention as problematic behavior. Cooperative versus Competitive Climate Some entrepreneurs believe that an effective way to create a productive environment is to foster a cooperative atmosphere, whereas others believe that such an arrangement is best achieved through competition. The cooperative approach encourages and depends on open communication; the competitive one discourages open communication in service of gaining advantage over others. These approaches are not mutually exclusive. Each work situation should be evaluated to see which combination best suits the needs of the business. Learning from Observing the Natural Order of Communication Entrepreneurs do not always know the best way to foster desired communication to accomplish their objectives. Insight into how to approach the desired communication can be gained by observing the natural communication patterns that evolve among employees. Organizational structure defines communication channels through position and responsibility. What it does not take into account is how individual personalities enhance, impede, or circumvent this structure. People gain power in an organization through their personality and knowledge independent of their formal position. Executives will benefit from taking advantage of these observations and adapt their organizational structure to take advantage the unique relational resources of their employees. They should also be mindful that changes in staff will affect communication patterns. Oral versus Written Communication The advantages of oral communication are its immediacy and convenience. On the other hand, oral communication leads to speaking without

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adequate thought to what is said, and how it is said often results in undesirable consequences. It is also greatly subject to distortions in what is remembered after the fact. Attempts to resolve differences in recollection commonly lead to arguments and fractured relationships. Written communication, though less convenient than oral communication, provides the opportunity for careful thought of what is said. It also eliminates the recall problem and provides a permanent record. Written communication should be used to avoid distortions of memory and when documentation is needed. The down side is the time it takes to prepare and its failure to provide the potent non-verbal cues that are present in oral communication—facial expression, tone of voice, and body language. Restricted Channels of Communication Implicit, if not explicit, informal organizational structure creates lines of acceptable communication. Employee can place themselves at great risk if they attempt to communicate outside of prescribed channels. The way a company defines acceptable channels of communication should take into account how limiting these channels will impact the quality of the environment and work product. Physical Barriers The physical layout of the work environment impacts communication patterns, especially informal communication. The physical proximity of the work space enhances easy and quick communication. It also creates opportunities for casual conversations that enable people to get to know one another on an informal basis, which affects their work relationship. Work spaces that are far apart inhibit communication. Open work spaces invite visual and oral communication; at the same time, they are very distracting. Partitioned work spaces may interrupt visual communication, but they do not screen out auditory distractions. Offices with doors provide privacy and give freedom from sound and visual distraction. But separate offices also create communication barriers cementing status and power differentials. These barriers do not in and of themselves create problems, but they do reflect the larger work culture that defines them. Kind and Frequency of Meetings Meetings held in the workplace provide opportunities for exchange of information or points of view, decision making, or resolution of conflict. It is wasteful of resources to hold them solely to give information. When they foster open discussion without judgment, they encourage communi-

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cation. They have a reverse effect when they do not. The quality of meetings influences the kind of communication that they ultimately produce. They are a major vehicle through which management defines company values. (Chapter 13 contains a more detailed discussion on this topic.) Openness to Critical Feedback A company that encourages employee feedback benefits from the unique perspective that comes only from the experience of the people doing the jobs. Feedback also helps increase performance, and motivation, and satisfaction. A company that fails to take advantage of this resource not only loses part of its investment but also finds it difficult to retain employees and incurs the added cost of having to train new employees. Management of Reward and Punishment The way affirmation and disciplinary actions are managed also affects the quality of communication. Even-handed attention to affirming constructive contributions invites a positive response from employees and sets a model for employee relationships. In contrast, disciplinary action exercised in a disrespectful or biased manner has a deleterious impact on communication and company morale. Management of Performance Reviews Performance reviews, when conducted in a constructive manner, serve a useful purpose for both management and employees. Although firms commonly combine performance reviews with salary reviews, there is some benefit in separating performance issues from salary considerations inasmuch as one detracts from the other. While performance and salary are related, dealing with them separately permits full concentration on performance issues, without considering salary evaluation, which also warrants full attention. Dealing with them jointly reduces the likelihood that concerns about performance will gain the needed attention. Performance reviews are generally one-sided—management reviews the employee. But it makes just as much sense for employees to review management. Not only will this give management some constructive feedback, but it will also create an environment that fosters bilateral constructive communication. Workday Hours Businesses that operate around the clock (hotels, hospitals, restaurants, and factories) are especially vulnerable to communication problems among

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workers on different shifts unless adequate provision is made for communication. A common way of managing this problem is to have enough overlap between shifts to handle transition issues. Also needed is a procedure for managing communication between shifts when questions or crises arise that require immediate attention. E-mail Management E-mail has greatly aided communication, making communication both within and outside the company almost instantaneous. It should not be used, however, to avoid face-to-face meetings in uncomfortable situations. Nor should it be abused through improper use. Many companies find it necessary to monitor e-mail usage, which for the employee raises the specter of being watched by “big brother.” A policy for dealing with concerns about e-mail should also involve the participation of those who will be affected by it. Involving employees in the solution of problems will increase the probability of compliance and encourage mutual respect between management and employees. Communication Outside of the Company—Customers, Public, Competitors Both management and employees will benefit from a policy that outlines how employees should communicate in performing their job responsibilities outside the company. Employees who perform their duties in a knowledgeable and professional manner invite confidence in the company and its products. Management should also recognize that off-duty employees are informal public relations representatives of their company, whether they or management intend it. The way in which employees informally discuss their company or its products in the community can contribute to a company’s good will. It is in the company’s interest to utilize this resource. This is accomplished by treating employees respectfully and encouraging and acknowledging their knowledge of the company’s philosophy and products. The Cultural Context As part of an increasingly multicultural society, U.S. firms must be ever sensitive to the way cultural backgrounds affect the work environment. Today, the workplace encompasses people from many different cultures, especially Hispanics and Asians. Every entrepreneur should attempt to understand varying cultural backgrounds, with their attendant value systems, and learn how to be respectful of them, consistent with achieving positive work relationships. The challenge in managing diversity is to create a value system in the workplace that is compatible with company and employee

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value systems. This is accomplished in various ways: providing opportunities for employees to know about one another’s cultures, being respectful of religious and cultural events of other cultures, providing adequate support for those employees who are not adequately familiar with English or colloquial expressions, and actively enforcing anti-discriminatory policies. Establishing rapport is determined largely by the ability of executives to employ language that makes employees feel both comfortable and energized. They should also be familiar with the language styles of the day within the general culture, especially when ethnic groups live in a homogeneous enclave or have recently emigrated to this country. A good example involves the use of profanity. Many people use profane language freely, while others are offended by it. Negotiating appropriate standards in the workplace will contribute to a congenial work environment for all. One’s unique value system or ethnic background often influences one’s comfort level with certain topics. Executives should therefore determine appropriate boundaries for discussion as they affect the work product. A clue to these comfort levels is gained by becoming sensitive to both verbal and non-verbal signals regarding topics that seem disturbing or confusing to employees. Verbal clues include the following: employees who ignore other employees’ complaints about a topic under discussion—profanity, off-color jokes, teasing, and scapegoating. Non-verbal clues include facial expressions that show disapproval or discomfort, employees becoming fidgety, increased need to go for drinks or to the restroom, and appearing distracted from their work. Tolerating these behaviors implies permission and will negatively affect productivity and morale. Executives should understand yet another form of language: the use of gestures different from their own. People of markedly different ethnic backgrounds do not easily develop comfortable working relationships. For example, most businesspeople with a Mediterranean background make liberal use of gestures and emotions and so experience some difficulty when working with a conservative New Englander whose culture frowns on the use of gesture and emotion in speaking. Another area that presents difficulty is physical contact. In some cultures, touching and hugging are a powerful way to give support or show caring. Generally, in the American workplace they are considered inappropriate. Indeed, they can lead to serious legal difficulty, since such behavior can be viewed as sexual harassment. Developing a policy in partnership with employees will likely eliminate this problem. Another factor in achieving a comfort level in communication is physical distance between people. Here the results of a group exercise are most revealing. In this exercise, two people stand at opposite ends of a room and are asked to approach each other and to stop at the point where they begin to feel uncomfortable. The results can vary greatly. Some people may stop at six or seven feet; others may come within a foot of each other.

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People of Mediterranean extraction can be comfortable even “nose-tonose,” but the more common distance is three or four feet. Modeling is a mechanism for self-assessment whereby one person seeks to incorporate the attractive aspects of another person’s behavior. Modeling also occurs when information is needed about how to behave in a new situation. Learning from modeling starts in childhood and continues throughout adulthood. Employees’ adjustment to new work situations is facilitated by their review of models they experienced in previous work situations. With regard to negative models, permitting an employee to get away with inappropriate behavior will implicitly condone it and invite the same behavior from others. The world of advertising makes great use of modeling, as witnessed by the virtual bombardment of the airwaves with sales pitches by successful people, especially from the movies and sports world. Modeling issues can be a potent force in both positive and negative ways. In other situations, they become more complicated. The entrepreneur who models one pattern of behavior—work habits, respect for others, level of decision—and demands a different pattern of behavior from employees is inviting problems. Modeling may be at a conscious or unconscious level. It is at an unconscious level that people modify their behavior to conform to that around them without conscious awareness of what they are doing. This often occurs when a new person comes aboard. The commonly used expression “Getting the lay of the land” in part has to do with looking for which models to follow without consciously thinking about it. Conscious modeling, on the other hand, occurs when people in an unfamiliar situation model the behavior of those around them. This is often the situation when one is in a foreign country, starts a new job, or joins a new organization. Conscious modeling is also a way to manipulate a situation, as when an employee is chastised for inappropriate behavior, such as violating company policy and the defense is, “The boss does it, so why can’t I?” As noted earlier, entrepreneurs seek to make their vision reality by drawing from familiar resources: finances, staffing, marketing, and so on. One resource that is often overlooked is the learning that comes from past successes and failures. A systematic review of past experience provides useful clues to information and skills that often are lost under the pressure of new events. One should not presume that the learning of past experience will naturally rise to the surface when needed. Example An entrepreneur was struggling with a new venture, and his consultant suggested that he review what he had learned from his past experiences. At first, he resisted; that knowledge, he said, was at his fingertips. After further urging, he agreed to do

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a review of his previous ventures and was surprised by what he had forgotten about these experiences. Sometimes we forget that the greatest learning comes from our mistakes. Despite his reluctance, he gained some insights that proved helpful in his present situation.

Another hidden resource comes from discovery of employee talents, skills, and interests that on the surface seem totally unrelated to their work—academic interests, sports, arts, leadership ability, organizational activities, music, hobbies, and politics. Example An entrepreneur was trying to develop promotional material but had only limited funds. As she thought about her problem she noticed a brochure on her desk announcing a company picnic. The brochure was very creative, and she was pleasantly surprised to discover that one of her employees was a skilled artist. She was able to utilize her employee’s talents, which ultimately led to a new job description for him. In another case, an entrepreneur discovered that one of his employees was politically well connected and could put him in contact with a person he had been unsuccessful in meeting. With his employee’s help, the entrepreneur made the needed contacts. In both cases, the entrepreneurs were able to take advantage of unexpected resources among their employees. As a result of these experiences, both entrepreneurs incorporated in their hiring process and performance reviews the interests and experiences of employees that could be tapped for use in the business.

EMOTIONAL RESOURCES Emotional resources include empathic ability, access to feelings and the ability to express them in appropriate ways, and the capacity to deal with the stresses associated with today’s business world. One’s capacity for empathy—the ability to appreciate how another person thinks, feels, or behaves—is an important ingredient in good relationships. To have empathy does not imply agreement, nor is it synonymous with sympathy, whereby one feels sorry for the plight of another person but may not have any appreciation for what it is like to have that feeling. A manager who disciplines an employee to appease his own frustrations without adequate empathy for the employee’s feelings is contributing to a difficult work relationship. The manager who can show empathy under these circumstances is better able to exercise discipline that both discourages the undesired behavior and builds a relationship of mutual respect. The pressures of doing business and the differences that arise among people in doing their jobs create stress. Stress can either mobilize or inhibit desired behavior. Too little stress can lead to complacency; too much can produce immobilization. In between, stress is a motivating influence. The entrepreneur should develop ways to remain sensitive to the stress level in

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the company and to promptly take appropriate measures when it becomes a problem. Disruptive stress can be minimized by treating employees respectfully, considering mistakes an opportunity for learning, maintaining realistic expectations, acknowledging contributions, and initiating a constructive process for helping people deal with conflict. MATERIAL RESOURCES Providing a workplace that shows consideration for the quality of the work environment communicates to employees that their needs are important and invites a positive attitude to their work. Among these material resources are adequate lighting and work space, good air quality, minimal noise levels, and the necessary tools for performing the job. Attention to minimizing stress in the work environment also contributes to healthy work relationships. This includes access to computers and faxes, and a physical layout that provides easy communication among people who have to frequently communicate with one another. ORGANIZATIONAL RESOURCES No self-respecting organization would neglect to publish its organizational chart, which tells at a glance how the company functions. This chart is limited, however, for they do not take into account the uniqueness of the people who hold these positions. The actual operating heart of a company is its informal organization. It reflects how things really happen, and it shows how the talents of the people involved are responsible for whatever occurs in a firm. On paper, the entrepreneur, or in the case of an established organization the CEO or COO, runs the company, but the chart does not begin to show how this happens. Theoretically, the boss’s secretary has no power. In practice, given the right kind of personality, he or she may wield a great deal of power. A person in this position is often the gatekeeper for the boss, ultimately deciding whom the boss sees and what information comes across the boss’s desk. Executives delegate a lot of responsibility to their secretaries, thereby giving these people considerable power in the eyes of other employees. Frequently, some employees command a lot of respect and power, yet hold little or no position of power. They may not even appear on the organizational chart. Instead, their power derives from their knowledge, experience, personal relationships, or maturity. Commonly heard in firms is the comment, “If you have a problem talk to X.” People in power often turn for advice to others in their companies. These consultants have considerable influence over what happens in a company both because of their advisory position and because this influences the way others regard what these consultants have to say, even though they have no formal authority.

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Every business requires the simultaneous performance of tasks such as managing income and expenses, producing goods, marketing, building, and maintenance. The priority that executives give to these needs and their role in determining a division of labor have much to do with the likelihood of the business’s success. Division of labor is not a static process; indeed what is useful at startup will have to adapt to changing circumstances through periodic review of the division of labor rather than waiting for problems to develop. This process is facilitated by encouraging input from employees and is accomplished through their formal involvement in the process, such as through participation on a committee. Informally, it is accomplished by encouraging feedback. Some companies have suggestion boxes and award bonuses for valuable suggestions. Defining personnel practices is a major consideration for any company. Basic to this definition is operational clarity of the objective to be accomplished. The message entrepreneurs want to give about their company to employees is a significant determinant of how personnel policies are defined, as was described earlier. The message may range from “You are valued and to be successful we are all in this together” to “I’m interested in giving as little as possible to get the job done.” What responsibility should an employer assume for the welfare of employees? Over the years, this responsibility has come to include health benefits and some combination of vacation and sick leave benefits. Each company individually defines the extent of these benefits based in part on its financial resources and in part on its value system and the message it chooses to give its employees. Companies have developed various ways to minimize these costs by having employees share the cost and by using parttime employees or using contractors. Some companies combine vacation, sick leave, and personal time into a lump sum and allow employees to draw on this time in whatever way they chose. This system is attractive for all concerned: it is easier for administrative management and it gives flexibility to employees. Most established companies offer insurance (life and disability) and retirement programs. Participation in retirement programs usually requires the vesting of the employee; that is, employees must work for a certain number of years before they can become eligible to participate. Many companies also provide personal days and bereavement leaves, and in 1993 Congress added its imprint by passing the parental leave bill for companies with 50 or more employees. These benefits are important contributions to employee morale and commitment. Another significant part of personnel practices is the management of performance and salary reviews. Morale suffers when these reviews are treated casually or when they are not done in a timely fashion. Delays in conducting these reviews without acknowledging the need to do so to employ-

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ees and designating when they will occur undermines confidence in management and lowers morale. Certain rituals mark the transition from one stage of development to another. In the business environment, rituals are used to acknowledge and encourage a company’s commitment to improved performance. These rituals, in the form of ceremonies to acknowledge achievements, retreats, and retirement and Christmas parties, encourage camaraderie and enhance morale. Some companies acknowledge birthdays and anniversaries by formally noting them at staff meetings, in newsletters, or with cards. Acknowledgment of personal milestones is another way to enhance morale and create an atmosphere in which employees are not taken for granted. There are two interdependent aspects of any business—financial viability and the ability to function effectively as a unit. Companies conduct regular financial audits, ranging from quarterly to annually. Under certain circumstances, certified audits are required to independently verify the validity of income and expenses. The purpose of all of these measures is to ensure the financial viability of the company. It would also make sense to conduct a human resources audit in parallel to the financial audit. In this way a regular review of how a company is functioning as a unit could be conducted in the same manner that a financial audit reviews the management of finances. The human resources audit can identify areas of strength and, most importantly, identify areas with incipient problems and with need. An organizational consultant does for human resources what the accountant does on the financial side: interviewing people, observing staff meetings, interviewing customers, and providing an evaluation of the overall social health of the company’s human resources.

Chapter 7

The Use and Abuse of Power APPLICATION OF POWER Power, the ability to influence the thinking and behavior of another, directly or indirectly, is a basic ingredient of any business. There are three areas of application in a business: between partners, between executives and employees, and between executives and the outside world—banks, lawyers, customers, government agencies, and more. Between Partners Attempts to influence within an active partnership take one of three forms: competitive, collaborative, and dominant/subordinate. Competitive In a competitive partnership the partners are always seeking to outdo or upstage each other. This can be an asset when the partners have equal competence and self-confidence and when they regularly prevail over one another. They enjoy their competitiveness and appreciate the benefits that derive from it. The competitive relationship becomes a problem when one partner upsets the balance of parity, resulting in that partner becoming more influential over time. Inability to redefine their relationship ultimately threatens the viability of the partnership. Collaborative In the collaborative partnership, the emphasis is on how well they work together and what they are jointly able to achieve. This works well as long as both partners feel they are each carrying their own weight.

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Problems develop in this relationship if one of the partners feels that he is carrying too much of the load and an acceptable resolution is missing. Added difficulty will occur if one of them needs more personal recognition over time. This is likely to shift the partnership to a competitive mode, which is unlikely to be suitable for either of them. Dominant/Subordinate In this form, the partners recognize the complementarity of their contributions and are comfortable with one partner being the more dominant one. This arrangement works when it takes advantage of their personalities and the partners are comfortable that there is parity in dealing with one another. As problems develop, the dominant partner takes advantage of his position and uses it to the disadvantage of his partner. This will shift the partnership to a competitive mode, which is likely to become adversarial and threaten the partnership if they are not able to redefine the nature of their partnership. Between Executives and Employees A major part of entrepreneurs’ attention is devoted to influencing their employees to think and behave in ways desired by the executives. They use a range of incentives and discipline to accomplish their goals, including bonuses, perks, benefits, promotions, flattery, and more. Executives get into trouble when they lose touch with how their efforts to influence are received. This occurs when promises are not kept or when employees feel mistreated. The result is mistrust and diminished ability to influence in a constructive way. Employees’ major source of influence is the contribution they make to the company and the resulting expectation that their contributions will be duly rewarded—both financially and through promotion. The seeds of discontent are sown when there are no rewards or when employees are offended by company policies they consider unfair. When employee dissatisfaction generalizes to others, together they are able to exercise the ultimate option of striking to get the needed consideration from their employers. Executives and the Outside World Success in business depends largely on a company’s ability to influence the outside world on the merit of its product or service. This is initially accomplished through marketing, which is supported by the product or service delivering what is promised. Banks make loans when a business is able to promote its viability. This influence is quickly lost if the business

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fails to follow through on its obligations in a timely way. A key ingredient to an executive’s success is to understand the use of power. Power is a statement about one aspect of a relationship between two people or entities (P/Es). No one can take power; rather, it is given when one P/E accepts influence from another one. The exception is physical or emotional coercion. Physical coercion is the threat of physical harm with no available alternative, whereas emotional coercion occurs when negative treatment is tolerated to avoid negative consequences—for example, being fired. A current case in point is sexual harassment. A manager attempts to seek sexual favors from a subordinate. The subordinate can either succumb or face the risk of losing his or her job, or at least incur the prospect of paying in some other form—demotion, an unfavorable performance review, undesirable assignments, and the like. None of these is acceptable, especially when it is based on merit. The alternative of being a whistleblower, as a means of self-protection, is equally unsatisfactory for some employees because doing so may backfire and lead to loss of the job. The ultimate option is legal recourse, which is emotionally very draining, potentially very expensive depending on making arrangements with lawyers, time consuming, and runs the risk of affecting future job opportunities. Prospective employers may be reluctant to employ someone involved in a sexual harassment suit. Nevertheless, the law requires that sexual harassment be reported. It is the responsibility of companies to provide a safe environment for employees to report sexual harassment. The exercise of power in business is a two-way street. Entrepreneurs and their employees may exert influence over one another. There are a number of ways for an entrepreneur/boss to exercise power. DIRECT WAYS TO EXERCISE POWER Legitimate by Agreement and Acknowledged The power to influence is openly recognized and accepted by those who are subject to it. CEOs, managers, supervisors, police, elected officials, and parents all have one thing in common: they wield a great deal of influence. Employees accept the influence of their supervisors and managers on their behavior in return for having a job. The same is true of the community, which cedes certain areas of control to elected officials for leadership and to the police for their protection. People delegate power to authority figures in return for safety, economic gain, or other needed services they cannot provide on their own. By Virtue of Expertise Possession of needed expertise is a way to gain power. Familiar examples are doctors, lawyers, plumbers, and auto mechanics. But expertise alone is

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not sufficient to gain power. Also needed is the ability to communicate the expertise to invite a constructive response. Doctors who are arrogant, insensitive, or unable to relate to patients will not have patients for long. Entrepreneurs who have great expertise but are combative and insensitive will not be able to recruit the people they need to accomplish their vision. Through Expectations Expectations influence behavior when the recipients respect the person defining them or when they are dependent on the definer. Employees are motivated to meet deadlines when they respect their boss and the boss’s vision but not when they are unhappy in their work. Their dissatisfaction is inevitably expressed in diminished performance, intentionally or unintentionally. Even unhappy employees can be coerced into meeting expectations when they must on their job, but they are likely to do no more than is necessary. Through the Capacity to Grant Rewards A P/E will be rewarded when that person behaves as required. The rewards may take many forms: approval, money, perks, promotions, favorable reviews, or recommendations. The degree of power one gains from granting rewards depends on variables such as the size of the reward, clarity in the conditions that warrant a reward, the time it is given, whether it is related to a single event or the behavior is required to occur over a period of time, and the status attached to receiving a reward. Size of the Reward A reward has influence when it is commensurate with what it takes to earn it. A salesperson will work hard to meet quota when the attached bonus is sufficiently attractive. A reward deemed too low for required performance will have little or negative impact. Ambiguity The greater the ambiguity, the less influence the reward will have. Example Sarah, an employee in a marketing department, was told she would get a bonus if she did a good job. She grew apprehensive, however, when her questions about what constituted a good job and on what basis her bonus would be determined, received the response, “Just do a good job. You can trust that we will do right by you.”

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When Given Enthusiasm about a stellar performance is enhanced when the elapsed time between earning and actually receiving the bonus is short. The issue becomes more problematic if a delay is unexpected and raises questions of trust.

Related to a Single Event Rewards that are based on combinations of events or a frequent repetition of the same event begin to lose influence when employees begin to doubt that they will be able to sustain the desired performance. Example Eric was a software engineer in a biotechnology start-up company who had prior experience in marketing and sales. The company was pressed for staff and offered him a handsome bonus if he would temporarily manage marketing and sales until the company was able to find suitable people for these positions. He was willing to undertake this formidable assignment for a short period but wasn’t sure how long he would be able to do so.

Behavior over a Period of Time The length of time a required behavior is expected needs to be commensurate with the reward to have an influence on behavior. Example Larry, a sales representative, was offered a job that paid commissions quarterly. He liked the job but felt that three months was too long to wait to get paid, so he refused the job.

Status Attached to Reward A reward is influential to the degree that earning it has a valued status. Example Susan was employed at an ad agency, but she accepted a job at a larger, more prestigious agency at a lower salary because she felt the status of working for that agency would enhance her career.

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Certainty of Reward It is hard to generate enthusiasm for a prospective pay raise when there is uncertainty as to whether the required performance will yield the desired result. Example Don was working for a start-up biotechnology company. He was offered a large bonus when it went public if he put in the needed effort to get their product ready for the offering. He had too many doubts about the company’s viability to take the risk. Deciding that the offer had an air of exploitation about it, he decided to look for another job.

Capacity to Punish/Discipline Inflicting pain (through rejection, deprivation, humiliation, guilt, loss of status, or withholding benefits) for failure to perform as required is a compelling source of influence. A distinction should be made here between punishment and discipline, which often are treated as synonymous. On the contrary, they are inherently different. Punishment stems from the need to retaliate for felt injury or injustice, whereas discipline educates one in desirable behavior. Whether a given behavior is experienced as discipline or as punishment has to be considered separately for both the person imposing the behavior and for its recipient. The person who imposes the behavior may intend it as discipline, but it may be experienced as punishment. The same is possible in reverse. The person imposing the behavior may intend it as punishment, but it is experienced as discipline. A speaker cannot ensure that the intent will be heard in the desired manner. Entrepreneurs who want to discipline employees should remember that their intent may be experienced as punishment. They should understand that they don’t control how another person experiences their behavior. If they don’t get an appropriate response to what they consider discipline, they should first review whether their method of expression could reasonably be considered punishment. Second, they should inquire how their message was perceived and use this feedback to correct any misperception. Also to be considered is that recipients of disciplinary efforts may, for their own reasons, only be able to experience what they are told as punishment. An example of this is the person who feels guilty about his behavior and hears corrective efforts as deserved punishment. To hear the effort as disciplinary would ignore accountability for the felt misdeed. Discipline involves corrective action, and achieving a change in behavior depends on the ability to learn from experience. Consider the employee who makes a mistake. A disciplinary move would show the employee the error of her ways and point out how she would avoid repeating it. A pun-

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ishing move would be to insult her lack of intelligence or fine her for her error. This punishment would be magnified if expressed in front of other people. Punitive behavior invites negative learning and retaliation. Example Jack, a partner in a biotechnology company, was furious when he discovered the costly mistake made by his subordinate. His fury exploded in a demeaning tirade delivered in front of other employees. Once his fury was spent, he realized that he had handled the situation badly and that the mistake was based simply on his subordinate’s lack of experience. After apologizing for his outburst, he guided his subordinate in understanding why he made the mistake and showed him how it should have been managed.

Possession of Needed Resources Possessing or having access to resources that another P/E needs is a source of power. Example Jim and Joe, partners with a history of various successful business ventures, were intrigued by a new concept for restaurants. Since they had no experience in running restaurants, they found an experienced manager, Felix, who possessed all of the needed qualifications to run the businesses. Although Felix asked for more salary and equity than they wanted to give him, they finally acceded because he had the expertise they lacked.

Expression of Affect—Intense Anger, Love, Anxiety, Depression Tears and anger are effective ways to gain power when people are vulnerable to this expression of affect. The same can be said for other emotions, especially love, anxiety, and depression. Intensity of love has caused people to lose fortunes, betray their country, commit murder—or even give up a throne. Anxiety and depression influence the way people think, feel, and behave. Example A very creative scientist who was vital to the success of a business created havoc when he burst into anger when things didn’t go his way. His behavior was tolerated because of the key role he played in the company. His outbursts even occurred when he didn’t meet his own unrealistic expectations. He was helped to be more realistic in setting expectations, and management was consulted on the part it played in how he set expectations. It was helpful to correct management’s misperception that all his anger was directed at his colleagues.

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Use of Guilt A common stereotype in the ethnic literature is that of mothers who use guilt to achieve desired behavior in their offspring. When reasoning and pleading fail, guilt is called to the rescue to get the other person to feel obligated to behave as desired to make up for a felt misdeed. Example Two partners in a manufacturing business, Sam and Dennis, were discussing what year-end bonus to take for themselves. Sam felt they should take the usual 50/50 split. Dennis disagreed. He felt the split should be 60/40 in his favor since he had worked substantially more hours than Sam. Sam disagreed but eventually went along with this judgment because he felt guilty that he hadn’t put in more time.

Shame Shame becomes an issue when criticism about a particular behavior is generalized to a judgment about the person. Example In a performance review, Sam, a supervisor, criticized Alex, a subordinate, for challenging a customer’s honesty. He told Alex that this was evidence that Alex was too immature to relate to customers.

Shame develops from within people or is accepted from other people’s judgment that they deserve the reprimand. In the preceding example, Sam imposed shame on Alex, who accepted his judgment, which led to Alex berating himself for his inappropriate behavior. Had he been more sure of himself, Alex would have been angry at Sam for attacking his personhood instead of confining his remarks to the inappropriate behavior. Obligation An obligation is a moral requirement (duty, contract, or promise) that formally compels one to follow or avoid a particular course of action; it is something owed as payment or in return for a special service or favor. Informally, it involves feeling indebted to another for a special service or a favor received. It may also involve the attempt by one person to impose an obligation on another. A favor done one day carries the presumption of reciprocity. This concept is a commonly used tool in politics, “You scratch my back, and I’ll scratch yours.” The same idea occurs in the work situation.

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Example Fred and Jack were partners in a service business. Fred had covered for Jack on a number of occasions. But when Fred asked Jack to cover for him, Jack was unable to do so because of other commitments. Fred felt betrayed; he couldn’t understand why Jack would let him down. Fred felt Jack “owed” him and he presumed that his priorities should prevail. He viewed the rejection as evidence of an uncaring attitude and was unable to separate willingness to reciprocate from conflicting commitments.

Although both guilt and obligation touch on a commitment to another person, they differ in that guilt derives from a remorseful awareness of having done something wrong, while obligation is based on a reciprocal exchange of deeds. Blaming Blaming occurs when one person holds another responsible for an action or lack of it. Blaming enables the accuser to avoid his or her own responsibility. It becomes a powerful tool when it triggers insecurity and guilt in the recipient of the blame; it fails when it arouses a hostile response. INDIRECT WAYS OF EXERTING POWER Indirect methods of accomplishing influence are more subtle than direct means because they are expressed by not acting or by acting indirectly. They can be expressed in both constructive or destructive ways. The constructive ways include the following. Not Providing Answers Some employees find it is easier to ask for help than to trust their own creative process. Entrepreneurs thrive through their own creativity, and they encourage and seek to stimulate it in their employees by educating them in the balance between when to pursue finding their own solutions and when to ask for help. A useful rule of thumb for employees is to ask for help only after they have exhausted their own resources. Asking for answers too quickly breeds dependence and lack of confidence in the employee. Guided Learning The entrepreneur guides the thought process of employees through leading questions instead of providing answers, thereby stimulating their original thinking and enhancing self-confidence.

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Example John related to his subordinate, Karen, by asking her to describe the problem for which she was seeking help. He told her how to solve the problem and sent her on her way. Another supervisor, Dick, listened to his subordinate, Carl, report a problem and engaged him in a series of questions and answers until Carl realized the answer to his problem. Karen and Carl had quite different reactions to the style of their respective supervisors. Karen was satisfied she got the answer she needed but didn’t feel she learned much beyond that. Carl felt his supervisor’s series of questions left him feeling that he had discovered his own answer. Most of all he felt he had learned a great deal from the process, which gave him a boost in his confidence.

Admiration of Behavior in Others This method involves using the behavior of others as a model. It can be a double-edged sword: constructive when it gets heard as an example of what is desired and a problem when it is heard as veiled criticism. Comments Made to a Third Party Most commonly, these comments are conveyed through formal recommendations, but they can be equally powerful when delivered informally. The value of a third-party commentary depends on the credibility the person’s reputation carries. Example Stuart and John, partners in a software business, disagreed on acquiring a related company. John thought it would be a good move, but Stuart strongly disagreed. He felt the new acquisition would eat up all their cash resources and put them in a very precarious position should an unexpected crisis occur. Adding to his anxiety was his uncertainty that the gain would be worth the risk. After repeated discussion, Stuart realized he wasn’t going to be able to get John to pay attention to his concerns. To verify his opinion, he consulted their accountant who promptly agreed with him. John accepted Stuart’s suggestion that they run his proposal through their accountant, and in their joint meeting John readily accepted information from the accountant that he wasn’t able to accept from Stuart. Stuart was very relieved but angry that John couldn’t accept the information from him.

Destructive methods include silence, indifference, incompetence, and obstruction. Silence Silence as a response to another’s effort to communicate may have profound effects on the quality of a relationship. The only way communicators

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have to interpret the response of silence to their message is their assumption as to why it is occurring. Possibilities include the possibility that the recipient didn’t hear the message, is angry and not responding, doesn’t understand the message, needs time to think about it, and isn’t interested in responding. Being able to determine which possibility applies in a given situation significantly improves the quality of communication. Silence complicates the communication process when the anger it produces leaves the sender of the communication feeling invisible, demeaned, or frustrated. With silence, the original message is overshadowed by the reaction of getting no response. This is the case when the employee ignores the boss’s request, the boss ignores the employee’s request for a raise, the letter doesn’t get answered, and so on. Sometimes people resolve conflict by an emotional cutoff—they stop talking to one another. Example Two partners, Peter and Harold, had a major argument and stopped talking to one another. They communicated through their secretary and bookkeeper. It would have been comical were it not for the serious impact on the business. It took a crisis to break the impasse. When the awkward communication almost lost them a major contract, they changed their communication style.

Indifference Indifference protects against showing true feelings or interests. One strategy in a business negotiation is for entrepreneurs to keep the opposition from knowing their priorities by showing little interest or even indifference to proposals that might later be acceptable. Indifference is also a way to deal with vulnerability. It is commonplace for people to tease one another, whether in the office or on the golf course. The inclination to tease is reinforced when recipients reveal their vulnerability by showing embarrassment or mild annoyance. Indifference is one way to discourage teasing. Indifference can also express hostility by not valuing what somebody else cares about. Example Two partners, Evan and Stuart, met to decide how to resolve a problem with a supplier. Even though Stuart was angry at Evan’s superior manner in the discussion, he didn’t deal with his feelings directly. Instead, Stuart reacted by seeming indifferent to Evan’s suggestions even when they made sense. Stuart had more appropriate responses at a later meeting when they were able to converse in a more appropriate manner.

Incompetence Putting in an incompetent performance is a way to avoid undesirable tasks, particularly when the pressure for time and quality work is critical.

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Example John, an employee in a marketing company, was asked to do some cold calling, which he abhorred and for which he had few skills. The combination of distaste and poor skills led to an incompetent performance which eventually relieved him from ever having to do it again. Although he didn’t get fired he lost the respect of his colleagues for his behavior.

Performing incompetently in a job that is important to another person is an indirect way to express hostility toward a co-worker. Example Sarah, an employee in a box factory, was asked to switch from a satisfying job of dealing with customers to processing payables, which she did not like. Despite her protests, she was transferred. She expressed her hostility by turning in a performance that ultimately got her transferred back to her original job. Alice, the worker assigned to replace Sarah, was angered at having to replace a worker she suspected had manipulated the whole situation.

Obstruction Obstruction is accomplished by withholding needed approval or resources, introducing distractions, negatively influencing others, and undoing what has been done. In the realm of politics, the president of the United States can prevent a congressional bill from being passed by not signing it while Congress is not in session, thus preventing their having an opportunity to override his veto. This is referred to as a pocket veto and is an example of obstruction. Example Charles, a manufacturer’s representative of toys, asked his manager, Sam, for approval to go to management with an idea for a new line of toys. Sam said he would consider it and get back to him. Sam felt threatened by Charles’s idea and believed that, as the supervisor, he should have originated the idea. He kept putting Charles off with various excuses and questions until eventually he suggested the idea his own.

Distraction Distraction becomes a convenient way to influence when there is the need to postpone dealing with an issue or trying to avoid addressing it.

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Example Ted, who ran a travel agency, wanted to introduce a new procedure that was unpopular with his employees. They managed to delay the implementation of his plan by distracting him with a series of other higher priority issues that needed attention.

Negatively influencing how other people feel or act is yet another effective act of obstruction. Example Howard, a manager in a large printing company, proposed a change in the way orders were processed to his CEO. Other managers objected to this change because of the negative impact on their departments. After lobbying the CEO about why they thought the proposed project would be a problem for the company, the managers got the project rejected.

COMBINING TYPES OF POWER The aforementioned ways of achieving influence over the behavior of others depends on the ability to apply one or more of these methods. Each one varies in its degree of potency, depending on the circumstances of a particular situation. Added impact is gained when they are used in combination. Direct forms of exerting power are usually more potent. Indirect forms are more likely to be useful when there is a problem in implementing direct forms. Example Sally, an entrepreneur, called in a consultant for help on a problem she was having with her employees. The consultation helped her recognize that she did not appropriately acknowledge satisfactory performance. She came across to her workers as punitive rather than willing to educate when mistakes were made, and she had trouble following through on her commitments to staff. From her discussion with the consultant about ways to influence behavior, she concluded that a good strategy would include being sensitive in the way she spoke, inspiring through appropriate rewards, never reacting with punishment, using discipline to correct mistakes, and always responding in a forthright manner. She also concluded that it was best to promptly address any problems related to indirect efforts to influence.

THE POWER OF EMPLOYEES Through Initiative Employees gain power through initiative. In this way they contribute to the growth of the business and invite favorable reviews. Their impact will

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be enhanced to the degree that they can approach becoming valued employees. Example Louis was a valued senior employee of a service company who worked for John, who avoided upgrading his outdated computer system. Then John didn’t want to go through the hassle and cost of getting a new system on line and wanted to avoid all of the inconvenience and confusion he suspected went with it. When the decision was finally made to upgrade the computer system, no one in senior management was interested in taking on a thankless and time-consuming job. In contrast, Louis, who was comfortable with computers, saw this as an opportunity and volunteered for the project. His offer was accepted and he became the in-house expert being given charge of all computer matters. The results for Louis were better compensation, more responsibility, and greater influence in business decisions.

Representation of the Company Employees also exert influence in the way they represent the company. Today, attention to employee–customer relations seems to get low priority: witness the too frequent instances of the surly waiter and the rude customer service representatives. Employees can contribute to the company’s reputation by showing interest and enthusiasm for the company’s product and giving attention to customer concerns. This will happen only when they feel considered in the same way a company expects them to treat customers. Example Sarah, manager of a customer relations department in a large clothing company, began to receive a series of complaints from irate customers about the rude and poor service they were receiving. Her problem became worse when the complaints came to the attention of the vice president of marketing who called her to account for it. Sarah’s investigation revealed that one of the supervisors was being rude and disrespectful to her employees. Her findings resulted in instituting a training program for customer relations staff and a procedure to ensure that customer complaints were being properly addressed.

Informal Representation Employees represent their companies even when they are off the job—in their neighborhood, church or synagogue, or club. Informal conversations provide just one opportunity to present one’s employer in a positive or negative light; they are particularly important when a business depends on referrals by word of mouth. Employees have a unique opportunity to advance their company when they serve as representatives on chambers of commerce, trade organizations, and charity fund-raising groups.

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In Times of Crisis Employees can also gain influence and power during times of crises and deadlines, which are a frequent part of doing business. At such times employees may be asked or even expected to work longer hours or to travel— in short, to interrupt their private lives and miss a child’s soccer game, or dance recital, or family vacation. An employee who develops a reputation as someone who can be counted on in a crisis soon gains influence with his employer. Commitment to the Company Employees who demonstrate commitment to a company by being willing to undertake any task asked of them—whether it be travel, overtime, or a new or difficult job—become valued assets to their company. The wise entrepreneur will make a point of creating an environment that fosters this commitment and recognizes that it needs to be reciprocal.

Chapter 8

Decision Making and Conflict Management Making joint decisions is fundamental to a successful business and is accomplished through negotiation. A negotiation is the product of content and process through which agreement is reached. When executives enter a negotiation well prepared with appropriate content, a respectful attitude toward one another, the objective of a mutually acceptable solution, and guidelines for how to conduct the negotiation, the outcome is likely to be constructive and satisfying. If this is not the case and frustrations are permitted to be expressed in insults and personal attacks, the outcome will be very different. Process refers to the mechanics of how a negotiation is conducted and the way in which the participants involved interact with one another. Differences in points of view are a natural part of being in business relationships. Seeking a satisfactory resolution to disagreements is the first step toward resolution. Inability to reach an agreement becomes a conflict when the parties involved are unable to find a resolution. This chapter focuses on the decision-making process in business relationships, the negotiation process involved in resolving differences, and the conflict resolution process used when an impasse is reached. .

THE DECISION-MAKING PROCESS It is not possible to avoid making a decision, for any behavior or lack of behavior signifies a decision. Usually, decisions are made in some overt fashion—“I agree . . . will buy . . . reject . . . disagree . . .” Covert decision making is more subtle and it comes in various forms: lack of response, procrastination, avoidance, criticism, non-participation, and so on. Covert

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decisions occur when people take action before they are aware of the decision implied in their behavior. Example Jacob did not realize that by keeping silent about Sam’s decision to buy a new company truck, he gave the impression of agreement.

Reaching Agreement That a Decision Needs to Be Made Daily behavior requires making a constant stream of decisions at various levels ranging from the routine to major life-defining events. These include: • Routine daily tasks: calling a meeting, making phone calls, and so on • Decisions that affect health and safety • Decisions about work and social relationships, work schedules, and more • Decisions that affect work performance, career success, or coping with threatening situations of one sort or another • Decisions that have major impact on lifestyle: leaving a job or a significant relationship, moving to another city

Partners need to decide which decisions they make unilaterally and which ones require joint decision making. They also need to define the criteria to be used in making joint decisions that affect the partnership. Commonly used items include expenditures beyond a certain amount, hiring and firing, and consultation on anything that has the potential for changing company policy or goals. Decisions are usually made on their merit. Reactive decisions are more problematic. For example, competition pressures get expressed in making decisions that distinguish company products from those of competitors. This involves the ability to take calculated risks and to be able to change course as soon as there is sufficient indication that a change is necessary. Too much hesitation can make the difference between success and failure. Decisions are made at two levels: conceptual and implementation. It is often easier to reach agreement on a conceptual level. Implementation to the practical level is more difficult because of the possibility of wide differences in interpretation. For example, two partners may agree on the need to get a bank loan but differ widely on the amount and how the banker should be approached. Obtaining Needed Information for Decision Making Productive decisions are the result of considered evaluation of appropriate information. The challenge in decision making is to determine what information is needed, the collection process, identifying sources of infor-

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mation, and the best way to approach the evaluation. A singular important first step is a patient approach to gathering information from all relevant sources. The advent of the Internet has facilitated this process. Gathering information can become even more complicated when time pressure or unavailability requires extrapolation. Another important consideration is who and what affects the pending decision. This includes defining relevant content, assessing how the various options will influence work relationships (inside and outside of the company), and determining any relationship problems that might occur as a result of whichever decision is made. Entrepreneurs are beset with management of an endless number of issues requiring business relationship decisions that directly or indirectly involve employees. Common decisions that directly affect employees include hiring, firing, salaries and bonuses, personnel policies, performance reviews, and supervision. Decisions that affect employees indirectly include management of finances, accounting practices, contracts, marketing, and public relations. Decision makers should be informed about the direct and indirect impact of pending decisions. Timing of Decision Making Decisions are not made in a vacuum. The timing in making a decision can have as much impact on its value as the basis on which it is made. Many decisions are time sensitive—namely, the stock market, the release of a new product, the timing of a deal. A thoughtful decision made too soon or too late can become a liability rather than an asset. A challenge occurs when an opportunity arises that requires an immediate decision without the benefit of the time to gather information to support it. The decision maker must therefore decide whether the higher priority is trusting instinct or avoiding a decision. Evaluating Collected Data for Making Decisions As noted earlier, successful decision making requires adequate information. Confidence can be placed in the qualitative evaluation of the information when a tentative decision best accounts for all the available information and additional effort yields no further insight. Agreement between decision makers on both the quantitative and qualitative evaluations indicates confidence that a responsible decision was made. Resolving Differences in Making Decisions Context for Resolving Differences The context in which a decision is made will have major effects on outcome.

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Collegial. Decision makers who are involved in resolving differences have the task of blending their individual inclinations. In the case of partners, this usually requires consensus in decision making or some form of division of labor in which one partner delegates responsibility for the decision to the other one. Hierarchical. The decision-making process is somewhat simplified when the final decision is made by one person, even when it is based on input from others. This occurs in a partnership when one partner dominates decision making. The challenge here is to determine how to gain cooperation, if not acceptance, from those people dissatisfied with the decision. Group. The process becomes more difficult if the decision requires consensus or a majority. Disputes about substantive issues are often intertwined with competition, power struggles, value conflicts and personality differences. Role of Empathy As discussed in Chapter 2, empathy—the ability to appreciate the position of another—is basic in providing a constructive climate for resolving differences. Empathy involves the ability to hear another person’s point of view without judging it, as well as a willingness to appreciate a person’s viewpoint independent of how acceptable it is to the receiver. Offers made in negotiation that reflect empathy will maximize the possibility of a constructive hearing. Impact of Logic and Emotion on Decisions Resolving differences is usually regarded as a cognitive process except for the infrequent times when emotions prevail. Strongly felt emotions often prevent a logical approach to resolving differences. The parties involved need to recognize that both content and feelings about content are influenced by the context in which the decision is made. Example Eric and Pat were partners in a lumber business and had a strong difference of opinion about whether to acquire an electrical parts business. The accountant’s analysis of the proposed acquisition suggested that it was a risky venture. Eric was convinced that the accountant was too conservative and didn’t appreciate the potential. He was sure that his instincts were right. Pat was in agreement with the accountant but was willing to go along with Eric because Eric felt so strongly about it and because their profits were running well ahead of last year’s and they could afford to take the risk. Negotiations for the business took place over a six-month period. By the time they were close to negotiating the sale, a downturn in the economy occurred, causing a sharp drop in their profits and increased pressure from their competition. At this point, Pat was no longer willing to go along with Eric’s

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deal, but Eric, unswayed, continued to hold to his conviction in spite of the changed circumstances.

Objective in Negotiating Difference A previous discussion emphasized the importance of approaching a negotiation with the goal of a win-win resolution because any other outcome would be unstable. An entrepreneur who approaches a negotiation seeking a win-lose solution does so at the risk of destroying good will. Entrepreneurs who choose this approach do so with the confidence that will be able maintain a win position and do not see the loss of good will as a significant problem. They are likely to consider the benefits worth the risk. Definition of Similarities and Differences between Opposing Views Careful attention to similarities and differences between negotiators’ positions provides the best opportunity for finding a resolution acceptable to both parties. It also provides another way of showing consideration for the other’s point of view and invites the same in return. This works well as long as the focus is on finding the best solution rather than whose point of view should prevail. Application of Strength and Vulnerability Assessments Preparation for a negotiation should include assessment of the strengths and vulnerabilities of one’s self and the other side on substantive issues including goals and what degree of flexibility is possible. It is also desirable to understand the politics and strategy the other side uses in a negotiation, such as personality and comfort level when engaging in negotiation. Careful ongoing attention to non-verbal cues in the course of negotiation can yield information about points of vulnerability in the other side. This assessment provides material for defining the most effective strategy for maximizing the negotiation outcome. Negotiation Process The following steps are basic to the negotiation of differences. Exchange of Views. There is little chance that an equitable decision can be achieved until the parties involved clearly understand each other’s point of view. This starts with an agreement on the definition of the issue. Acknowledging what is acceptable in a discussion before focusing on disagreements improves the likelihood that both parties can be heard. Definition of Operational Goals and Priorities. Clarity in defining operational goals, priorities and strategies for participants prior to negotiation will provide a solid basis for entering discussion. Flexibility will be needed to adapt these initial considerations as the negotiations proceed. A decision is meaningful only when it results in a desired behavior. For

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this to happen, an operational definition is essential. Disagreements will occur when the decision-making process and definition of outcome are ambiguous. There are many sources of ambiguity. First, ambiguity may occur when executives fail to distinguish between the concept or content of a specific item. Conceptual differences are likely to be more difficult to resolve when they reflect differences in values and beliefs. Second, this failure to distinguish differences between concept and content contrasts with differences on specific items, which more readily lend themselves to finding acceptable alternatives. The same consideration applies to definition of outcome. A third source of ambiguity arises when two people believe they are in disagreement about an issue only to find they are talking about different issues. This often happens when assumptions are treated as fact or when information is misinterpreted without checking for accuracy. Failure to clarify such distortions leaves both parties open to feed on their projections, distortions, and feelings of upset with each other. Attempt by Each Party to Prevail. The goal of both parties is to be sure they understand each other. In the initial discussion, each party attempts to convince the other that its point of view should prevail without the judgment by the other. To do otherwise invites a power struggle. Search for a Joint Solution. When neither party is willing to accept the viewpoint of the other party, both should respect their differences and shift their efforts toward solutions. This approach works well when each party considers acceptable options that also take into account the needs of the other party. This is more than compromise; it is an investment. For this type of outcome to occur, the focus needs to be not on what is given up but on what is gained in achieving a joint perspective. Implemention of the Negotiated Decision. Decisions are made with different degrees of specificity, ranging from conceptual to very concrete. For example, two partners decide to buy a piece of equipment. They have the option of taking the time to check out all the details necessary for making the purchase, or they may choose to make the conceptual decision and leave the details to others. The conceptual approach avoids spending a lot time on details but runs the risk that the decision will not be carried out as intended. The alternate approach ensures that the decision will be implemented as desired but at the expense of time that would be better devoted to more important matters. The same principle applies to more complex decisions such as planning a marketing campaign, hiring a new executive, or launching a new product. An essential part of decision making is determinating what level of specificity is required in the implementation. Inadequately defined assignments are an invitation to conflict. Partners often have an easier time agreeing in principle than in determining how, when, and by whom a decision is carried out. Effective decision making

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requires agreement both at the conceptual level and in its behavioral translation. Example Bruce, an employee in an accounting office, was pleased with his performance in carrying out an assigned task, only to discover that his manager was unhappy with his performance. The discrepancy in views resulted from the manager’s ambiguity in making the assignment. Bruce’s manager acknowledged that he did a good job, given Bruce’s interpretation of the assignment.

The temptation to act without adequate information in order to avoid a tedious process and save time or money usually fails on all counts and only leads to added cost. On the other hand, obsessing over how to implement a decision as an alternative approach is no more promising. Example Two partners in a swimming pool business decided to launch a new marketing campaign. While they indulged in long debate, new products from competitors came to market and the projected campaign no longer made sense.

Reluctance to heed lingering doubts can also be a problem. Example Herb and Marty, partners in a construction business, were contemplating hiring a new CFO. After a protracted discussion on the pros and cons of hiring a candidate, checking references, and further deliberation, they decided on a candidate even though both still had nagging doubts about the best choice. It wasn’t too long before they regretted their decision.

Definition of a Method for Monitoring Follow-Through. Ensuring that the intent of a decision is carried out requires that a method be defined for monitoring its implementation. Problems develop when people assume that once the decision is made the rest will follow. The quality of the monitoring process is often the most critical ingredient in ensuring proper implementation of the decision. Example Lloyd and Alex were partners in an appliance business. Lloyd was increasingly bothered by the fallout that often resulted from Alex’s abrupt manner. After much struggle, Alex agreed to do something about it. He decided to reserve time at the end of each day to review how he had done in managing his abruptness that day. His assessment of when he did well gave him satisfaction, encouraged him in his efforts, and gave him confidence in facing those times when he didn’t succeed. Consideration of his failure helped improve his behavior. After just a few weeks of

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using this approach, he began to be aware of his behavior without having to actively focus on it.

Communication of Decisions. Once closure is reached, the next step is how to communicate decisions to others. Issues that need addressing include how, when, and in what manner (written, verbal, individual or group, and so on). Evaluation of Outcome of Decisions and Resolution of Disagreements. Competence is enhanced when a systematic effort is made to learn from experience. This effort is most effectively accomplished when attention is devoted to regular assessment of learning from past decisions and from experience in resolving disagreements. One approach is to set aside periodic evaluation meetings for the express purpose of reviewing gains made since the last review. As discussed earlier, the same process is useful in ensuring that the partnership relationship continues to be harmonious. Ability to Cope with Disappointing Decisions. An earlier discussion recommended that decisions be evaluated solely on the basis of adequate information reasonably evaluated. Changing conditions often result in transforming what starts out as a good decision into a bad one. Partners often deal with this situation by exchanging blame. Employing the “manage, don’t judge” concept will prevent a disappointing decision from ballooning into a greater one. CONFLICT RESOLUTION A disagreement becomes a conflict when a resolution is required and the differences appear irreconcilable. Constructive conflict resolution occurs when a solution acceptable to both parties is achieved. A conflict becomes destructive when efforts to resolve it shift from a focus on the issues to personal attack either in content or in non-verbal behavior—tone of voice, facial expression, or body language. It is also destructive when one party feels pressured to accept the proposed solution and gives the appearance of acceptance. This form of resolution involving a solution that is not mutually acceptable is unstable. Operational Definition of Conflict An operational definition of the subject of the conflict is imperative. Otherwise, the parties seeking to resolve their conflict may find that it is not about its substance but that in fact there are two issues. It is not safe to assume that the issue underlying a given conflict is obvious. Example Two lawyers were negotiating on behalf of their clients in a business divorce action. Initially, they presumed they were talking about the same objective—equi-

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table distribution of assets. After much argument and frustration, they found that they had different ideas about what equitable meant. One lawyer defined equitable in dollars, whereas the other defined it in terms of what each partner contributed to the business. Their deliberation process became more manageable, though no less contentious, once they were able to define their differences in concrete terms.

Principles That Underlie Constructive Resolution Managing conflict resolution is easier when the following basic principles are applied. Judgmental Behavior Invites the Same in Return Judging or dismissing what is important to another person invites the same behavior in return. This shifts the focus from resolving the issue to a battle for control. Avoidance of a Problem Makes It Worse A person should not walk away from a troublesome situation without addressing it. Problems that are allowed to fester increase in severity and become more difficult to resolve. A good maxim to follow is that the sooner a problem is addressed, the easier it is likely to be solved. Separate Efforts May Resolve a Problem from Evaluation of Outcome When efforts to resolve a conflict reach a stalemate, an attitude of pessimism readily settles in regarding whether resolution is possible. This attitude undermines any effort at constructive resolution. One way to avoid this mind-set, as was the case with disagreements, is to separate resolution efforts from evaluative efforts. Energies should be directed to a defined work period devoted solely to resolving differences and devoid of judgment about whether resolution is possible. Any disagreements are approached with a positive presumption that success is possible. Afterward, an evaluation is made. If sufficient progress is made, another work period may be agreed upon under the same conditions, followed by another evaluation. If too little progress is made, the resulting evaluation may end in the conclusion that a conflict is not resolvable. Example Two partners had endured a difficult period in their relationship and had now reached the point where any significant disagreement led to questioning whether they should end their partnership. An outside consultant was able to help them see that invocation of divorce in negotiating undermined their ability to attend to constructive alternatives. Once they recognized what they were doing, they were able to agree to a three-month period during which they would approach all disagree-

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ments with the presumption that they were resolvable. During this time no thought would be given to ending the partnership as a solution. At the end of the threemonth period, they would evaluate their progress. If sufficient progress was made, they would agree to repeat the process for another work period. If they did not feel that enough progress was being made, they would consider ending the partnership.

As Much Attention Should Be Paid to Acknowledging Desired as Undesired Behavior In the course of a difficult negotiation it becomes easy to distort the unresolved issues and to overlook constructive accomplishments and good will. It is useful to step back periodically and take a macro view of both the accomplishments and remaining problems. This will provide an opportunity to gain a fresh perspective and will provide a more constructive context for each side being heard. People Only Have Control of Their Own Behavior The natural tendency in a dispute is to focus on placing expectations on an adversary’s behavior. Expecting the other person in a conflict to change only heightens resistance to constructive listening. It is more productive to start the effort toward resolution by considering one’s own contribution to the conflict. The quality of communication can never be the sole responsibility of one person. Each party has multiple options as to how the response is heard and how the choice makes a difference. There Is Safety in Expression Successful resolution of conflict depends on clarity in defining one’s position and on emotional safety in being able to express one’s views in an honest and open manner that is both self-respecting and respecting of the other. Judgment of held views or personality attacks sabotage constructive resolution. Managing Conflict Resolution Conflicts are resolved in four ways (listed in order of least contentious resolutions): • Participants negotiate their own resolution. • Mediation by a third party facilitates the parties’ achieving a resolution. (For a more detailed discussion of mediation, see the appendix discussion of business divorce at the end of this book.) • Participants submit to binding arbitration • Management dictates a solution between conflicting subordinates.

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Assume Each Conflict Is Solvable Resolution depends on a positive attitude. When people approach a task with a doable attitude, they bring energy, creativity, and commitment to it. The converse is also true: Approaching a task with doubt runs the risk of creating a self-fulfilling prophecy that will affect the outcome. One way to enhance a positive attitude is to engage in the mental rehearsal process. This provides an opportunity to prepare for coping with difficult events by developing answers to difficult questions in an environment free of the anxiety and pressures that would be present when having to cope with the actual issues. Rehearsal permits maximum energy to be directed to solving problems and in the process enhances feelings of selfconfidence. When efforts to find common agreement reach an impasse, the resulting frustration is often expressed in exchanging judgments or in questioning competence, motivation, and integrity, and so on. The likelihood of destructive exchange of emotions can be minimized by unilaterally invoking a “time out.” Tactics for Conflict Resolution Distinguish between Personality and Substantive Differences. Conflicts that appear to be substantive are sometimes based more on personality conflicts than on issues. Conflicts that are focused on personality are destructive as they do not lead to solutions but only heightened tensions. Example Carl and Henry, partners in a food brokerage business, were often engaged in expressing their frustration in personal attacks such as, “You are a big nag.” The other returned the compliment with, “You are stubborn and bullheaded.” Their lawyer helped them realize that they were not going to accomplish anything constructive by exchanging attacks. Their exchange of insults, he told them, only invited retaliation, leaving them little energy to devote to resolving their differences. They were finally able to appreciate each other’s frustration, even though they disagreed on the basis of their respective feelings. After further discussion, they recognized that neither point of view was going to prevail, and so they were able to focus on finding a solution that made sense to both of them.

Determine Whether Conflict Is Based on Symbolic or Concrete Issues. Some conflicts resist resolution because the source of disagreement is based more on what a given issue represents than on the merit of the issue itself. Being able to identify the driving force behind a stuck position is helpful in finding a solution. Example Ann and Walter, partners in a hat manufacturing business, were deadlocked in a conflict about hiring a new public relations director. They were struggling between

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candidates. Ann favored Betty and Walter favored Alex. Walter was a little puzzled by Ann’s adamant position because Alex’s credentials seemed clearly superior, but Ann was steadfast in her views. They got input from other management members who supported the choice of Alex. Under pressure from the majority, Ann reluctantly agreed. In later discussion between Ann and Walter, she became aware that part of her adamancy derived from her belief that women do a better job in public relations.

Define a Negotiating Position. The negotiating position should be heard by others as realistic. A position that seems too unrealistic for the facts at hand suggests insincerity in serious negotiation. A realistic position should leave room for concession without unduly affecting the needed outcome. Make Concessions. Concessions have meaning when the other side experiences them as representing a victory for them. To facilitate the experience, concessions should be made that highlight the nature of the sacrifice. Dramatic presentation adds credibility in leveraging a negotiating position. Pay Attention to the Ongoing Negotiating Process for Clues. A negotiation that becomes too one-sided can result in the side that feels it is losing its position to take an adamant stand in order to gain some sense of control. This difficulty can be avoided by permitting the other party to have small victories. Example Jack and Keith were negotiating a partnership agreement. Jack had the business experience, contacts, and financial resources, but he needed Keith’s creativity. As they were working out the details of their agreement, Jack recognized that he was dominating the way things were being defined. Aware that problems would develop if Keith didn’t feel he had more impact on the proceeding, Jack made a concentrated effort to have Keith’s views prevail on various points he would have defined differently. He reserved his own assertions for the major points of concern.

Give Consideration to the Needs of the Other. Good will is gained when the other side experiences consideration. This is accomplished by showing how proposals for resolution address the stated goals of the other. Example Tom and Henry, manufacturers of men’s clothing, disagreed about the merits of Tom’s proposed new line for appealing to college-age men. Henry argued that the risk was too great for the return they would get. He was also concerned about the resources it would divert from other projects. Tom acknowledged Henry’s concern and demonstrated how the return on a college-age line would be greater than Henry thought. He also showed how this project would contribute to other company products. They were ultimately able to agree on a slightly modified version of Tom’s proposal.

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Change the Context of Negotiation. Changing the context in which a subject is discussed can totally change the way in which it is heard. Meaning is gained not only from the merits of a given subject but also from how it relates to other reference points. In the previous example, Tom and Henry clashed because each was arguing from a different context. Henry was speaking from the reference point of what he felt were the dangers in Tom’s proposal, whereas Tom was emphasizing the ways in which the company would benefit. They resolved their conflict once Tom addressed Henry’s concerns by making some modifications in his proposal. Utilize the Cost/Benefit Balance. The fact that benefits to be gained are worth the cost that it takes to get them is inherent in any negotiating position. Negotiators are likely to stand fast on their positions unless they see how modifying their position will improve the cost/benefit balance (a more complete discussion of cost/benefit is discussed in Chapter 10). Tom was able to get Henry’s support by being able to show him that his cost/benefit balance was too conservative. Contributing to this success was his ability to show that Henry had overestimated the risk involved. Determine Areas of Vulnerabilities. Vulnerability refers to areas where arguments are weak or where a person has particular needs that may be in conflict with the subject under negotiation. Positions held in a negotiation are affected by matters unrelated to the subject at hand. Taking a firm position on a particular subject may be in support of a principle or in service of a tough image, one’s ego, or personal gain. Using the knowledge of an opponent’s vulnerability can be a useful tool in helping break though a stalled negotiation. Playing into the other’s ego needs is a common example. Acknowledging the opponents negotiating prowess is another. Raising question about conflict of interest in holding to a stated position is yet another. Heighten the Stress Level. A familiar tactic in negotiation is to heighten the stress level in the expectation that it will erode the opposition’s resistance. This tactic can be carried out through marathon sessions, dramatic displays of emotion, uncomfortable quarters, and late night sessions. Use Humor. A protracted period of tough negotiating can harden polarized views. Humor is very useful in breaking the tension and may shift the negotiating atmosphere toward a more collaborative direction.

Why Negotiations Fail Negotiations may fail because of individual needs or because of a relationship stalemate. In some relationships, the capability for mutual problem solving erodes to the point that the viability of the relationship is undermined. The result is a business divorce. What accounts for this change in their relationship?

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Individual Needs Conflict of Emotions with Substantive Discussion. Successful accomplishment of a compromise requires that two dimensions be addressed: the substantive issue and the emotional significance involved in effecting a compromise. Two people who are comfortable in their felt competence may be able to reach a compromise primarily on the basis of substantive content. When this is not the case, the ability to effect compromise may be clouded by emotional implications. Deals are frequently made on emotional grounds even at the expense of the substance issue. An example is the person who enters an agreement because of the status without giving adequate consideration to his or her ability to meet this commitment. Reluctance to Acknowledge Inequality. If one partner is dominant, the other partner will tend to be more reluctant to support the dominant partner’s viewpoint because it will heighten the inequality between them and obfuscate the possibility of dealing with substantive issues. The Undermined Significance of the Held View. An executive who is wedded to a particular point of view may have a hard time resolving a difference that would require a substantive change in this view. To act otherwise would require the willingness and ability to put principle and logic ahead of personal satisfaction. Reflection of Weakness. Entrepreneurs are likely to have a hard time resolving differences if resolution carries the message that they appear weak or inadequate. This problem can be avoided by reframing the context in which the resolution is viewed. An alternative to being viewed as weak is the ability to respect the judgment of another whose recommendation is perceived as a better solution than one’s own. Differences can be more readily resolved only when each participant feels enough has been gained either in substance or in image to offset whatever compromise was necessary. Reflection on Level of Competence. If the issues involved in resolving a difference may negatively reflect on the reputation or competence of an entrepreneur, then resistance to resolution will be great. The problem becomes more difficult when it is addressed covertly rather than overtly. Often this is not done on a conscious level. One observable clue occurs when there appears to be a gap in the logic being argued or when there is an uncharacteristic display of emotion. In these cases, resolution of differences will elude the parties until they address the underlying issue. Perceived Loss of Benefits. An executive is unlikely to become unyielding when doing so carries the prospect of losing something of considerable importance. The loss can be considered at two levels. The first is the manifest loss on the substantive issue, which would be the case in having to give up a point of view in which an executive had an emotional commitment or one in which the executive was certain about being right. The

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second is whatever implications go with the loss. It may be material, loss of power, prestige, opportunity, perks, and so on. Change in Personal Values, Beliefs, or Goals. Changes in one’s values, beliefs, or goals may adversely affect one’s interest in continuing in the business. Example Fred joined Chris in partnership in a construction business with the goal of building a big business and making a lot of money in the process. Fred valued material possessions, hard work, and the challenge of growing a business. After a few years, however, he became disillusioned about what it took to be successful in business, both emotionally and physically. He also found that he valued a less hectic life more than the challenges of running a business. For him the emotional strain of making a partnership work was not worth the effort.

Relationship Stalemate Difficulty in resolving differences depends on the magnitude of the consequences. Resolving a dispute that is perceived as placing the business in jeopardy can readily lead to stalemate and jeopardize the business relationship. The following conditions contribute to a relationship stalemate. Inability to Resolve Differences. As noted earlier, the essence of any successful partnership is the ability to resolve differences to both parties’ satisfaction. Partnerships run into trouble when they fail to strike a workable balance between meeting individual needs within the context of achieving a partnership objective. This inability is ultimately expressed in unresolvable differences when meeting individual needs becomes the dominant priority. Shift in Priorities. Each partner enters the business with a set of priorities. The experience of operating the business can result in the partners’ developing different expectations and priorities. Inability to find common ground ultimately leads to a stalemate and business divorce. Belief That Compromise Will Not Solve the Problem. When one side asserts that compromise will not solve the problem, it is implicitly saying that it has better knowledge than the other party in how to proceed. This shifts the priority from a cooperative effort to one where energy is divided between finding a new solution and coping with an evolving power struggle. Repetition of this behavior gradually undermines the stability of both the relationship and the business. This behavior shifts the relationship from the value that it is better to make a mistake based on a joint decision than for one party to prevail at the expense of the other’s point of view. The former case results in the involved parties sharing responsibility for an error in judgment and subsequently in the task of finding acceptable solutions. Obviously, this process

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is preferable because it enhances the relationship and focuses collective energy on solving the problem Perceived Loss from Resolution. An entrepreneur may take an adamant point of view when any joint alternative would involve the loss of money, power, prestige, or investment in a pet project. The higher the perceived stakes, the higher the likelihood of low empathy for the other party. Hidden Agenda. As the business relationship progresses, one partner may increasingly develop a personal agenda that is self-serving. The hidden agenda is a defense against the anticipated rejection of one’s views. Once a partner embarks on this course, it sows the seeds for a schism in the relationship. It also may be an expression of the partner’s feelings that his or her concerns are not being adequately considered. The hidden agenda is a way to mark time until the partner is able to leave the partnership and go off on his or her own. Failing this, frustration may become expressed in diminished commitment to the business. Crisis in Self-Esteem. Successful resolution of differences requires a good sense of self-esteem. Insufficient self-esteem detracts from the ability to engage in constructive negotiations because self-doubt competes with attention to coping with the task at hand. In some people, self-doubt gets expressed in overly aggressive behavior that masks their underlying sense of inadequacy. This sets the stage for resentments that can become habitual and destructive. Desire for Power. As described in Chapter 7, power, when used appropriately, is to the ability to influence the thinking or behavior of other people. When abused, it can lead to conflict, unhappiness, and poor performance. The exercise of power is most productive when it is applied in a way that considers the needs of all concerned. It becomes destructive when it is applied to serve the benefit of the person wielding the power at the expense of those from whom the benefit is gained. A most flagrant example occurs in cults when a charismatic entrepreneur exploits members. The same occurs in the “sweatshop” culture. Differences in a partnership become unresolvable when the competition for power attains a higher priority than accomplishing the mission of the business. Often the exercise of power becomes a way to feed an undernourished self-esteem. Desire to Sabotage the Relationship. People often find themselves in a business relationship that has lost its charm. They become disenchanted but feel trapped in the relationship because of a financial obligation from which they cannot gain release, pride in not admitting the relationship is flawed, fear of the judgment of others, and uncertainty of alternative options. Eventually, these frustrations result in diminished behavior, if not in words. The person holding these feelings may not be consciously aware of their negative connotation and will probably deny any suggestion of dissatisfaction. This happens when people are uncomfortable with their feel-

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ings and suppress their discomfort as a way of coping with a situation they cannot change. Ultimately, the relationship flounders without either person being consciously aware of what they are doing—either indirectly or with conscious knowledge Unwillingness to Involve a Third Party for Resolution. The participation of a third uninvolved party may be necessary to determine whether resolution of differences is possible. Each partner should select a person to represent his or her point of view. The two designates will then select a third party who will function as mediator. If this does not lead to resolution and they still want to find resolution, then mandatory arbitration should be considered. The partners may be unwilling to utilize a third party. Agreement to do so could help maintain a relationship that the unwilling partner does not want to continue. A partner with this inclination may be waiting for a strategic time to end the partnership. Involvement of a third party may further contribute to a partner’s felt sense of inadequacy, as it may make more public that which has been less apparent. It also carries the risk of undermining a negotiating position with a partner if one partner feels that his or her position is vulnerable to an outside perspective. Yet another risk is that the partner’s image may be damaged in the larger community. In addition, a partner may perceive that the third party’s recommendations will change the business relationship or the nature of the business in a an unwelcome manner. This becomes a concern if the partner is in a vulnerable position Change in Business Values, Beliefs, Goals, and Priorities. Even though partners may start out with shared personal and business values, beliefs, goals, and priorities, problems may arise when significant differences develop in regard to the business. If these differences remain unresolved, they become a threat to the survivabilility of the partnership. Unresolved Personal Conflicts between Partners. Partners who start out as friends may find their personal relationship tested as the trials of managing a business lead to rivalry, power struggles, and different ways of doing business. Eventually, both the personal and the business relationship may be damaged. Loss of Trust and Respect. Violations of implicit trust (discussed in Chapter 2) will undermine the development of any budding relationship and stress any ongoing relationship. Trust is not an all-or-nothing experience. A person may be trusted in some areas and not in others. Partners may trust their partners’ judgment in managing employees but not in managing finances. Trust based on explicit agreement to behave in some agreed-upon manner leaves less room for ambiguity and is more subject to immediate accountability. In the business world, trust is ensured by committing

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significant expectations of behavior to formal written documentation. But not all aspects of trust in a business relationship can be committed to writing. There is also a need for unwritten trust in the good will of both partners. Basic to the resolution of any difference is trust that any agreement will be followed by appropriate behavior. Once either partner experiences a breech of trust, future differences will become more adversarial. A climate more vulnerable to unresolvable differences will then prevail. Disagreement about Work Habits. A positive business relationship requires that the partners be comfortable with each other’s work habits. Dissatisfaction in one or more areas, such as number of hours worked, tendency to procrastinate, and difficulty making decisions, leads to conflict when these differences cannot be resolved. An example is a partner who is dissatisfied with his partner’s behavior and shifts from complaining about the other partner’s lack of work hours to calling the partner irresponsible. Such derogatory judgments undermine their ability to work together. Problems in Perceived Competence/Contribution. The partners’ parity in competence and contribution to the business is important to maintaining stability in the business relationship. Stability suffers when the partnership has a different base. A familiar example would be partnerships founded on the expertise of one partner and on the financial contribution of the other. The partners with the expertise may begin to feel that they are making a more substantial contribution than their partners and may therefore seek more power and compensation. This is likely to lead to growing resentment in their partners, especially if they feel that their financial contribution is essential to the survival of the business or if they feel diminished by the recognition that their partner is contributing more than they are.

Chapter 9

Values and Beliefs For two people to work together, there must be a common language through which the partners define their relationship, their goals, and how they will achieve them. This commonality is made possible when their values and beliefs system are compatible. Without it the partnership will fail. What leads us to behave in one way rather than another? Values and beliefs are major determining guides in behavior, and understanding behavior is a key ingredient in the entrepreneur’s success. This chapter discusses the variables that affect how we form, hold, and change our values and beliefs. Appropriate application of these concepts is a valuable resource in pursuit of one’s vision. A number of years ago, Rokeach (1968), a social psychologist, defined a number of terms important to value systems. He defined values as statements of what ought to be—a statement of ideals. For example, a person should be honest. Beliefs, he said, are statements of what was, is, or is expected to be. For example, many people are dishonest when it suits their purpose. Attitudes, on the other hand, were described as the behavioral expression of both values and beliefs—the predisposition to approach a given situation in a particular way. Whether a person behaves in this way will depend on the circumstances. A number of considerations influence how values and beliefs are defined. DIMENSIONS OF VALUES AND BELIEFS Values and beliefs are multidimensional concepts whose power derives from understanding the variables that define them and how they influence one another.

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People hold values about what is important to them, and they assign them varying priorities—money, religion, the work ethic, abortion, education, and so forth. Each value carries a belief about the degree to which the ideal actually occurs. For example, to what extent does a person who values honesty practice it or perceive that others practice it? The relationship between values and beliefs is circular. Circularity occurs when one’s values are determined primarily by one’s experiences. This is less the case when people define their value system based on philosophical or idealistic considerations. The result may be little relationship between the value and the belief about the behavior to which it refers. This is the case in the example of honesty. The discrepancy doesn’t change the need to hold the value of honesty. Values and beliefs approach circularity when the held value is significantly influenced by what actually happens; the reverse occurs when values affect what actually happens. The latter occurs when children respond to their parents value of honesty. Discomfort occurs when values and beliefs are in conflict—that is, when one’s experience doesn’t fit one’s idea of what should be happening. The attempt to resolve the discomfort follows and can be accomplished in one of four ways. 1. People can change their beliefs to fit their values: They could convince themselves that these deviations did not really violate their values. 2. They could change their values to fit their beliefs: They could decide that their values are unrealistic and redefine them. For example, they should be honest except under certain conditions. 3. They could deny the discrepancy is accurate: They didn’t do anything that was dishonest. 4. They could accept the discrepancy: They don’t like it when they are dishonest, but they accept that it will happen and they will do their best to avoid its occurrence. Example Jack, a manufacturer, expected his employees to be totally committed to their jobs. When he discovered that they were not, he felt he had to so something about it. He had the following options: (1) He could change his belief to fit his value: He is underestimating their commitment to their job. (2) He could change his value to fit his belief: His expectations of employee commitment are unrealistic. The commitment he is getting is quite appropriate. (3) He could deny the discrepancy is accurate: There is no discrepancy between what he expects and what they do. (4) He could accept the discrepancy: Sometimes they do not meet his employee’s expectations, but it doesn’t happen often enough to be a problem.

Do values apply only to the person who holds them or to people in general—men, women, both, and so on? Knowing to whom a value or

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belief applies is useful in establishing and maintaining a relationship. It is also useful to know whether the value applies to a person or to a group. Being able to make this distinction can make a difference in how to relate to it. Example Hal, a manager in a mortgage company, was confronted with an apparent case of racial prejudice. One of his employees, Helen, was very angry at a co-worker and apparently made disparaging racial remarks. Hal’s first reaction was to assume that Helen was being racist, but from past experience he had learned not to jump to conclusions. He spoke to all of the people who were involved. From this investigation he learned that Helen’s anger centered on the person’s behavior, not his race. He found that she related well to other black people. Management of the situation would have been very different if Hal had responded to the situation based on his presumption of racist behavior. The effort to go beyond surface impressions helped to prevent a simple problem from escalating into a major problem.

Under what conditions does the value or belief apply? Example Sam, president of a printing company, waxed eloquent at a staff meeting about the importance of people being respectful of one another. After the meeting, two of the employees, Carol and John, shared their mutual frustration regarding the hypocrisy of what they heard. From their experience each knew that Sam was respectful only when you did what pleased him. Those who did something wrong could expect to hear only blame and insults from him.

People don’t always behave in a way that is consistent with their values. Take, for example, a person who takes the public position that one should not use drugs but all the while uses them in private. When such an inconsistency becomes a problem for entrepreneurs, they would do well to determine the basis for it before reacting to it. A variety of reasons may be responsible for the inconsistencies, including weakly held values or beliefs, inability to implement values in practice, conflict with higher priorities, and difficulty in coping with anxiety or conflict. Knowing which one is responsible will improve the effectiveness in responding to it. Example Helen, CEO of a cosmetics company, learned that one of her managers, Joyce, was having trouble with her staff. She heard complaints from employees about Joyce’s impatience and authoritarian manner. This accusation surprised her because Joyce had always claimed that she showed respect in dealing with staff. Following a discussion with Joyce, Helen learned that Joyce tended to violate her value when her ability to meet deadlines was uncertain. Joyce was uncomfortable talking to

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Helen about it for fear it would adversely affect her position in the company. Helen countered that Joyce would be in far greater trouble if her reluctance to involve Helen ended up creating problems.

Intensity of Holding a Value or Belief One’s commitment to a particular value or belief may range from inconsistent to intense and unwavering. The more fervent a value is held, the less likely one will accept contrary information and thus will be resistant to changing one’s current position. Example Chris, a designer engineer, was convinced that his approach would solve a design problem. His confidence made it hard for him to hear any opposite views. Only after preliminary test results did not support his view was he able to consider other views, which finally resulted in successful design changes.

Experience consistently demonstrates that the more specific the subject matter of a value or belief, the greater the potential for reinforcing or changing it. A value or belief that is defined in observable behavior invites greater clarity in communication and greater probability that employees will perform as desired. Otherwise, problems may develop between entrepreneur and employee, resulting from different definitions of what is expected. Knowing the source from which a value or belief derived may be helpful in understanding how to relate to it. They may come from a variety of sources that are not mutually exclusive. 1. Family values. Values and beliefs gained in childhood. 2. Personal experience. Values and beliefs that evolved from experiences after childhood. 3. Traumatic experience. Traumatic experience from personal history or from the experiences of others that gave expression to values and beliefs. For example, experiencing the death of a close friend as a result of drug overdose can easily lead to a resolve never to use drugs. 4. Education. Formal education that contributes to the formation of value and belief systems. 5. Respected figure or reference group. Identifying with the perceived value of a respected person or organization. For example, if the American Management Association is a respected source of information for entrepreneurs, they will be receptive to adopting the recommended value position.

The firmness with which a value or belief is held indicates how susceptible values are to change. Firmly held values and beliefs will not be recep-

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tive to receiving information that adversely reflects on holding them. Change is most readily accomplished when both cognitive and emotional concerns are addressed. Of the two, addressing emotional attachments to a given value or belief is more difficult. A person may be able to readily acknowledge holding a given value or belief but may have trouble modifying it because of an emotional attachment to it. People are generally quite able to change their way of thinking when provided with new information. On the other hand, emotional attachments can be far more resistant to change, even when it makes sense to do so. This happens because one does not control what one feels. It can take time for feelings to accommodate to what one thinks. Even then, the power of familiarity can lead people to be willing to live with inconsistency between what they feel and what makes sense. Example Sam, owner of a haberdashery, had been in business for over 45 years and over the years kept his accounts and inventory manually. Although he knew he should switch to a computer-managed system, he hesitated to do so because he liked doing things the familiar way and was intimidated by computers. Only when he began to have problems with his approach was he able to change. Once he got over his initial anxiety, he wondered why it took him so long to change his perspective.

One’s self-doubt about one’s perceived ability to accomplish a desired change is often expressed in inflexibility in modifying an attitude or belief. The uncertainty about being able to change, coupled with the fear associated with adjusting to a new situation, leads one to cling to the familiar. Not surprisingly, entrepreneurs must constantly deal with multiple demands on their time. Their success depends on their ability to set priorities as to how they allocate their energies. A consideration in setting these priorities derives from the value and belief system that guides their behavior. A salesman, for example, has a better chance of success if his presentation fits the customer’s priorities. Knowing the underlying value and belief system provides a broader range of options for addressing the customer’s needs. Example Paul, a commercial real estate broker, was trying to interest a developer, Sy, in a large parcel of land. He attempted to get Sy to buy the land by appealing to what he understood to be Sy’s priority: building a shopping center. When Paul failed, he began to question what underlying value was guiding Sy’s decision. After an exploratory discussion with Sy, he discovered that his priority was not a shopping center but the project that would make the most money for him. This awareness led Paul to shift his sales strategy to focus on projects that would reap the greatest return for Sy.

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Understanding the purpose of holding a value is yet another reason for continuing to hold it or changing it, as the case may be. Lawyers, ministers, and therapists are members of disparate professions but they have one thing in common: each places a value on confidentiality because it provides an atmosphere of trust for a client-parishioner. Conversely, one way to accomplish a value change is to demonstrate that the purpose for holding it is no longer valid. Example Sally, the manager of the auditing department in a large accounting firm, was concerned about one of her new subordinates, Arthur, who would invariably say what was on his mind in the belief that this would create the best impression. Soon, he was having problems with his co-workers, which led Sally to call Arthur’s attention to his behavior. She was able to help him see that being forthright, though a valuable characteristic, required modification if he wanted to be successful in his relationships. Arthur initially resisted but gradually learned to modify his behavior with Sally’s support.

People hold values and beliefs because of the consequences that result from doing so. Conversely, they abandon them when they no longer serve their desired objective. Companies depend on employees behaving in ways that are consistent with company values. When problems develop in employee performance, whether the difficulty lies in employee behavior or in the company’s value system, these problems need to be assessed. A secondary consequence that needs to be considered in changing a value is the impact it may have on other held values in the company. Example For years, a fabric company provided bonuses based on performance. Competition and concern about an impending downturn in the economy, however, led the company to change its policy. Changing this value impacted on the strongly held value that was that people were accountable for their behavior. Employees were very unhappy about the change and how it was managed. They concluded that this change in the company’s value gave them license to modify their level of accountability. Both management and employees were unhappy with this development, and so negotiations resulted in a compromise.

GOALS Whereas values provide the ethical context that influences how a vision is defined and implemented, goals express the operational application of values and beliefs. Success in achieving these goals correlates with the clarity in defining specific observable outcomes. Setting dollar amounts, a spe-

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cific time for project completion, the number of hours worked, the number of people hired, and so on clearly indicate when a goal is achieved. Problems common to achieving goals include the following: • Vague definition. Making money, developing a better product, and being happy cannot be defined in a way that permits determination that the desired goal was achieved. Satisfaction in succeeding is elusive when each person involved has his or her own definition of success. These differences are a potential source of conflict. • Goals that lack the resources (time, money, energy, or knowledge) to accomplish them. • Goals that contradict the values or beliefs on which they are based. Frank, a manager in the production of auto parts, defined the level of production to be achieved, even though the goal was unrealistic given current levels of performance. To no one’s surprise, the goal was not achieved. • Uncertain values and beliefs. Lack of clarity in what ought to be and uncertainty about current experience are reflected in a diminished motivation to adequately define and achieve designated goals. • Conflicting commitments. Compatibility between values, beliefs, and goals will not result in the desired outcome when commitments to other values, beliefs, and goals conflict with accomplishing the desired objective. • Felt inadequacy. Undertaking goals without adequate confidence in being able to accomplish them diminishes motivation and ensures failure. • Conditions external to the company over which it has no control. Competition, changes in economy, and change in need of company’s product interfere with achieving the desired goal. • Underestimation of the time needed to accomplish goals. Difficulty in estimating the time required to accomplish a goal is a common problem. Frequently, people grossly underestimate the time that will be required and often have difficulty recognizing this as the problem. This problem may arise for a variety of reasons: lack of knowledge, interference from outside sources, underestimation of the amount of energy needed, difficulty of task(s) involved, mistakes, and so on.

Prioritizing Goals It is often easier to define goals than to prioritize them. This is because of the following: too many goals that need to be accomplished at the same time, competition for resources, insufficient information, competition between different interests within a company, interdependence between goals, and uncertainty in how to set priorities. Example Charles was very enthusiastic about developing a unique series of games for computers. He felt certain that his idea couldn’t miss in the marketplace. But he

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gave only passing attention to the economics and staffing needed to accomplish his vision. Although he knew that he had to address both areas in more detail, he thought he could wait until he did more work on the software. When he realized that start-up funding had run out, he was devastated. The problem was not in his vision but his failure to prioritize his goals.

The pressures of running a business, especially a start-up business, can leave little time for the entrepreneur to do more than meet the demands of the moment. Attention to the relationship between values, beliefs, and goals can provide a structure for gaining a perspective on business issues that may not be evident under the pressure of immediate demands. This framework can also provide insight into problems that might not otherwise be apparent. Periodic review of the compatibility of planned courses of action with the guiding value and belief systems help grow a successful and satisfying business. EVALUATION Inherent in everyone’s value system is ongoing assessment of whether a given held value should remain the same, be modified, or be eliminated and whether this assessment occurs on a conscious or subconscious level. The evaluation may be gradual as circumstances change, or it may be precipitated by some event that calls a given value or belief into question. Often, the values and beliefs that are relevant at start-up change as the business becomes established and lead to a revision of the existing value system for managing the business. As a familiar example, consider that once a startup business becomes established, the perspectives have to shift from solely visionary management to include practical management—executives who can take the business to the next level. This occurs because the founding value system needs modification and the existing management does not have the needed skills or experience. Values remain the same if one or more of the following conditions obtain: 1. Holding a given value or belief fits the desired image for the person possessing it. 2. Ongoing experience continues to support holding them. 3. New information supports holding them. 4. Holding a particular value or belief does not interfere with holding other priority values and beliefs. Example Ben, president of a large furniture company, values his ethic which dictates that his staff should be treated with respect. He demonstrates this by providing good

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working conditions and fair compensation, and he seeks and uses employee feedback. This view is supported by his satisfied and productive staff. Contributing to this positive environment is the fact that there are no inconsistencies between the various values that dictate company policy.

Values and beliefs tend to be stable. They change only when holding them no longer fits one’s needs or experiences. They change for a variety of reasons: changing needs or abilities, new information, changing priorities, undesired consequences for continuing to hold a value or belief, inability to behave consistent with the value or belief, and changing values or beliefs for financial gain. Dissatisfaction with a held value or belief is not sufficient to result in change. Staying with a familiar position, even if unattractive, is appealing because less risk is involved than in dealing with the unknown. Example Iris, president of a lingerie company, had strong ideas about how the company’s products should be marketed. These ideas were demonstrated by many profitable years. When the company’s profits began a slow decline and efforts were made to account for the change, Iris learned that the value she placed on her marketing strategy was no longer addressing the needs of the marketplace. This new information led her to revamp her marketing program.

One’s values or beliefs are based on a combination of emotion and logic. Change is most effective, therefore, when it addresses both the logical and emotional basis for holding them. Example Ted, a manager in a software company, was attempting to get his subordinates to adopt a new approach to writing software for a machining company. Although his workers understood the reason for the change, they were very ambivalent about making the change. They liked what they were doing, which biased their view abut the change. Ted had trouble understanding why they had this problem because he failed to appreciate the relationship between logic and emotion in influencing behavior. Once he understood the problem, he was able to demonstrate to his employees how the new approach would ultimately be more beneficial once they got over the discomfort of adapting to the new approach.

Every action is the product of one’s thoughts and feelings. Generally, people function in their daily lives through logic as the dominant mode and through emotions as its subordinate. As seen in earlier discussion, when emotions become too strong, they will short-circuit logic. At that point, a person’s actions are driven primarily by emotion, and the person, though aware of the inappropriateness of his behavior, may not care at the mo-

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ment. We have all had the experience of being so angry in the moment that we don’t care about what we say or do. Inevitably, regret follows once the logical mode reasserts its dominance. Ted in our previous example observed that his subordinates were in an accepting mood when their intellect was the dominant mode. The reverse was true when their feelings became dominant. The mode they were at in at a given moment was influenced by other events: how the work was going, tensions in the work relationships, problems unrelated to work that affected it, and so on. With regard to business goals, values (what ought to be) define the concept to be achieved and are reality tested by beliefs (the perception of what is—what happens). The end result is a business goal that is considered realistic. Example Fred and Alex both agreed that the success of their partnership depended on honest, frank communication between them. They therefore agreed to hold weekly meetings to review the status of their relationship. After a year or two of relative harmony and a growing business, however, they began to develop different goals for the business. Their ability to resolve differences became secondary to each other’s conviction that his view was the one that should prevail. As a result, they began to quarrel, and soon their unresolved differences reduced their communication to a minimum that negatively impacted the business. The belief that good communication was possible was replaced by tenuous coexistence. They decided to end the partnership before they destroyed the business entirely. Fred defined the buyout price, and Alex had the choice of whether to buy or sell.

Consistency between values, beliefs, and goals increases the probability of a successful business outcome. Signs of incompatibility indicate that one or more of the following conditions are present: values are unrealistic, attention to experience is being distorted or ignored, or goals are poorly defined or unrealistic. Evolving indications of incompatibility between values, beliefs, and goals should be treated as an early warning indication. The point of having an early warning system is to intercept problems when they are easiest to manage. REFERENCE Rokeach, Milton. (1968). Beliefs, Attitudes, and Values: A Theory of Organization and Change. San Francisco: Jossey-Bass.

Chapter 10

Benefit/Cost Balance Entrepreneurs are familiar with benefits and costs in terms of dollar values. They are less familiar with the benefit/cost application in the broader context of business relationships. This chapter discusses the role of cost/benefits in business relationships. These relationships are satisfying when the benefits (B) gained from them are worth their detracting aspects—cost (C). This principle is commonly violated and reflects the reality that relationships must be viewed as package deals. You can’t have the desirable without the undesirable. The comfort level achieved in a relationship is very much a function of the benefit/ cost balance (B/C). Although one doesn’t walk around thinking about relationships in terms of this balance, this is what determines how relationships function. Even people who understand and accept the principle tend to forget this reality. When relationships become stressful, the tendency is to act as though one can just jettison that which is uncomfortable. One has to accept the undesirable and learn how to deal with it to get what is desired. Example Karen was looking for a partner for her telemarketing firm. Sally had many of the attributes she needed in a partner—she was smart, assertive, knowledgeable, and experienced. On the down side, she was overly competitive, had a short fuse, and tended to be controlling. Karen’s assessment of the B/C left her ambivalent as they discussed the possibility of partnership. Karen tried to work out with Sally some of the things that bothered her in their relationship. While Sally acknowledged some of her concerns, her behavior did not change materially. For her part, Sally had some objections of her own to Karen’s behavior. As a result, they both had

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some ambivalence about whether to risk a partnership. Eventually, they decided not to take the risk. They liked one another as friends but had doubts about whether a partnership could work.

People in the workplace often find themselves in relationships not of their choosing and have to find ways of coping with the B/C balance when it isn’t in the desired comfort zone. This chapter focuses on variables that affect how benefits and costs are defined, determined, and applied. CHARACTERISTICS OF BENEFITS A benefit is any emotional, physical or material occurrence that is considered desirable. It includes acquisitions, giving up something undesirable, or behaviors that help maintain the desired status quo. Acquisitions include gaining a desired relationship, money, power, material possessions, and prestige. Benefits may also include giving up undesired responsibilities, long work hours, traveling, and unwanted stress. Knowing the context in which a behavior will occur helps determine whether and to what degree it is a benefit. In the preceding example, Karen regarded Sally’s assertiveness as an asset in relation to others but saw it as a detriment in the partnership context. Benefits may take many different forms, including these possibilities: • Psychological benefits. Desired experiences gained from relationships, including feeling cared about, being consulted for advice or help, being desired as a companion or partner, and gaining respect for one’s views or needs. • Physical benefits. Any experience that affects one’s physical well-being—particularly the absence of pain; and anything that contributes to physical health: food, lodging, exercise, and medical care. • Material benefits. Having adequate financing and physical resources to conduct business. Also any perks that the business could provide such as country club membership, travel, and automobiles. • Management and technical skills. Any experience that enhances one’s ability to become a better business manager. • Spiritual benefits. Any experience or frame of reference, often in a religious context, that provides an ethical context for how people guide their behavior and gain a state of serenity. • Time frame. The benefits of an experience may be immediately realized or they may be gained over time. Benefits may be multiple, and many occur at different levels. A business that receives a good trade magazine review will derive multiple benefits: it will bring in business, enhance their reputation over time, give employees added feelings of satisfaction and job security, and attract new employees. • Length of benefit experienced. Benefits vary in length from a fleeting moment to an ongoing one. Examples of increasing duration range from having a productive

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phone call, a constructive meeting, a profitable year, and a productive business relationship. • Varying in intensity. Benefits vary in intensity from minimal to very intense. At the minimal end, the benefit barely provides a fleeting feeling of satisfaction, such as the passing amusement of a political cartoon, clearing one’s desk, or gaining a compliment. A more important benefit would result from a valued work relationship and a long-term satisfying partnership. • Reciprocity in a business relationship. Some people have difficulty doing things for their own satisfaction but can readily do things for others. They may also be uncomfortable receiving benefits. For some people this carries an unacceptable obligation for reciprocation. Therefore, they avoid having other people do things for them. A work relationship is satisfying and gains stability when a balanced reciprocity is achieved between colleagues and they are able to give and receive from one another.

The value of a benefit comes not only from the substance of a relationship but also from its source. While an employee may get the same compliment from a colleague and from the boss, the value attached to it is likely to be quite different because of the implications of the boss’s comment. CHARACTERISTICS OF COSTS A cost is whatever it takes to gain a benefit. A prudent entrepreneur is aware that what is spent on one thing will make less available for other purposes. Energy invested in one relationship is not available to relationships. In the workplace, employees make choices between investments in many relationships or more in-depth ones with a few others. Who Bears the Cost The person who bears the cost for gaining a benefit is not always readily identifiable. It may be the recipient of the benefit, one or more other people, or a combination of the two. The relationship between who pays and who benefits can have significant implications for working relationships and for the business as indicated in the following examples. Person Receiving the Benefit Employees get a salary for their job performance and may try harder if they believe it will increase their earnings. Purchasing can pose a problem if the person can’t afford the cost or if the expenditure is at the expense of other needed benefits. An example is the realtor who feels he needs to present an image of success by buying an expensive car he can’t afford. Common business failures are entrepreneurs who are unable to meet their

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debts when they lose their perspective on the cost/benefit balance in borrowing money. Someone Other than the Beneficiary An example is the employee who uses a company car for personal needs. A common practice in giving gifts is the hope that it will create business— for example, free tickets to sports events, dinners, golf, free samples, and many more. Both the Beneficiary and Others When an entrepreneur gets a loan from a bank, he or she gets the benefit of the capital subject to the purpose for which the loan was granted. Both the entrepreneur and the bank share the risk cost. Costs Associated with Benefits Emotional The emotional cost includes any anxiety that may be involved in experiencing the benefit or the consequences that may result from it. An employee who makes a presentation for the company at a trade convention uses psychic energy in making the presentation and experiences anxiety about doing it well. An additional anxiety involves whether the presentation accomplished the desired objective. Fear of failure in one area can consume great amounts of psychic energy, which will lead to additional anxiety when it produces diminished performance in other areas. Financial The financial cost occurs at two levels: The direct expenditure of funds necessary for the benefit to occur and the potential loss of benefit if the funds are used differently. In deciding what benefits to offer its employees, a company must decide how to allocate its limited funds. This requires an assessment of the benefits gained from satisfying employee needs versus the benefits that are lost in order to fund these benefits. Physical One of the physical costs associated with start-up businesses is the long hours required. The problem is compounded when these physical demands must continue for an extended period and when considerable travel is involved. Physical and emotional stresses that become chronic can create serious health problems. Spiritual Spiritual costs emerge when entrepreneurs feel pressed to act in ways that violate their ethics. For example, they may feel the need to hide the

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company’s financial status to prevent employees from leaving or to present somewhat inflated estimates on the value of their inventory to secure a bank loan. Doing this may offend their commitment to honest dealings. Intellectual Managing a business doesn’t often leave enough time to pursue new knowledge relevant to the business or to continue one’s personal interests. The significance of a cost may vary from trivial to prohibitive. A business may find the cost of providing employees with lunchroom facilities trivial. On the other hand, it will find that seeking funding from a venture capitalist is prohibitive because of the equity expectations and the desired degree of participation in the business’s operation. When the Cost Is Known The cost of achieving a benefit is not always known in advance of receiving the benefit. Sometimes it will not be determined until after the benefit has ceased. This gives rise to various possibilities. • Before the relationship benefit is realized. Employees are asked to complete a project and are not told they will receive a bonus if it is completed in a timely fashion, but the size of the bonus or how it will be determined is not defined. • While it is being experienced. The cost/benefit balance of any work relationship is fluid and ongoing. The way employees are viewed is the product of their work productivity and their ability to get along with co-workers. The validation they get for their effort depends on how hard they work. • Not determined until after the benefit has ceased. When entrepreneurs enter a partnership they have only the roughest estimate of what they will gain from the relationship and what will be needed to realize it. They can know the cost/benefit only after being in the relationship. Once the relationship is established, they must work to maintain it at a positive level. A business divorce is likely to be the result when a reasonable benefit/cost comfort level can no longer be maintained.

Amount of Time Exposed to the Benefit The cost associated with a particular benefit may be affected by the amount of time it is experienced. The time may vary from finite—the momentary discomfort in asking for a raise—to open-ended—the embarrassment felt after a bankruptcy that may be carried for an indefinite period, depending on the conditions that define it. The cost in time also may be affected by whether the time the benefit experienced is scheduled, intermittent, or unpredictable. A benefit that is scheduled provides the opportunity to minimize the cost associated with having the benefit. An example of this would be an annual performance

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review in which an employee and supervisor both have the opportunity to plan for the event to maximize the benefit of the experience. An intermittent benefit is one that will likely occur but is unpredictable as to when it will happen. An example of this is waiting for a promotion that depends on the current occupant retiring. The cost in this situation is an ongoing anxiety about when it will happen and the possibility that the commitment to the promotion might change over time. An unpredictable benefit occurs when entrepreneurs are involved in developing new products. They are faced with the cost of development without any assurance it will pay off. They have to contend with determining how much they can invest in this project in both time and money. The worst case related to costs occurs when they are incurred without gaining any benefit, causing a blow to one’s self-esteem in the case of a business failure. The problem is compounded when the failure leads to other costs, such as a tarnished professional reputation. In addition, partners whose business has failed tend to become involved in an exchange of blame over why their business failed. BENEFITS/COST BALANCE Three cost/benefit assessment conditions (CBA) are as follows: benefits are clearly worth the cost of obtaining them; it is unclear whether the benefits warrant the cost of getting them; and the benefits are not worth the cost of getting them. • Benefits are worth the cost of getting them. An entrepreneur feels that having committed, competent, and loyal employees is well worth the cost of having a good benefit plan. • Unclear whether the benefits warrant the cost. An entrepreneur is unclear whether the continuing education program for his employees has the desired result. • Benefits are not worth the cost of getting them. This is the case when an entrepreneur decides that the advice he got from a consultant was not worth the financial or emotional cost in getting the requested information.

The benefit/cost balance is another dimension in which partners have to deal with difference. Each one develops his own standard which may not work for them jointly. Resolution can get complicated because the benefit/ cost balance is a product of values, beliefs, and goals. Achieving a resolution is essential to achieving a successful business. Otherwise the partners would be working at cross-purposes.

Chapter 11

Transitions Coping with each of life’s experiences involves making the transition from anticipation through to its ending. This chapter discusses these transitions as they apply to business relationships in five phases: anticipation, adaptation, maintenance, termination, and integration. Success in mastering these transitions heightens the probability of an entrepreneurial success. Success in business depends on the ability to manage each of these phases with respect to the following: • Mastery of the skills needed in each phase. Having a vision, creativity, and the ability to plan for its occurrence is important in the anticipation phase. Coping in the adaptation phase benefits from the ability to be creative, decisive, and able to quickly assess and respond to changes. Maintenance requires a steady hand that is comfortable in managing an established relationship. Termination benefits from the ability to determine when an experience needs to end and do so efficiently, even when emotions run high. • The ability of a partnership to cope with these events in combination. A partnership involves managing multiple relationships at different levels with varying demands on emotions and intellect. For example, in the early phases of a startup business, there is pressure to cope with anticipating and starting many new relationships. At the same time, there is a need to manage existing relationships. • Balance of resources among phases. A successful business needs to have a balance between resources devoted to anticipating new events, maintaining existing events, and coping with the ending of other events. • Ability to learn from each phase of an experience. Integrating learning from relationship experiences is an ongoing process that cuts across the four other phases. It is important to guard against allowing coping with immediate pressures

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to interfere with the learning to be gained in each phase of an experience. Although this may not be possible at the moment, time should be made to regularly review what learning needs to be incorporated. Otherwise, it becomes easy to repeat past mistakes.

OVERVIEW OF PHASES Anticipation Phase A person is often able to anticipate a forthcoming event, whether desired or undesired, and its impact on existing relationships. This awareness provides the opportunity to prepare for its occurrence or, if undesired, to prevent its occurrence. For example, the wife of an entrepreneur anticipates how the marital partnership will be affected once he embarks on his active partnership. This leads her to think about what she can do to prepare for it. The marital partnership benefits when both are able to anticipate the impact of the change and how they might deal with it.

Adaptation Phase Adjusting to the onset of the event is the task in this phase. This involves the ability to receive information, assess it, and behave appropriately on an ongoing basis until adaptation to any change in relationships is accomplished. Once the expected demands of launching the active partnership occur, the anticipatory work of the couple is tested, as will be their ability to adapt to the unexpected changes.

Maintenance Phase Maintaining a satisfactory state is the task of this phase which has two concurrent parts: (1) to ensure that the necessary resources are available to accomplish what is needed, such as maintaining high morale and quickly resolving any conflicts that may occur; and (2) to prevent disruptive influences or interpersonal conflicts from interfering with the task at hand. Once a modicum of stability is achieved in both relationships, the couple is faced with maintaining it in a manner that does justice to both partnerships.

Termination Phase Experiences end by accident or design. The ending may be temporary or permanent. Temporary interruptions involve a repetition of the aforementioned phases as warranted. The task is to end the experience in a constructive manner that is respectful of how it impacts on the people involved.

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The ending of either the marital or active partnership will be dramatic both in coping with that ending and in how it impacts the other partnership. Integration Phase As indicated earlier, the goal in this phase is to apply the learning each experience provides that can be applied to other work relationships. Failing to complete this phase increases the probability that the mistakes made will be repeated. People who don’t learn from their experience ultimately end up with multiple failed marriages and partnerships. Anticipation and adaptation phases are characteristic of entrepreneurs, who can metaphorically be seen as builders. In contrast, managers, runners, are more suited to functioning in the maintenance phase. ANTICIPATION PHASE Events can never be fully anticipated, and so we have frequents accidents, illnesses, deaths, fires, and the like. Some relationship experiences can be anticipated: offending a partner, losing a trusted employee, being maligned, divorce, and others. When an Event Can Be Anticipated Awareness that an event may occur requires a determination of whether any action is needed regarding its occurrence. 1. Does it matter whether or not the event occurs? If it does matter, is any action indicated and by whom? 2. What resources are needed to handle the forthcoming event and are they available? If they are not available, what needs to be done to make them so? Who needs to be involved in obtaining these resources? 3. How would the forthcoming event affect work relationships and impact the business?

Event Is Desired Positive anticipation will hasten the coming event, and one should do whatever can be done to maximize how it will affect relationships. Example Jack and Sara, partners in a software firm, were happily anticipating the addition to their staff of a senior software engineer, Jason, whom they had been pursuing for some time. They made considerable effort to ensure that his joining their company would well received by their staff and that Jason would feel welcomed. This

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concern grew out of previous experience when adding a new staff member was a disappointment for all concerned.

Event Is Undesired Efforts will be made to avoid or postpone the event’s occurrence and minimize any damage to relationships. How much attention is devoted to this effort will depend on how serious the consequences of the event are deemed to be. Example Henry and Alex, partners in an advertising agency, set about to reduce staff after they had lost a major account. They knew they would have to lay off staff but found themselves postponing it in hopes they would get new business. After their accountant warned them about the consequences if they didn’t act promptly, they were compelled to act.

When the Event Cannot Be Anticipated The Event Is Desired The occurrence comes as a pleasant surprise, providing it does not negatively impact relationships or conflict with current or future anticipated events. A company that unexpectedly receives an award for achievement from the government, for example, will be delighted by the honor. The Event Is Not Desired This will test the resources, if not the survival, of the entrepreneurial enterprise to overcome and perhaps contain the consequences of the event. This occurred in the previous example of Henry and Alex. They lost their large client unexpectedly, which made coping with it all the more difficult. Coping with the Relationship Impact of an Anticipated Event Several considerations are involved in coping with an anticipated relationship issue: How and when should one best prepare for the event? The timing for response to an anticipated relationship issue will depend on its nature and when other priorities permit attending to it. The busy entrepreneur often is not able to attend to relationship issues when optimally warranted. People approach an anticipatory event in various ways: They ignore it, deny it will occur, minimize the impact of its occurrence, make preliminary and detailed preparations, and in the extreme become obsessed with preparation.

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Being Unable or Refusing to Prepare for an Anticipated Relationship Problem The prospect of having to face an upcoming uncomfortable relationship problem, such as a dreaded performance review, having to go to court, or having to explain to the bank a questionable projection, can result in an attitude of feeling impotent or refusing to do anything about it because of the anticipated discomfort in doing so. This often happens in a partnership when one partner knows he or she has to confront the other with a bothersome issue. The partner knows it would be better to think through the approach but is too angry to do so and decides to act on his or her first thought. Minimizing Impact of Occurrence In this case there is acknowledgment that an event will occur, but its impact is minimized. An example would be the case of an employee who anticipates that he will not get less than a desired performance review as he prepares for his meeting. He copes with his anxiety by convincing himself that it won’t have any major impact on him. Making Preliminary Preparations Acknowledging the possibility that a relationship is pending is expressed in preliminary preparations. They are preliminary because more information is needed to proceed further. Further preparation will be avoided as long as possible when doing so is distasteful. Contributing to this feeling is uncertainty about how to prepare for the event and the demands of other commitments that do not allow sufficient time or resources to make further preparations. Adding to the delay is concern for the potential consequences of making more detailed preparations. If the above mentioned employee had some concern about his evaluation, he might begin to prepare a defense for the anticipated criticism. However, he may be limited in how far he can go because he isn’t sure what he will hear. Moreover, having some idea of what he might hear may make him too uncomfortable to continue anticipating what might happen. Making Detailed Preparations Detailed preparations are made with the expectation that the relationship problem will provide for the most constructive outcome when it happens. If the employee had a good idea of what he was going to hear, he might try to prepare a detailed defense of his behavior. Being Obsessed with Preparation When one is anxious about coping with a problem, one can become completely absorbed in preparing for its occurrence. For example over-

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involvement with anticipating the evaluation could seriously interfere with the employee’s conducting work responsibilities. The amount of attention devoted to preparing for a forthcoming event will depend on the probability that it is likely to occur, its potential consequences, and the probability of what can be done to heighten or diminish the consequences depending on whether they are viewed as desirable or undesirable. If little or nothing can be done to cope with negative outcomes, then the evolving anxiety will likely be expressed in maladaptive behavior such as denying the event will occur or developing disruptive anxiety. If this happens, one’s capacity to function effectively will be significantly diminished. The process by which these assessments are made involves the emotional and intellectual preparation for anticipating that a relationship problem will develop and assessment of the ability to cope with it. The emotional preparation includes the feelings that the prospective problem arouses and whether a person feels he or she can cope with it. Another consideration is whether these feelings will impede the person’s ability to handle other events. The intellectual process involves an evaluation of all the elements involved in determining what is likely to happen, what resources are needed to cope with it, and the perceived ability to do so. Under consideration are such questions as: What is the likelihood problems will develop, and can anything be done to affect how, when, or where the event occurs? If it happens, how severe are the consequences likely to be? What can be done to change or control the degree of consequences, and what is the likelihood of accomplishing this? This process is facilitated by the use of mental rehearsal as proposed by Lazarus (1984). The success of this process will depend on keeping anxiety at a level that does not interfere with the described analytical process. According to Lazarus, mental rehearsal requires the motivation and discipline to adequately rehearse coping strategies in preparation for forthcoming events. Important consequences can result from successful rehearsal. Skill is gained in coping with the anticipated event at a level that approximates actual performance of the behavior, Lazarus states. This is likely to heighten the probability of a successful outcome and in turn would contribute to enhanced self-concept and ability to cope in other areas, resulting from skills and confidence gained through this process. Each successful experience increases the repertoire of resources. If the rehearsal is unsuccessful and the forthcoming event is significant, a large increase in the anxiety level is likely, which would interfere with adaptation to the event. Anticipation of a problem does not take place in a vacuum. It will be, in part, a function of what else is happening in the person’s life space. The ability to anticipate a problem may be affected in two ways:

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1. A disruptive event happens outside the choice of the entrepreneur. For example, the board of directors is unhappy with the results of the last quarterly report. 2. The entrepreneur has a choice of whether a particular event will take place. For example, the entrepreneur postpones meeting the company lawyer to address a legal problem.

If things are generally going well and a good supply of intellectual and emotional reserve is available, entrepreneurs will handle anticipated relationship problems with more comfort than if they are faced with other problems at the same time, thus taxing their constructive coping capacity. PROBLEMS IN TRAVERSING ANTICIPATION PHASE Anticipation Phase Casualness in anticipating how to cope with a forthcoming event misses the opportunity to maximize getting the most out of it. Being overzealous in anticipatory work is also a potential problem, imposing a drain on psychic energy and detracting attention from other issues. Another aspect meriting attention is sensitivity to detecting when anticipatory work is needed in a competitive environment. This sensitivity involves developing heightened awareness for opportunities that may support maintaining constructive business relationships. The following is useful in accomplishing this objective: 1. Prioritize relationships. A highly competitive business will require more attention than one that isn’t. 2. Identify content areas and events that may impact on the entrepreneur’s interests. This requires a way to conduct an ongoing survey of the quality of work relationships in service of identifying and addressing problems as soon as possible.

ADAPTATION PHASE Once a relationship issue surfaces, the entrepreneur’s attention shifts from anticipatory work to adaptation—from what to do, to how to cope with it. The best outcome is likely when the issue is important and anticipated, when appropriate mental rehearsal has been conducted, and when a strategy for dealing with it is defined. Relationship problems that require too much attention create added problems by draining energies that are needed elsewhere. Example A small company manufacturing temperature control equipment received a call from an irate customer who claimed that the company’s sales representative had

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misrepresented what their product could perform. The CEO’s initial reaction was to blame the sales rep, but he soon realized that resorting to blame would only compound the problem. The CEO felt the issue was important enough that he should put other pressing matters aside and attend to the problem. After reviewing the report of events from both the sales rep and the customer, he found that the sales rep had been too general in his presentation and that the customer had made certain assumptions that he shouldn’t have made. Fortunately, the CEO was able to resolve the situation satisfactorily.

The difficulty in keeping energies constructively focused interferes with the adaptation process. This occurs when the entrepreneur continues to focus on what might have been done to avoid a problem rather than on coping with taking care of what has occurred.

Options in Coping with Adaptation Adapting to an event involves adjusting to it, fighting it, or ignoring it. Adjusting to It It is necessary to determine what is needed to cope with the relationship problem and to be aware of how attending to this problem will affect other matters requiring attention at the same time. This evaluation leads to a cost/benefit decision as to which issues get priority. Example Jack and Joe, partners in a construction business, were negotiating the acquisition of a subcontractor’s business. After anticipating the pros and cons of doing so and how they would manage, they decided to make the purchase. Following the purchase they found problems they hadn’t anticipated. Principal among these problems was one involving three of the subcontractor’s employees who had hoped to buy the business themselves and were very disappointed they didn’t get it. The partners managed to define a working relationship with these important employees that was acceptable to them.

Fighting It This stage involves trying to prevent the event from happening, or at least minimizing its negative impact. In the preceding example, the employees of the company being bought did what they could to buy the company. Once it was sold, they were quite uncooperative until they realized that this was unproductive behavior. They needed to leave or work out an acceptable working relationship. Finding the new owners very respectful of their situation, they were able to negotiate an acceptable working relationship.

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Example In another company, a CEO found that one of his board members was becoming a disruptive force. The CEO tried different tactics to cope with the problem, enlisting the help of sympathetic board members to help manage the problem. He even tried talking directly with the board member. Finding no success, he eventually engineered the board member’s resignation.

Ignoring It This option is utilized when the relationship issue or its consequences are of low priority. This would be the case in the aforementioned example if the troublesome board member had been an annoyance but had little disruptive impact. Becoming Immobilized by It When a relationship problem threatens the survival of a business, management may become immobilized if all efforts to correct the problem fail. This is what happens when partners develop problems in their relationship that they are unable to solve. The ultimate result, usually, is a business divorce. Problems with Adaptation Fewer problems are likely to be encountered in the adaptation phase when anticipatory work is possible. This presumes that the anticipatory work will not detract from confirming that this preparation continues to be relevant once the relationship issues actually occur. The problem is more challenging when no anticipatory work occurs. There is the dual challenge of obtaining needed information and having to adjust to ongoing events. The following steps may be helpful: 1. As quickly as possible after the onset of the problem, determine the preliminary priorities of what needs to be addressed and in what order. 2. Determine what information is needed to act on priorities. 3. Gather needed information and apply it. 4. Periodically review progress and make appropriate adjustments. 5. Avoid the temptation to react without adequate information. 6. When it becomes necessary to take action without sufficient information, trust your instincts. As soon as possible, evaluate and make appropriate adjustments as outlined above.

MAINTENANCE PHASE Once adaptation has been achieved, the task is to maintain a satisfactory level of continuing performance. Whereas the adaptation phase requires

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conscious and focused energy that goes with facing the evolving situation, in the maintenance phase the new relationship should be sufficiently established that it ceases to require the conscious and deliberate monitoring that goes with working out new relationships. Accomplishing this objective frees up psychic energy that can be directed to other pursuits. Example Harry and Alex were considering a partnership in the development and management of a mall for small businesses. Recognizing that they did not know each other very well, they decided to spend time getting together, both socially and in developing a prospective business, to see whether their personalities, values, goals, and work styles were compatible. They successfully worked out some areas of difficulty in personality styles and values, and went on to have a successful partnership.

The maintenance phase has two components: to develop cooperative and productive working relationships and to prevent the development of conflicts that would affect adversely affect the ability of partners to work together. When an entrepreneur fails to resolve a conflict between two managers the entrepreneur has several options: change their responsibilities, replace one or both of them, or bring in an outside consultant to mediate a solution when they are valuable employees and neither of the other options is feasible. Partnerships that get into trouble have a more difficult time. When the discomfort becomes too great and partners are unable resolve their differences, a business divorce may be their only option. Their business may be at risk if they leave their unresolved differences unaddressed long enough to poison the emotional climate of the workplace. Employees are quick to reflect the tensions that exist when a partnership is in trouble. Once the business is up and running, entrepreneurs tend to get comfortable with their established routine and become sensitive to any relationship problems that may disrupt it. The ready response to coping with change in the adaptation period often gives way to resisting it. One way to avoid a disruption is to be sensitive to any signs that the seeds of disruption are germinating. Doing this prevents problems. Example The head of a marketing program for a large software company developed an effective working team. One of the team members, Helen, was due to go on maternity leave in two months. He gave a lot of thought to her replacement because the team was working on material for launching a new product. He wanted to be sure that her replacement didn’t interrupt the working relationships of the team, which was on a tight deadline. However, he had a problem. The logical person to replace her had had run-ins with two members of the team. He met with the three

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people involved and made clear the importance of not letting their past differences get in the way of their work. He met with them over the next two months to help them resolve their differences. By the time Helen went on maternity leave, he was satisfied that the team would incorporate the new member without unduly affecting its performance.

Partnerships evolve from the enthusiasm of a shared vision and trying to make it a reality (adaptation). Their relationship will be further tested once their venture enters the maintenance phase. There are different requirements for getting a business up and running and for keeping it running. Partners are likely to find that they need to renegotiate the basis of their relationships as the needs of the business change—from the intensity of starting a new business to the less tumultuous and more routine experience of maintaining it. Example Two partners had a great time developing a furniture mail order business. They were both bright, energetic, and creative. They did well in the anticipation and adaptation phase. Once the business was established and the stream of problems subsided to a steady trickle, they became restless and bored. Recognizing that running a business was not their thing, they decided to focus on starting businesses exclusively. Therefore, they now build a business to the point where they can sell it and use the proceeds for their next business.

The demands of business are always in flux, being either in range of expected variations of doing business or those that involve substantive changes. To be successful, a partnership must take care of both the normal variations of business and the unusual and unexpected ones involving major adjustments and innovations. Example Chris and Jack were an ideal combination as demonstrated by their successful insurance business, which catered to start-up businesses. Chris was great in dealing with innovation, and Jack thrived on running an efficient and profitable business. Chris would design products to suit a business’s needs. Once a plan was in place, Jack made sure that the account was well maintained.

Successful businesses tend to start simply and with success grow increasingly complex. Company’s therefore shift back and forth between the anticipation, adaptation, and maintenance phases. Having to do so can place heavy physical and emotional demands on entrepreneurs. This requirement will strain any partnership relationship unless the partners are realistic in building the capacity to deal with such needs.

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Example A man inherited the management of his father’s clothing business. He worked with his father and was quite comfortable in running a single-owner business with the aid of part-time help. Over time he decided to expand the business. The business grew rapidly, as did the physical demands and emotional complexity. He gave a lot of thought to the physical and conceptual management of this expansion but gave minimal attention to the possible impact on his employees. Getting carried away in the anticipation of new levels of complexity and more outlets in his business, he failed to implement and manage these changes. The result was economic disaster and bankruptcy of the business.

Problems in the Maintenance Phase Many events may disrupt a business’s maintenance phase. Disruptive events include changes in • Availability of material resources, including raw materials, finances, and proper physical environment. Any reduction in the physical resources needed to do one’s job will undermine job satisfaction and job security and increase tension in work relationships. • Company’s mission, goals, and priorities. A change in a company’s values, goals, or priorities is likely to alter its relationship to employees and heighten interpersonal tensions. Job security may also be affected if a change in needed skills takes place. • Changing need of work product. This would threaten job security. • Personnel practices. Changes in benefits, performance reviews, and salary increases will create tension with management and negatively impact on morale. They may also raise job security issues, depending on the context in which these changes are presented. • Management. Changes in management policies or practices, including financial status of the company, which would negatively impact on all employees, particularly when they are imposed without input or explanation. • Personnel. Loss of key personnel may be disruptive to work relationships. Greater relationship problems may result if the loss was a reflection on management. • Motivation. The employees’ motivation would be affected for any of the above reasons.

The maintenance phase can slip into mindless behavior when functioning becomes routine. Under these conditions it is easy to miss cues that indicate existing or potential relationship problems. To avoid this problem: 1. Develop a checklist to indicate the presence of problems. Examples of items include changes in relationships among employees, increasing numbers of con-

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flicts, decreased quality of work product, diminished interest in work, increased number of sick days, increased distractability, and heightened tensions. 2. Periodically review this checklist because the occurrence of these symptoms may not always be obvious. The occurrence of any of these symptoms may indicate underlying relationship issues that should be evaluated.

TERMINATION PHASE Termination marks the ending of an experience and encompasses the consequences and feelings that result from it. The consequences range from the inconsequential to the heart rending: from the lingering calm of a just finished cigarette to the end of a beautiful sunset to the loss of a job to the death of a loved one. It may be just a temporary or a permanent loss, with or without a person’s choice in experiencing the change. It may seem odd to view the ending of a negative experience as a loss. Analogously, people may be happy to be released from prison but mourn the loss of friendships they had there. Entrepreneurs may be happy to be out of a troubled partnership but mourn the loss of good feelings they had when they formed the partnership. The significance of the loss is a function of the discrepancy between its severity and the ability to cope with it. Another significant consideration that affects coping with loss is the power of familiar ways of behaving that suddenly end with the loss. Recounting memories of the loss and feelings of the experience involves adjusting to the absence of them, feelings that result from the change, judgments about why the change resulted, and who was responsible for it. Termination does not usually end with cessation of the physical experience but with closure of the emotional experience. It may end immediately when the event has no emotional significance. Commonly, it can take any length of time, and in some situations it never ends. One sometimes hears of situations in which a person dies of a broken heart after the death of a beloved spouse. Entrepreneurs who lose their businesses may never get over the loss. Adjustment to significant losses is aided by rituals. Christians have a wake to cope with death, and the Jews sit “shiva,” a formal mourning period followed by entertainment restrictions for a defined period after burial. Retirement parties mark the end of a career, just as graduation marks the end of college and facing the reality of adulthood. The intensity and difficulty encountered in dealing with the termination phase depend on whether it occurs through choice or by accident and on whether it is anticipated. Mourning that results from choice, such as resigning from a job, carries the positive feeling of having had control over the event. This facilitates adjustment to a loss, even when the choice was an ambivalent or undesirable one. Loss that is unexpected is generally the most debilitating and can be

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totally disruptive in all aspects of the life space. Being fired from a desired job for cause could have many ramifications: embarrassment with colleagues, friends, and family; problems in getting a reference; and the need to look for a new job. Similar experiences can result from a bankruptcy, which has the additional problem of impacting one’s business life and credit standing for a number of years. When a loss can be anticipated, one can prepare for the event and thus experience a less painful adjustment. Entrepreneurs who recognize that their businesses are likely to fail can take actions that will minimize the loss. Fired employees have an easier time with the loss when they know that their performance was deficient; they therefore have time to anticipate coping with the loss. Adjustment to loss is more difficult when there is uncertainty about the future. Example Helen had been involved in running her fabric business for 30 years. Eventually she sold her business and retired. She had a very difficult time making the transition. She deeply missed the challenge, loss of social contact, and feeling of being productive. She felt as though part of her died.

Coping with the Mourning Process Permanence of a Loss The permanence of an undesired loss significantly affects adjustment to it. The temporary loss of a critical employee’s services will have very different consequences for an entrepreneur than if this employee left the company to take another job. The problem for the business would be even greater if the entrepreneur could not replace the valuable employee. Still more difficult would be the outcome if the employee went to work for a competitor, taking the company’s customers along. The entrepreneur also would have to deal with the additional loss that came from betrayal. Speed of Onset As noted earlier, losses that gradually develop provide an opportunity to anticipate how to adjust to them. It becomes much easier for an entrepreneur to cope with bankruptcy when it evolves over a period of time than when it happens suddenly. A partnership that gradually deteriorates is easier to deal with than one in which one partner announces, quite unexpected, that he or she wants to terminate the partnership. Ambiguity of Loss Loss experiences are not always clearly defined. One may have the impression that one’s reputation was tarnished but be unclear about how or

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to what extent it occurred, or a partner may have the feeling that something has changed in a relationship with a partner but be unable to put a finger on it. Example Sarah and Gail had been partners in a graphic design business for 10 years. Their relationship had been comfortable, but Gail sensed that something had very subtly shifted in the past year or so. She now felt a distance that hadn’t been there before. After struggling with her concern for weeks, she discussed her feelings with Sarah. She learned that Sarah had been harboring resentment over a decision she had been pressured into making a year before about hiring a new associate about whom she had doubts. Gail, surprised that she had been so unaware, apologized for what happened.

Centrality of Loss The more a loss is confined to one segment of an entrepreneur’s experience, the less impact it is likely to have. The death or significant health problem of one partner will have far more impact on a business than the departure of an employee. Severity of the Loss Reaction to a loss is affected by how deeply it is felt. Losing a major client that provides work for several lawyers in a practice will have more impact than the loss of a small account. An entrepreneur will feel the loss of a hard-to-replace employee far more than one who is easily replaced. The length of time one is exposed to a loss is another dimension of severity. Being fired from a job is an intense experience in itself that may increase geometrically if failure to find another job goes on for an extended period. A person’s diminished capacity to perform a job is another contributing factor to severity of loss. An entrepreneur will be faced with a very difficult problem when a valued long-term employee’s health problem results in diminished job capacity. The entrepreneur will have to struggle between loyalty to the employee and significant financial consequences. Example Peter, the senior programmer in a software firm that produced software machine tool operations, developed an immune deficiency illness that left him with limited energy. His productivity dropped from his normal 10-hour day to barely five hours. His reduced creative capacity also affected the productivity of the five programmers who depended on him for their work assignments. John, his boss, an entrepreneur who valued loyalty, struggled with how to do justice to both Peter and the business. After much deliberation and discussion with Peter, he resolved his dilemma by

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negotiating a reduced salary for Peter. This preserved Peter’s job and gave John some needed funds to hire an additional senior programmer.

For many people, aging or a decrease in physical capabilities becomes a significant loss when their identity is heavily dependent on these characteristics. Thus, the businessman who could work 13-hour days and enjoy it is depressed when he finds that an eight-hour day saps his energy. Meaning Attached to the Loss The “objective” consequences of a loss can have little to do with the meaning attached to it. Example An entrepreneur had two rejections from venture capitalists for a new product that would increase gasoline mileage. Understandably, he was very disappointed, but he simply did not understand their decisions. He was so convinced about the merit of his ideas that he felt the rejections were not about his proposal but a measure of his competence. He did not regain a more appropriate perspective until he was successful in another venture.

Many people attach symbolic meaning to things or events that may be routine to other people. Example Herb and Pat had been partners for a number of years when Pat decided he was tired of the business and wanted to do something else. Herb was hurt and disappointed by the decision and had a hard time accepting it at face value. He took it as a negative statement of his value as a partner.

Context in Which Loss Is Experienced Reaction to a loss is affected by the context in which it occurs. Often a given loss experienced under one set of conditions will be experienced differently under another set. A man who loses his job and has alternatives available will have a different experience from the man with no prospect of another job. The same holds true for relationships. A person who loses a significant relationship but has confidence of finding another one will manage the loss quite differently from one who doubts she will ever find another one. Example A business partnership between Kate and Maggie was successful for many years. When Kate decided she wanted to leave to do something else, Maggie was disappointed to see Kate leave. The success she experienced in her relationship gave her the confidence that she would be able to find another suitable partner.

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A very different outcome occurred in the breakup of the partnership between Alex and John. They had a rocky time during most of their 10-year partnership in a box manufacturing business. They considered terminating the partnership on several occasions but didn’t do so because it seemed easier to put up with their periodic struggle than to go through the stress of battling over how to dissolve the partnership. The end came when Alex decided he had enough of the box business. John vowed that he would give up the business before he would consider getting another partner.

The way a person or partnership views the consequences of a loss sets the context for how to relate to it. If a loss is viewed as irretrievable and its occurrence is devastating to one’s lifestyle or the survival of the partnership, then it is seen as a traumatic event. This in turn is likely to interfere with functioning in other areas, which only adds to the impact of the loss. When the loss is viewed as more manageable, it leads to only temporary disruptions and disappointments. Entrepreneurs who view the failure of their business ventures as conclusive evidence that they are not meant to be in business will view their losses as devastating. It may even shake their confidence in other aspects of their lives. Other entrepreneurs may view the same experience quite differently. They may view their losses as a learning experience, however disappointing. They will try a new venture with renewed confidence born of the lesson they learned from their failure.

Categories of Losses Entrepreneur need to be able to overcome losses in critical areas that including the following: Opportunity Entrepreneurs need to be ever vigilant of opportunities, whether physical, emotional, material, or otherwise. Without this vigilance, they will have little entrepreneurial spirit. Support Emotional support is critical in overcoming a loss. This support makes a major contribution in overcoming feelings of abandonment, guilt, incompetence, loss of self-confidence, and more. Prospective entrepreneurs who struggle against the winds of rejection and disappointment need all the support they can get.

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Confidence Confidence fuels the energy needed to take the risks that may lead to success. Support for self-confidence is gained by learning from past loss experiences. This requires that these losses be viewed in a balanced way— paying as much attention to what went right as to what went wrong. Careful attention to understanding what went wrong will provide confidence that the same mistakes will not be repeated. Analytical Ability This ability is essential in discriminating between what works and what doesn’t. After suffering a loss, people need time to mourn before they can regain their analytical ability. Entrepreneurs should not judge their competence while they are in the throes of disappointment over a lost venture or opportunity. Physical Capacity Entrepreneurship makes many physical demands. Therefore, it is necessary to maintain physical health, even if it creates some inconvenience. This means one must take time from work to tend to these needs. To ignore physical needs is only to invite further loss. Vision or Ideal Visions are the lifeblood of entrepreneurial life. Suffering a loss can blur the entrepreneur’s visions. For most entrepreneurs this is a temporary state, and soon after a lost venture they are off chasing another vision. Ethics Ethics is the compass that keeps entrepreneurs focused on how to behave in pursuit of their vision. When they sacrifice ethics for a momentary gain, they run the risk of losing the trust of those who depend on them. Once trust is lost, there is no rushing the time it takes to recoup it. Ultimately, the price entrepreneurs pay is the lost support needed for success of their venture. Losses May Involve Coping with Mixed Feelings Loss may be experienced positively, negatively, or both. Positive feelings occur when negative experiences end. For example, the firing of a hostile supervisor is a doubly positive loss or change: the absence of harassment and seeing someone get what they deserve. Loss experiences are negative with the ending of desired positive experiences. Examples include being laid off, ending a significant relationship, and completing a rewarding project. Many situations involve both feelings. For example, an entrepreneur who loses a valuable employee will miss her valued contributions but will be

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happy not to have to deal with her difficult personality. The overriding experience of a loss is determined by the balance between the positive and negative resultant feelings. The loss experience is more complicated when the positive and negative feelings are approximately similar. In these situations, the depth of the loss will depend on whether the positive or negative feelings are dominant at the moment. Loss History A person who has experienced and survived many losses over a lifetime is likely to cope more successfully with a new loss than a person who has had little loss experience. Failure to come to terms with prior losses can heighten one’s reaction to a new loss, adding the additional complication of not being able to determine how much of current reaction is due to the present situation and how much is due to being reminded of a previous loss. The accumulation of too many losses, resolved or unresolved, without sufficient counterbalancing experiences has a serious impact on one’s selfconfidence. Entrepreneurs who have a long history of difficulty working collaboratively with others are likely to create a work environment in which they work alone and their dealings with others are formal and minimal. This becomes their way of protecting themselves from further disappointments. Combination of Losses When too many losses occur in a span providing no time to adjust, there comes a point when the accumulation becomes overwhelming. The result can range from a diminished capacity to cope to immobilization. When this happens, it affects behavior in ways that will trigger losses in other areas of life. Example Keith, an entrepreneur in the hardware business with three stores, suffered a series of losses when the economy turned down—notably, increasing competition, difficulty getting the desired inventory, and the departure of key employees. As long as the rest of his life was reasonably stable, he was able to deal with all these adverse circumstances, but when his wife became seriously ill and his son suffered a serious automobile accident, Keith found it difficult to concentrate on anything, which only resulted in more problems. He regained his confidence only by focusing on simple projects over which he felt control: paying bills, trimming the bushes, and gradually moving to more challenging tasks.

Coping with Mourning The mourning process associated with death provides useful insights into how entrepreneurs handle major losses. The traditional mourning process

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serves three functions: it show respect for the deceased, it provides an outlet for feelings of loss, and it marks transition to a replacement of the loss. Kubler-Ross’s (1979) well-known articulation of the stages a person experiences when faced with impending death is as follows: First, the person experiences shock, denial and isolation, then anger, bargaining, depression, and finally, acceptance. There is a counterpart set of stages for the person experiencing the loss of a significant person or other experience. These stages include reactions of shock, denial, anger and guilt, depression, and acceptance. Shock occurs when the loss is unexpected, as in the case of a sudden death or an unanticipated firing. Denial may follow as a defense against the resulting loss. Once the denial wears off, anger at the cause of the loss may be expressed. Guilt will be involved to the extent that the person feeling it believes he or she contributed to it in some way. For example, an employer may feel guilty about an employee’s physical breakdown, wondering whether the pressure he put on his employee in the preceding months to meet a product deadline was a contributing factor. Sadness that may lead to depression is likely to result as the full impact of the loss is experienced. As a person adapts to the reality of the loss, attention gradually turns to acceptance, and from this resignation emerges the realization of how to cope with the resulting changes. This process is facilitated once the mourner is more able to find an acceptable way to replace or develop alternatives for dealing with the loss. Example Max and Sam had been partners in a box manufacturing business for 20 years. They got along extremely well and often joked about being like brothers. One day Max went into Sam’s office to ask him a question. To his surprise, he thought Sam was asleep. As he got closer, however, he realized that Sam was dead. After he got over the initial shock of Sam’s death, he was angry that Sam had abandoned by him. Feeling the business would never be the same, he began to lose interest in it. Interwoven with these feelings was guilt that he may have put too much pressure on Sam and that he, Max, had not contributed enough to the business. Eventually, however, he accepted the fact that Sam was gone and that he would have to carry on alone, sell the business, or consider getting another partner.

A number of factors affect the success of the mourning process. Centrality of Loss to the Entrepreneur The more a person was dependent on the lost relationship or lost experience, the greater will be the difficulty in managing the mourning process. The above case of Max and Sam illustrates the experience in terms of a significant business relationship.

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Familiar versus Unknown A loss involves the ending of something familiar. Adjustment will be facilitated when other familiar experiences can replace the loss. Fear of whether and what kind of replacement is possible complicates and may delay the progression of mourning. Entrepreneurs may view the possibility of bankruptcy as the ultimate disaster. Once they go through the experience, the prospect of another bankruptcy may not be any more desirable, but they would be familiar in coping with it. Risk of Further Losses After suffering a significant loss an entrepreneur may have little or no desire to become vulnerable again and risk yet another loss. In the above case example, Max had little interest in considering another partnership. However, as time passed and the burdens of the business got increasing demanding, he began to reconsider another partnership. He was reminded of the good relationship he and Sam had, and he gained some confidence that it could happen again. Eventually, he did find a new partner. Replacement of a loss brings many benefits relative to the pain involved. Once adjustment to the pain takes place, the benefit side may surface. Example Patrick and Clyde had been partners in an oil delivery business for 22 years when Clyde died unexpectedly. Once Patrick recovered from the shock of Clyde’s death, he began to ponder how this would affect the business. At first he was angry over having been abandoned. Then he felt guilty about his anger. He wondered how well he would be able to run the business on his own. On the positive side he also realized that he wouldn’t have to argue over differences in business strategy. He was pleasantly surprised to find that he was able to manage the business on his own.

Inability to Accept a Loss The length of the mourning period varies according to the meaning of the loss and the availability of a replacement. In extreme cases, the mourning process may never end. Example In the case of Max and Sam, Max eventually found a new partner. While the new partnership was reasonably successful, Max made continual reference to what Sam would have thought and what Sam would have said or done. Charlie, Max’s new partner, was able to cope with this ghost because Max would accept reminders from Charlie when reference to Sam began to annoy him. The references to Sam gradually diminished as Max and Charlie’s partnership took on a life of its own.

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Reminders of Losses After the acute mourning has ended, people may commonly reexperience the loss when there are reminders of it. Example Two brothers, Max and Eddie, were partners in a grocery supply business for 30 years when Max got cancer and died. They had gotten along well and had been very close since childhood. The loss was devastating to Eddie. He had not only lost his brother and partner but also his best friend. Max had been a devoted football fan. Whenever Eddie saw a football game it brought nostalgic memories of Max.

People who have died are often remembered on special occasions that were shared with the deceased. This includes holidays, birthdays, weddings, anniversaries, graduations, and other events where the absence of the deceased person’s presence is felt. Such experiences are not limited to deaths. The same feelings can occur with loss of a job, loss of physical abilities, loss of status, and more. In a partnership relationship special occasions would include the start of the partnership, celebrations in grossing the first million, purchase of a new building, and going public. Ability to Replace Losses A frequent pattern after the initial mourning period is for the intensity and frequency of such experiences to gradually diminish over time. How long such experiences will have significant impact on one’s functioning depends on maturity and the ability to find replacement for the loss. Example After Clyde died unexpectedly, his partner Patrick continued to run the business. But the excitement of managing the business alone soon lost its luster for Patrick. He decided to find another partner. He found this more difficult than he anticipated. The process was complicated by his comparing each prospect to Clyde and finding them wanting. As this process went on, he found himself vacillating between missing Clyde and cursing him for dying. Once he recognized that he would never find a partner if he kept comparing prospects to Clyde, he was able to see that he’d already found a suitable partner.

Effect of Mourning on Entrepreneur People in mourning usually share the experience with others or have a supportive environment as they go through the process. The effect of a significant loss is likely to spill over and impact the ability to function in other areas of their lives. The ability to adequately cope with the mourning will be influenced by what other losses are being experienced in other parts

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of a person’s life space. Too many losses experienced at the same time can create an emotional overload and impair the ability to deal with any of them. The problem gets worse when the present situation triggers memories of past loses. Example John was preoccupied with saving his machine tool company. He was managing with some success when his wife developed cancer and, within a short period of time, his father had a heart attack and and his granddaughter required surgery. The coincidence of all of these events occurring in close proximity left him emotionally depleted and unable to handle any of these crises. He was able to regain his ability to cope as the crises were resolved—his father survived his heart attack and his granddaughter recovered from her surgery with no permanent consequences. This left him to cope with the long-term problems of his business and his wife’s illness.

There are some added considerations in coping with mourning when a group is jointly involved in mourning a loss and there is little or no ability to support one another in their grieving. Under such circumstances, the mourning is complicated by the expression of one member’s grief intensifying the experience of others and resulting in contagion that complicates the grieving process for all involved. Example The death of two partners in a plane crash of in a construction company plunged the other five partners into deep mourning, seriously impairing their ability to perform normal functions over a two-week period. This would probably have continued far longer period except for the notification from the bank that their loan payments were overdue. This crisis temporarily jarred them out of their mourning.

Problems in the Termination Phase A person is likely to resist completing the termination phase when no viable alternative is available. The inability to find a replacement for the loss can lead to a chronic impairment and preoccupation of the loss. Example Bob and John were partners in an auto parts business for over 30 years when John died quite unexpectedly from a heart attack. The loss was very difficult for Bob to take both because he had been very dependent on John in the business and because of their close friendship. The loss was too much for him, and he sold the business. He had no family and now no business. He was left with memories and little energy to attend to anything else. Within in six months he died of what friends called a broken heart.

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Another difficulty entrepreneurs may have in dealing with the loss of their business is that it has been so much apart of their life that it is too difficult to have it end. The work of termination is complicated when the effects of termination spill over onto other activities. INTEGRATION PHASE Incorporating the learning gained from the other phases—anticipation, adaptation, maintenance, and termination—is reinforced during the integration phase. Contrary to common wisdom, people do not always automatically learn from their experiences. For new learning to become part of a person’s way of thinking and acting, the new behavior must be sufficiently practiced that it becomes automatic behavior. Otherwise, the good intention of learning from an experience will quickly give way to the old practiced ways. Just as some people repeat the same mistakes in multiple relationships or marriages, so some entrepreneurs go from one failed venture to another, repeating the same mistakes. Entrepreneurs would be wise to evaluate what new learning has occurred and how to incorporate it into their daily practice until the new learning becomes integrated. One option is the following proposal, which is based on the idea that redundancy is basic to making new learning automatic behavior. 1. Schedule time on a daily basis to review the days’s new learning. This would include new insights and what can be learned from mistakes. 2. Summarize the learning on a weekly or monthly basis. 3. On a semiannual basis, review the accumulated learning, showing how it applies to a company’s mission. (This review will concern application of general principles gained from the more detailed reviews.) 4. Design the specific program for integration of learning to fit the unique needs of each business.

These reviews should be summarized in written form to facilitate periodic review. REFERENCES Kubler-Ross, Elisabeth. (1979). On Death and Dying. New York: Macmillan. Lazarus, Arnold. (1984). In the Mind’s Eye: The Power of Intimacy for Personal Enrichment. New York: Guilford Press.

Part II

Developing and Managing Business Relationships

Chapter 12

Development of the Business Culture Business culture refers to the composite of all the partnerships (active, product, and collateral) related to a business. In forming and operating any joint venture, it is necessary to define how people should relate to one another— that is, to define the needed culture in which to pursue their joint interest, including a value system, performance expectations, and guidelines for behavior. Developing an appropriate business culture is a necessary tool to aid entrepreneurs in achieving their vision. Entrepreneurs also need guidelines for relating to their employees and the outside world—suppliers, customers, banks, and so forth. Role theory in social psychology provides perspective on how relationships are defined. The starting points for relationships are the two contexts in which they occur. First are the formal positions that serve social needs such as police officer, doctor, lawyer, bus driver. The formal positions carry clear definitions of appropriate behavior needed to carry out the function of their position. Second are the informal positions of friend, manager, and employee. The appropriate behavior for these positions is defined by the participants in each situation within the broad limits defined by society, such as not breaking the law. In the business context, these positions are defined by the company’s organizational chart, such as CEO, CFO, vice president, manager, supervisor, and secretary. The code of behavior for both formal and informal positions is defined in three categories of behavior. • Required behaviors that are necessary to hold a given position. For example, a manager must have certain technical skills, be able to manage people, and meet deadlines.

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• Prohibited behaviors that must not be performed if the position is to be occupied. A manager must not countermand the CEO’s directives, divulge company secrets, have personal relationships with subordinates, and so on. • Permitted behaviors. All behaviors not accounted for in required or prohibited categories are permitted. These behavior allocations are not static; rather they are moved from one category or another as need dictates. For example, an entrepreneur may decide that permitting a manager to perform certain work duties at home is no longer permitted.

As stated in Chapter 2, partnerships represent the attempt of two or more people to form an alliance for the purpose of engaging in a business activity for mutual benefit. This relationship gets expressed in the business culture definition, which, as noted earlier, shows how they will relate to one another in pursuit of the business mission, and it involves defining required, permitted, and prohibited behaviors. In practice, the definition evolves over time. It starts with the base of behavior appropriate in normal behavior, such as honesty and respect for one another, and it goes on to include other behaviors as the need becomes evident. For example, partners agree that financial commitments can only be made jointly. DEVELOPMENTAL PHASES The business culture evolves from progression through a series of developmental phases: exploratory, trust, stabilizing, and closure. The Exploratory Phase Figure 12.1 illustrates the process involved in beginning a business relationship. An entrepreneur approaches employees to work in a prospective business venture. The business culture evolves from meetings they hold together, which provide the information needed to determine whether the partnership is viable. They bring to the meeting a combination of personal history and work history (personal culture) that reflects how they regard themselves and how they relate to others. Their education and experience result in defined values, beliefs, attitudes, and skills concerned with pursuing their occupation. Each job further refines their perspective. This exploratory phase continues until both agree to a mutually satisfactory definition of their working relationship—a critical juncture that marks the start of the business culture. Included in this definition are a statement of the mission and the structure for how it will be achieved, with an awareness that the business culture is a dynamically evolving partnership between the participants. In the case of an active partnership, this same process is set in motion except that it takes place between two entrepreneurs. This process involves

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Figure 12.1 The Start of a Business Relationship

a collegial negotiation marked by shared risk and collaboration in pursuit of a business objective. This is in contrast with the product partnership, which is hierarchical—that is, employees do not share the same risk, and they get involved in business decisions at the pleasure of the entrepreneur(s).

The Trust Phase The second phase involves the development of trust and confidence that the business culture is a viable support for a successful business. This phase continues until enough experience accrues demonstrating that the business culture is sufficiently productive. That compatibility is possible leads to definition of the business culture as depicted in Figure 12.2. The compatibility is explored further in moving to a concrete definition of the business culture that takes in the work ethic, compensation, job descriptions, working conditions, and the other variables (see Chapter 13) on implementation of the business relationship. Figure 12.2 also shows that the definition of the business culture is influenced by the family culture of the participants. The family culture influence refers not only to how their past history affects their current behavior but also to how the demands of their current family affect and are affected by the current business venture. Needs of the family could impact the business in a number of ways: for example, illness of family members, which may interfere with business duties; family problems;

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Figure 12.2 The Development of a Business Culture

desire of other family members to be involved in the business; and an unstable marriage relationship. On the other hand, when the effort to build trust contains too many obstacles or requires too much energy, the business culture deteriorates to the point that the business fails. It gets expressed in overt statements that may be made about the unworkability of one or another part of the business culture, or the behavior of the principals may carry the same message. At the same time, entrepreneurs may become more arbitrary and less concerned about how their behavior impacts their employees. For their part, the employees become appositional or disengaged. To survive, the business culture must adjust to changing needs and circumstances over time. Some needs, such as producing a good product that makes a profit, are obvious. Others are more subtle and wreak havoc if ignored—for example, setting up personnel practices or safety considerations. Though not exciting, these issues must be addressed to prevent their becoming a problem. Guidelines for developing and maintaining a successful business relationship include the following: 1. Each participant should acknowledge the needs of other participants—entrepreneur and employees, manager and subordinates, company and customers. 2. The rules for interaction should be understood and acceptable to all participants. 3. A safe environment that supports self-expression should be operating. 4. All people involved should understand the mission of the business and their part in making it happen.

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Figure 12.3 External Influences on Business Culture

5. Disagreements should focus on issues and should not devolve to personal attack. 6. All participants should be kept informed of company progress and be acknowledged for their own achievements. 7. Members of the company should show respect for differences. 8. Constructive tools for resolving conflicts should be provided that are respectful of all concerned. 9. Attention should be paid to cultural background and to the biases that may result from gender differences.

The Stabilizing Phase During this phase, the work accomplished in the exploratory phase is reinforced as kinks in functioning as a coordinated team are ironed out. Procedures that were initially unfamiliar become familiar, practiced, and well established. As this happens, increasing amounts of energy are expressed in productive and satisfying relationships. The continued success of the business depends on the company’s ability to adapt to changing circumstances in technology and in the marketplace without adversely affecting the quality of these relationships. Figure 12.3 illustrates some of the external business influences that affect definition of the business culture during the stabilization phase. As noted earlier, the business culture must be able to adjust to changes owing to pressures from within the business and external to the business. For example, changes in interest rates, marketplace competition, or the company’s product can all have a profound effect on working relationships. Specifically, the cost of benefits has increased to the point that some employers are devising ways to avoid or minimize these costs. The resulting strain

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between management and employees leads to diminished employee morale and loyalty. To survive, a business’s income must exceed its expenses. Business cultures go through development parallel to that of humans, including infancy, latency, adolescence, young adulthood, adulthood, middle age, and old age. But unlike humans, a business need never “die.” Analogies from human development are useful in understanding the business life cycle. For example, familiarity with the adolescent struggle between dependence and independence can be helpful to an entrepreneur managing employees who want to do their own thing before they may be ready to do so. The entrepreneur who struggles with retirement faces some of the same issues in principle as an elderly person who comes to grips with aging. Mind-set is another important consideration in developing a business culture. Once a given behavior is learned, it no longer requires conscious management, and it becomes an automatic behavior, which Langer (1989) refers to as mindless. Conversely, behaviors that require conscious monitoring are referred to as mindful behavior. From this vantage point, developing a business culture involves moving the entrepreneur and employees from the mindless behavior of their familiar world to the mindful behavior required in establishing a new business. The entrepreneur must therefore be aware of the mind-sets that both entrepreneur and employees bring to the new work environment. Many new behaviors will have to be learned which involve shifting undesirable mindless behaviors useful in other situations to mindful awareness so that they can be adapted to the needs of the current business venture. For example, employees in sales may need to change their way of selling from what was appropriate in their former jobs to one that fits the current business. The occurrence of too many mind-set changes at the same time affects the employees’ ability to absorb new information and may lead them to repeat old, counterproductive patterns. The ultimate outcome may be undermined self-confidence and morale and interference with productivity. A major function of the stabilization phase is to establish basic work procedures that will obviate the need for mindful attention to routine behavior. This will free up psychic energy, which can then be diverted to meeting both the physical and emotional demands of new situations. The Closure Phase Even the best use of resources may not always be enough to develop the quality of work relationships necessary to make a business successful. The particular business culture involved, a disappearing market, difficulty in maintaining healthy work relationships, changing economic conditions, or competition may all be factors in preventing success. With failure, the partners are left to cope with the vanishing dream on both an emotional and

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business basis. They will also need to learn from the experience to enhance the probability of success in the next venture. REFERENCE Langer, Ellen J. (1989). Mindfulness. Cambridge, MA: Addison-Wesley.

Chapter 13

Implementing the Partnership “Marriage” In Chapter 2, the general characteristics of partnerships were discussed. The current focus considers in more detail what is involved in implementing an active partnership. Once partners decide to pursue a partnership, it is common practice to effect it through a legal agreement to protect the interests of all parties. The agreement sets forth the specific nature and expectations of both partners in their business relationship. Generally, these agreements may define the proportion of ownership, responsibilities, accountability, financial commitment, and compensation. Agreements also stipulate how the parties may terminate the partnership. Knowledge of the Uniform Partnership Act (Davidson 1993: 62–78) is helpful in developing this agreement. This act, which has been adopted by many states, defines the rules that govern partnerships. A cavalier attitude toward producing a comprehensive partnership agreement invites instability.

EFFECT OF RELATIONSHIP ISSUES ON PARTNERSHIP AGREEMENTS A partnership agreement is drawn up together with the business plan and is accomplished in concert with defining the business plan and how the “marriage” will be conducted. A business plan is not a legal document; rather, it is a “blueprint” for defining and accomplishing the business objective. Carefully formulating this agreement greatly increases the likelihood of achieving a satisfying relationship and building a successful business.

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Testing Partnership Potential The process of negotiating the partnership agreement provides an opportunity to test the viability of the working relationship. It includes a trial run of the partners’ ability to relate to their business and individual needs. A critical part of this effort will test their ability to work out differences constructively. Often, the difficulties that this process naturally entails are minimized or rationalized under the pressure and excitement of starting a new business. Warning signs, such as differences about ownership interest, management control, and financial contributions and responsibilities, go unheeded and become a “time bomb” waiting to go off. This is much like the whirlwind romance that results in a quick marriage before the couple can learn whether they are compatible. In both situations, the result is a greater probability of divorce. Prenuptial Agreement The prenuptial agreement may be separate from the partnership agreement and is just as relevant in business as it is in marriage. For example, partners may have assets they do not wish to commit to the partnership. They may be willing to use these resources in the business only on the understanding that these assets are loaned or leased to the partnership and are not part of the partnership’s capital contribution. The prenuptial agreement may include assets other than financial assets, such as issues relating to what happens when a partner leaves voluntarily or involuntarily, in the case of disability, death, and retirement. It is also highly desirable to include details on how to determine the value of the partner’s interest and payout terms if this is not spelled out in the partnership agreement. Nepotism An issue that often causes major problems in partnerships is nepotism— the involvement of family members in the business. Hiring family members frequently creates a conflict between partners’ commitments to the business and to family members. A clearly defined policy on nepotism can reduce the problem, but it is not likely to completely eliminate it because emotional commitments do not easily yield to logic. These problems also have a reverse impact. Conflicts that normally exist between partners that are not resolved often spill over to members of the partner’s family. The best way to minimize problems related to hiring family members is for the family member to report to someone other than one of the partners. An agreement should also be drawn up stating that the partner whose family member is involved will not participate in any decision involving

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that person. This is a very tall order and is likely to test the best resolve of all parties. Example The Construction Company illustrates how nepotism can be a problem. This was the case in which two brothers, Ernie and Jerry, gave one of their sons premature managerial control that almost resulted in the company’s bankruptcy. Marshall and Ernie excluded Jerry from management decisions. Ernie’s desire to have his son, Marshall, be a part of the business almost destroyed the company. It took legal action by Jerry to get Ernie to see the way his son was destroying the business.

Problems that occur when dual roles are combined are most readily seen in family businesses. Business judgments are often unduly influenced by emotional connections to family members, reinforced by pressure from other family members. In one family business, a mother was not a formal participant in the business, but she was continually pressuring her husband to treat their son in a manner that was not consistent with his performance or good for the business. This created a situation that was not good for the son, the marital relationship, or the business. IMPLEMENTATION OF THE BUSINESS PLAN A business plan defines goals and the ingredients needed to accomplish them: financial projections of income and expenses, personal needs, evaluation of the market, organizational structure, and marketing program. Each of these items is a link in a chain, with failure in any one part jeopardizing the entire effort. Success depends on the partners’ ability to agree on the concept of each step and on how to put them into practice. Through careful consideration in drafting the plan, one can anticipate and solve any relationship problems before they occur. Usually missing in business plans is attention to defining the partnership relationship. The following discussion of the business plan addresses personality and relationships issues that play an intrinsic part in implementing the plan. The technical aspects of drafting the plan are outside the scope of this book. Delivery of Products/Services Mission Statement The mission statement defines the general objectives of the partnership and provides the blueprint that guides the partners in developing their business. Defining the business goal is the next step in developing the business relationship. As in marriage, partners join forces to form a new relationship. Each brings his own value system describing how to behave in a

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relationship. It is prudent to negotiate the value system that will be applied to the business in relating to employees and the marketplace. To do otherwise will provide a rocky road for the partnership relationship. Operationally Defined Goals In order to be successful, a business must have operationally focused goals that keep the expenditure of company resources, labor, and finances focused. This focus is possible only when partners share the same operational definition of goals. The situation is very similar to what can happen in marriage. Two people in the glow of romance may decide to get married with the goal of finding happiness and starting a family. But if they neglect issues of compatibility on what happiness means and how to achieve it, the marriage will be at high risk. In a like manner, a successful partnership depends on the partners’ ability to jointly address the following questions: • Is there a clear definition of the product or service? • Is there an operationally defined goal? • Is there a realistic time frame for achieving the goal? • How can one determine when the goal is achieved? • What standards will be used to measure success: quality and quantity of product, or monetary return? • What standards will determine which service or product is offered to what market? • What capital do the participants need to contribute, and how much needs to be borrowed? • Is their a commitment to a periodic review of goals?

These questions demonstrate the need to define all behaviors that are observable and measurable. Although partners may readily agree on the conceptual framework for starting their business, they may have a harder time coming to consensus on how to implement the various aspects in behavior in as much as there are many ways to implement a given objective. The issue may involve details of marketing, production, hiring employees, and so on. An ongoing and subtle undercurrent that gets played out in these deliberations is a sense of competition and each partner’s need to feel the other is carrying his or her weight. This process can become complicated if the need for control is an issue in the partnership. Partners have different needs and abilities, the evolution of the business may play to the strengths of one more than the other. The result can be tensions between partners, which, if not adequately addressed, can sabotage their partnership.

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Negotiation of Value Differences in Use of Profits A potential source of difficulty between partners arises when they have different value systems regarding generation and use of profits. A partner who will do whatever it takes to maximize profits will be at odds with a partner who is satisfied to limit profits in service of employee or customer relationships. They may also differ on whether to take out profits or invest them in growing the business. Partners who agree in principle about how to use profits may feel differently when the profits are finally available. Firm and consistent positions must be maintained if the pitfalls of money issues are to be avoided—much as happens in marriages. Example The Management Consulting Company did not develop a business plan but launched its business on the basis of financial projections. It proposed to provide a range of services but did not adequately define how to develop them. As a result, it invested its limited resources in too many products, resulting in its failure to provide the proposed services in a timely and satisfactory way. Contributing to this failure was the partners’ inability to agree on how to utilize resources. The Sporting Goods Company’s goals for expansion were unrealistic for the particular resources and market it served. Its purchase of merchandise was not consistent with its sales and line of credit. A business plan would have prevented the major problems it later encountered.

With regard to collateral partnership between the business and the consumer, it should not be assumed that the consumer will necessarily share the standard held by the manufacturer of a product. Neither is it safe to assume that a consumer’s satisfaction with a product will continue over time. Needs and standards change, as does the competition. An effective way of ensuring that the business product is achieving its desired objective is to develop a systematic means of obtaining feedback from the consumer, both at the time of delivery and at some time in the future. This demonstrates the producer’s good will and inspires trust and confidence, both of which are necessary to establish a strong collateral partnership with the consumer. It is not enough to invite feedback. Also essential is an assertive outreach that communicates to consumers the entrepreneur’s serious commitment to obtaining and using this information. Example The Advertising Company attempted to evaluate customer satisfaction. It informed its clients that it would welcome any feedback on the quality of its services, but it did nothing to get this information on any systematic basis.

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Support Services Strategic Planning Striking a balance between strategic planning and tactical management enhances the business’s chances for success. This involves attention to short-term goals consistent with achieving long-term goals. Maintaining this balance requires discipline to keep focused on how time and resources are apportioned for either need. This focus will not be possible if both partners allow the pressures of immediate needs to lead them to neglect strategic planning. A common conflict between partners occurs when they differ on how to balance their energies between tactical and strategic management. The press of immediate needs makes it easy to dismiss strategic planning with the attitude, “We’ll worry about that when we get to it.” One difficulty encountered in dealing with strategic planning is how to manage all of the uncertainties in planning for future events over a period of years. Accomplishing this task requires a person who is comfortable dealing with incomplete data. The challenge is to make the best judgment with the available data. Being right is less important than being able to adapt to changing circumstances. Organizational Structure Organizational structure, the blueprint for managing working relationships, defines the communication hierarchy and the attendant responsibilities necessary to accomplish the business objectives. These structures vary widely from rigidly defined to loosely defined, which are guided more by function than by hierarchy. There are numerous possible variations between these extremes. Each business needs to decide which kind of organizational structure is best suited to its personalities and requirements in achieving business goals. Employees also differ in their preferences for the organizational structure in which to work. In evolving a product partnership, the entrepreneur would be well advised to design an organizational structure that takes into account both entrepreneur and employee preferences. The focus should be kept on developing a mutually compatible structure to avoid creating an employee-aversive environment, which ultimately will undermine a successful product partnership. Example Organizational structure was a problem for both the Management Consulting Company and the Nursing Home Company. The partners in the Management Company did not have a well-defined structural relationship between them. Instead, they functioned separately on all matters relating to the company. This ambiguity led to frequent disagreements about how things should be done and to duplicated effort.

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Their inability to define areas of responsibility was part of their competition for power and control, which ultimately led to the breakup of the partnership. The Nursing Home Company had similar competition problems among the partners. On the surface, the partners operated in parallel in a more congenial manner than was the case with the Consulting Company. Informally, one partner functioned as the more influential partner because of his greater financial resources and the force of his personality. This informal functioning was workable in the early period of the company, but problems developed as the company grew.

Job Descriptions Job descriptions are an integral part of a successful product partnership. When appropriately defined, they should include job expectations for the person occupying a position and provide information on how a given position relates to other positions. A number of problems arise with inadequately defined job descriptions. • Sometimes job descriptions are too vaguely defined, leaving employees confused about what is expected of them. This ambiguity detracts from attention to their work and becomes expressed in their wondering whether they are doing what they are supposed to be doing and whether they will get into trouble if they guess wrong. • Often the expectations expressed in job descriptions do not realistically take into account the time required to perform the work. When this happens, employees chronically fail to meet their deadlines. This situation undermines self-confidence and raises concern about how their performance will be viewed. • On occasion, there are conflicting responsibilities within the job description, especially when there is pressure to produce as much work as possible, while at the same time, high standards of quality are expected. • When different parts of the job involve reporting to different people, employees are put in the tenuous position of trying to meet the job expectations of two people with differing or, even worse, contradictory standards. Employees in this position often get in trouble with both people no matter what they do. The problem is exacerbated when the people to whom they report are in conflict with each other. The employees pay, as does the work product. • Often the same responsibilities are given to different people without specifying how their efforts relate to one another. This situation may create destructive conflict and power struggles between employees. In many companies, job descriptions are defined on a pro forma basis, and little or no effort is made to hold employees accountable for adhering to them. When used properly, job descriptions can be a valuable tool for crafting a well-functioning organization. Otherwise, they can be a source of conflict and a useless waste of time and resources for all concerned.

Job descriptions are a more useful tool when they are designed with the personality and skills of the employee holding job in mind. Job description should also include accountability for meeting job expectations.

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Job descriptions are needed as much for the partnership relationship as for the employees. A good working partnership is enhanced when the responsibilities undertaken by each partner are clearly set out. Failure to do so paves the way for dissension in the partnership. Enough unavoidable differences exist without adding preventable ones. These differences can be minimized when the partners share expectations. Example Problems commonly arise from ambiguity or difficulty in writing the partners’ job descriptions. This problem becomes critical for companies once they expand. Ambiguity in the partners’ job responsibilities is translated into confusion and ambiguity among employees. Partners will then give conflicting orders, which will result in inefficiency and low morale.

Personnel Practices Personnel manuals help employees understand the nature of their job and elucidate company operating policies with regard to working hours, vacations, sick leave, insurance, and educational opportunities. In addition, they may outline procedures for various activities involving job performance. The way in which these policies are defined and implemented plays an important role in the employee’s morale and productivity. Employees participation in defining these practices play a major role in defining a product partnership. Example Inadequate definition of personnel practices contributed to problems in the Management Company and the Nursing Home Company. In both cases, the partners had different ideas about how these practices should be defined. The overt issues involved differences about what the companies could afford and what was needed. Underlying issues reflected struggles for control.

Financial Planning In business, as in marriage, money is an ongoing high-priority issue that often stresses the partnership relationship. People frequently differ in their attitudes about the management of finances. Battles about money often mask underlying struggles over control. Success in developing collateral partnerships with banks depends on the bank’s confidence in the partners’ experience in managing finances. Partners have to counter the magnetism of pursuing their dream with the cold reality of what is fiscally sound. Some companies, especially busy startup firms, are distracted from attending to financial matters. Being overloaded with demands from all directions, the routine of financial management pales by comparison with other challenges. Finding a disciplined way to monitor finances helps minimize these problems. One ap-

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proach is for partnerships to have a division of labor in which one partner deals with creative matters and the other with the business management. Fiscal management becomes difficult when creative needs conflict with fiscal restraints. The problem gets more complicated when defending one’s point of view becomes intertwined with control and competence issues. Example Both the Management Consulting Company and the Sporting Goods Company had problems with financial planning. Inadequate financial planning led the Consulting Company to launch its business prematurely. It was undercapitalized to start with and ran into trouble early in its operation when its operating funds were depleted before it could generate a sufficient flow of income to continue in operation. It survived its first crisis only because it was able to make personal loans. The Sporting Goods Company carelessly purchased merchandise beyond its means, leading to a period of instability. Eventually, the bank threatened to cut off its line of credit. Following reorganization, the partnership broke up.

Procedures for Periodic Review of Operations Managers of a business relationship must keep abreast of changing situations on many fronts at the same time—namely, the political and economic climate, and changes in market conditions, interest rates, and competition. Any one of these variables is a problem in itself. The situation becomes more complicated when changes occur in more than one variable at the same time. The pressure of managing a business often results in postponing problem issues until they must be faced. A business is in a far better position when it can institute periodic reviews of its activities. This permits problems to be identified either before they happen or early in their development when it is easier and less costly to correct problems. The effort to develop a procedure can create problems when the partners differ on the need for such reviews or on how they should be done. Being difficult to resolve, such disputes should be avoided because the resulting tensions may leak out onto other issues, which only escalates the strain on the partnership relationship. For example, unresolved tensions about fiscal management may be expressed in a struggle over matters as minuscule as the color of the company brochure—matters that would otherwise be of little consequence. Example All of the aforementioned companies scheduled financial reviews at least once a year, but none of them saw the need to make a periodic review of their businesses as a whole. Instead, they all tended to deal with problems as they arose. Making a general periodic review would have avoided some of their problems. The Nursing Home Company, for example, would have had an easier time managing within the

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changing climate of nursing home care and the Sporting Goods Company would have had less of a problem with overstocking.

Definition of Ownership Here a distinction needs to be made between ownership and leadership. Ownership is defined by its equity contribution to the business, whereas leadership is provided by whoever provides direction for the company, and it may be defined formally or informally—formally in terms of the occupant’s position, such as president and CEO, and informally in terms of force of personality, expertise, or a vacuum in formal leadership independent of formal position. Problems that arise between formal and informal leadership are ultimately resolved by ownership. One major decision partners must make is how to divide ownership between partners. Usually, this decision is based on the relative contribution of each partner. The variables that go into making this decision include capital investment, time invested, expertise, creative input, political connections, patents, copyrights, and leadership qualities. An early challenge to the partnership relationship is how to value the various resources of the partners when determining ownership split. A split that may make sense when based on contribution of assets may be materially altered when delegated authority or force of personality enters the picture. For example, the combination of a dominating and charismatic partner and a laid-back partner may lead to a troubled business relationship if the impact of their different personalities is not addressed. One way the more relaxed partner can protect his or her interests is to clearly define critical issues at the start of the business relationship. One of the best forms of protection against such issues is to know a partner well enough before entering into an agreement. Although this is not a guarantee against future problems, it can reduce the likelihood of problems based on relationship differences. Negotiation of Partners’ Compensation Determining each partner’s compensation is based on some combination of active participation in operating the business and other forms of contribution, including money invested, expertise, time invested, and political and business contacts. This determination begins with what each brings to the start of the partnership. Setting up compensation amounts is easy if both feel they are making an equal contribution in each area. Compensation is more difficult to set when the partners make different kinds of contributions. A source of difficulty can arise in how to equate equity in different contributions. How are creativity, time invested, business skills, and capital equated with one another? This question becomes an early test of the part-

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ners’ ability to come to an agreement acceptable to both. The issue can become more challenging over time. If one partner feels that he or she is making a greater contribution than the other, then this partner will be inclined to reflect the difference in their relative compensation. This is likely to stress the partnership unless the partners manage to address this issue in its early stages. Once it becomes clear that they cannot find a mutually satisfactory solution, they should bring in an outside perspective. Otherwise they will become polarized to the point where personality issues will obscure business needs. Example The Medical Group Practice and the Law Firm had differences of opinion about distributing profits based on performance and not just ownership. Inability to resolve their differences led to one partner’s departure. The Insurance Company was faced with the problem of compensation for a partner who was not performing to expectations. The situation was ultimately resolved when this partner left the business, though maintaining his ownership interest.

Expectations of Partners’ Division of Labor As noted earlier, basic to a well-functioning organization is a mutually acceptable definition of the partners’ areas of responsibility, including the jobs they will perform and their interrelationship as they handle their respective duties. The partners should define which decisions are made unilaterally and which are made jointly. Ongoing informal consultation helps maintain a comfortable working relationship. By-laws may require joint decisions on matters that might include the hiring and firing of associates, borrowing, and termination of operations. A business relationship must be flexible enough to provide for orderly changes in leadership as changing circumstances warrant. Being able to do so is essential to continuity of the business. Example The Medical Group Practice was not able to address the issue of how much time and value should be given to marketing and management. Alex placed lower value on time spent in these areas than Peter did. Unable to resolve their differences, they ended their partnership. An important strength of the Sporting Goods Company was its clear division of labor among the partners, which was mutually acceptable. As a result, their business got off to a successful start. Sam dropped out of the family Insurance Company in part because of his dissatisfaction with the role he negotiated with his brother.

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Defining Standards of Behavior Partners enter their relationship presuming that they share a common code of ethics. When they discover significant differences, they often have to resolve them in the heat of an issue, which is far more difficult to handle than at the start of the business relationship. Although not all significant differences can be anticipated, establishing a principle of respect for such differences and a process for dealing with them is likely to make dealing with unanticipated issues easier to resolve. The impact of these problems can be diminished by establishing standards of behavior that will guide all aspects of their business relationship. Among these standards are those for making decisions, resolving conflicts, and dealing with relationships within the company and with the outside business community. A mechanism also needs to be put in place to deal with violations of this code. When partners reach an impasse in dealing with differences, they should hire an outside consultant. Example None of the case illustrations engaged in a review of the partner relationship. Many of the problems encountered in the partnerships would likely have been resolved if they had done so.

Periodic Evaluation of the Business Relationship Key to survival in today’s business climate is the ability to readily adapt to changing times and needs. A business relationship may need to be redefined periodically in response to growth and other changes. This evaluation possesses multiple dimensions: modifications in the division of ownership and responsibilities, goals, accomplishments, quality of working relationships, problem areas, operating structure, amount and form of compensation, needed resources (both financial and skills), and external considerations such as social, economic, and political events. This review will uncover any problems that need to be addressed and any changes that need to be made. It also gives the partners an opportunity to address current issues and anticipate future needs. Often a facilitator not related to the business can enhance these reviews. The review should be scheduled at least once a year, and more often during critical periods. Conducting such reviews can be discomforting, pointing to unpleasant changes that may threaten established areas of comfort and perks. It may also indicate the need to take on new responsibilities and acquire new skills. All these indicators can be very challenging in this era of rapidly changing technology. At worst, it may demonstrate that the goals of the business relationship and business are no longer viable because of the partners’

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working relationship, changing needs for their products, or economic shifts. However threatening such reviews may seem, they are preferable to enduring financial disasters that could be avoided by simply anticipating problems. Some companies make use of consultants to gain a perspective on evaluating the business relationship. They believe that individuals within the business may be too close to the problems to see them objectively. How to Define and Measure Accountability Successful organization can be facilitated by establishing a practice that encourages responsibility within companies and provides a sense of stability and safety and provides some assurance of what people can expect from one another. The following steps are recommended in measuring accountability: 1. Partners should define the means for reviewing the performance expectations of each other. 2. Each employee should be given an operational job description that specifies what responsibilities can be expected from others. 3. A code of ethics should be developed to carry out job responsibilities defined in step 2. 4. Regular job performance reviews consisting of five areas should be conducted: a. Job performance to date b. Quality in interpersonal relationships c. Commitment to company objectives and personal growth d. Any issues of concern to employees e. Any changes deemed desirable by management 5. Management should provide clear communication on all changes in operating policies or job descriptions that affect more than one person. Generally, this communication is most effective in written form and should be publicly posted or included in the employee manual. 6. Feedback should be invited from employees regarding suggestions for improvements in the functioning of the business. 7. Employees should be given feedback on their submitted suggestions. Their suggestions can either be incorporated in practice, or if not accepted, the employees should be told why. Giving employees feedback encourages their creativity and strengthens their commitment and loyalty to the business.

REFERENCE Davidson, Robert L. III. (1993). The Small Business Partnership Kit. New York: John Wiley & Sons.

Chapter 14

Delegation of Responsibility The ability to delegate responsibility effectively plays an essential part in managing a successful business. Delegation starts with the partnership’s ability to develop an appropriate division of labor between them. Each executive in turn need to be able to delegate responsibility to those who report to them. The entrepreneur or executive who has to do it all and be involved in every decision will soon be ineffective, burn out, and lose the support of staff, negatively impacting the business, and undermining the good will necessary in negotiating a product partnership. USES OF DELEGATION OF RESPONSIBILITY To Free Up the Delegator’s Time Ideally, delegators make the best use of their time when they engage in activities that only they can handle and when they assign work that others can do. To Gain Expertise That the Delegator Does Not Possess Delegation becomes necessary when the delegator is responsible for a particular goal but does not have the expertise to accomplish all aspects of it. Therefore, someone who possesses the needed skills will be given that responsibility. To Train the Delegee Delegation is also used in training staff and requires instruction and supervision until the new skills are learned. If the goal is training, then ade-

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quate time should be allotted for appropriate supervision, and delegation will increase the manager’s workload, not reduce it. To Yield Products with Greater Efficiency This efficiency is possible only when subordinates learn to perform their assignments with minimal supervision, which is more likely to happen when employees feel they are part of a partnership. DESIRED QUALITIES FOR EFFECTIVE DELEGATION Knowledge and Social Skills to Supervise the Delegatee Knowledge of what needs to be done without the appropriate social skills necessary for constructive supervision will not be effective. Successful delegation depends on a constructive supervisor–supervisee relationship. Ability to Evaluate the Product of Delegation When the Manager Doesn’t Have the Requisite Skill to Perform the Work Knowing how to evaluate a work product does not require being able to perform it. Appropriate Choices of Subordinates Knowing who is a suitable candidate for a work assignment is an important ingredient of successful delegation. Accomplishing this requires knowing the talents and limitations of staff, as well as gaining input from subordinates regarding their interest and perceived ability to perform needed tasks. Knowledge of the Delegee’s Career Goals Ideally, delegation is most useful when it simultaneously fits the needs of the manager, the work product, and the recipient of the delegation. Since this perfect fit is seldom possible, these variables must be prioritized and are most effectively accomplished with input from employees. Sensitivity to the Impact of Work Assignments on Relationships between Subordinates A manager should recognize that delegation of work has various political implications: to stimulate competition, cooperation, or independent effort;

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impact on morale, and so on. The choice of which to use will be determined by how it affects the achievement of work goals and the quality of work relationships. Sensitivity to Overt and Covert Messages in Delegation Employees need to feel respected for both their individuality and their competence, and they also need to be liked by their manager. The quality of work assignments gives information on how they are viewed. Being valued for their competence gives the employees a more secure position than just being liked, when employees are more likely to be subject to the whims of the manager. Difficult work assignments convey a double message: they give employees the opportunity to demonstrate competence, and they pose the possibility of diminished reputation if they fail. In addition, favored subordinates tend to get the more desirable jobs and those out of favor the less interesting ones. The favored subordinates provide a role model for their peers and may sometimes become an object of envy or resentment. The subordinates who get the undesirable tasks serve as negative role models. Work assignments also carry messages of competence to the company’s customers, depending on how the assignments are made. Customers quickly detect how companies treat their employees by the way responsibilities are assigned. Good will is enhanced with customers when they see company employees behaving more as partners than as employees carrying out their routine duties. Delegation of work assignments has different political implications depending on whether the relationships among subordinates are harmonious or conflicted. When the work assignment is a desirable one, and the subordinates have harmonious relations, other subordinates may be envious but will be supportive. When the climate among subordinates is hostile, however, other employees are likely to be resentful and uncooperative, if not obstructive. When the work assignment is an undesirable one and the employee climate is harmonious, other subordinates are likely to be sympathetic and helpful. A conflicted climate will cause the other subordinates to gloat over a peer’s misfortune and, even worse, show lack of cooperation or support. Awareness of How a New Work Assignment Affects Other Responsibilities The busy manager may delegate work without paying adequate attention to the effect of the new assignment on subordinates’ other work responsibilities. If the assignment is a choice one, too little attention may be given to less desirable responsibilities. If the assignment is an onerous one, existing responsibilities may be used as a rationale for lack of adequate progress

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on the new assignment. Managers can avoid such problems by working with subordinates in setting priorities between the new and old assignments. Doing so encourages accountability for work performance. Emotional Maturity for Assignments The decision to delegate is often made on the basis of technical skills, while inadequate attention is given to whether the subordinate has the requisite emotional maturity. This leaves open the possibility that an otherwise competent subordinate may not be able to carry out an assignment because of emotional immaturity in working with co-workers, clients, or the public. This failure may also occur when an employee is overwhelmed by the assigned task and is fearful of the consequences of unsatisfactory performance. Example Carl, an employee of a computer company, was asked to educate a client in the proper use of his computer system. Impatient with the client’s inability to absorb the needed information, Carl made a number of critical comments to the client, who got irritated by the demeaning remarks and finally fired him. Though technically competent, Carl didn’t have the emotional maturity to handle the assignment. The company replaced Carl with a more mature technician who completed the job satisfactorily.

Need for Additional Supervision Delegation is valuable when it frees the manager to take care of higher priority matters. Delegation that requires too much ongoing supervision obviates the very purpose of delegation when gaining additional time is desired. When delegating assignments, a manager should seek to effect a balance between benefits to be gained and the time and energy required. THE DELEGATION PROCESS Delegating assignments without clarity of purpose can be negative for everyone. A manager who delegates work to free up time will be disappointed if the assignment goes to someone who needs a lot of supervision. Employees who do not have adequate supervision inevitably disappoint their supervisor and themselves, and diminish the spirit of a product partnership. Using good judgment in making good assignments can serve many purposes: It can lead to greater productivity, create an equitable division of labor among subordinates, increase the skills of subordinates, and give recognition to employee competence. All these advantages hinge on allocating

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adequate time to complete assignments. Unrealistic and arbitrary deadlines will diminish effectiveness and undermine morale. Clarity of communication will increase the likelihood that an assignment will be completed satisfactorily. To assure good communication, employees can be asked to repeat what they understand the assignment to be. Giving directions in observable terms is another useful aid. “Give me an assessment of what happened at the meeting” is vague. A direction with observable terms is precise: “Tell me who was at the meeting, the major points that were made, decisions made, and your judgment about the conclusions reached.” Managers encounter difficulty when they ignore or minimize the responsibilities that accompany delegation of assignments. Among these responsibilities are providing training, being available for questions (especially during the learning phase), paying equal attention to acknowledging accomplishments and giving constructive criticism, and making periodic progress checks on long assignments. HOW DELEGATION SERVES A MANAGER’S GOALS Managers often face conflict when they must delegate assignments that fit their personal objectives in service of meeting their managerial responsibility. Delegating work assignments on tasks they would prefer to do themselves is one example. Creative managers handle this situation by using their supervisory responsibilities to fulfill their interest in the task. This approach can work for them and the delegatee, providing they don’t begin to micromanage the assigned task. Example Carolyn was the manager of a software firm whose responsibilities focused on supervising the work of others, which left her no time to write programs, which she found more satisfying. She was so ambivalent about delegating the work that she failed to provide adequate training to make the delegation productive. The delegation was unsuccessful, and as a result she was faced with the choice of fulfilling her managerial responsibilities while still finding time to do programming or of reassessing her career goals between being a manager and a programmer. After some thoughtful review, she found a way to satisfy her desire to be a manager and at the same time stay involved in programming. She did so by delegating the routine part of her work and by supervising the more complicated areas. In this way she got the best of both worlds.

Chapter 15

Keeping the Business Healthy Once the business is a going entity, the partners need to switch from a start-up frame of mind to one of managing the business over time. Not every entrepreneur is comfortable with how to manage both the start-up phase and the ongoing operation. Many can handle one or the other of these stages but not both. This chapter discusses a range of considerations that will keep a business healthy. The primary focus is on how the partner relationship affects maintaining a healthy business. OPERATING A HEALTHY BUSINESS Once started, a business is a “living entity,” and to survive it needs to be nurtured: all of its parts must function both individually and in concert with one another. Failure to promptly diagnose and address deficiencies in one or more parts can have serious consequences. Management necessarily determines the attitude that defines relationships to employees and the work environment. The employees’ responsibilities to the company are defined in job descriptions. Less tangible are employers’ and employees’ expectations regarding loyalty. Loyalty, the commitment employers and employees have to one another outside of literal job descriptions, also includes personal commitment to one another that is not dictated solely by finances. Until the late twentieth century, a job was considered a lifetime relationship, and so a mutual loyalty between company and employee was prevalent. The massive wave of downsizing and the resulting layoffs that occurred in the 1990s all but killed this tradition of loyalty. Today the employee who has not been laid off must live with the anxiety that he or

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she may be caught in the net when the next layoff comes. The message downsizing sends to employees is that they are as expendable as an old computer or piece of office furniture. The atmosphere becomes especially poisonous when layoffs occur in the context of large company profits and large increases for senior management. Although the situation is less dramatic in small companies, it is similar in substance. This situation brings up a serious question of values. Is there such a thing as enough profit? Is there a point at which profits should benefit those who produced the service/product in the same way that senior management gets stock options? Some companies do this effectively through profit-sharing plans. Others, however, treat their employees as expendable. The breakdown of loyalty creates a sharply adversarial environment between employer and employee. Dealing with this issue is easier in the active partnership of a privately held company. The corporate partnerships of public held companies have a more difficult situation because their partnership relationship is also with investors. They are particularly vulnerable when institutional investors exert significant influence on a company’s management. This presumes that treating employees with loyalty diminishes the bottom line. Is it not just as likely, if not more so, that the reverse is true? The long-term payoff in fostering employee loyalty is to turn a traditional employer–employee relationship into a product partnership. Another decision for the active partnership involves how to define a work culture that fits financial and personal value objectives. This is especially prominent in small businesses where management has considerable face-toface interaction with employees. To function profitably, a business must constantly monitor the “vital signs” of its relationships. The effectiveness of the approach depends on the partners’ agreement as to how this will be accomplished. The business plan provides the starting point for defining these vital signs. MONITORING VITAL SIGNS The monitoring process involves five steps: 1. Define behavioral criteria for effective relationships. For example, employees are respectful of one another’s views and feelings, and can resolve conflict constructively. 2. Determine whether the current level of working relationships functioning is satisfactorily. 3. If it is not satisfactory, define a course of action for going from the present level of functioning to the desired level. 4. Determine what resources are needed to modify relationship problems. A judgment needs to be made about whether the problem can be managed by resources

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within the company or whether outside resources need to be engaged—for example, bringing in an organizational consultant or using outside counseling. 5. Define a process for ensuring that the needed changes do occur. This involves some form of tracking to see that problematic relationships have improved.

The vital signs include management performance and business relationships. Management Performance Criteria for Evaluation This process is facilitated and made more effective when a defined set of criteria for making this evaluation is set forth. These criteria might include the following: Are projected goals achieved? If not, are relationship problems between partners or between management and employees responsible? Do employees demonstrate a balance between company and personal needs? More detailed criteria may be needed depending on the nature and needs of the particular business. Status of Consumer Satisfaction Is the collateral partnership with consumers satisfactory? This will be determined by the quality of communication between the company and consumers, which results from having an effective means of obtaining feedback from consumers and their feeling that their feedback gets a considered response. Behavioral Ethics Compliance Company productivity is enhanced when the work environment includes people who are respectful of one another and are committed to performing their jobs to the best of their ability. This ideal is more likely to be achieved when the organization has a defined standard of behavior. This standard largely involves a commonsense way of relating. Of particular importance in the current work climate are issues relating to sexual harassment and discrimination (sex, age, religion, etc.). All employees must exhibit appropriate behavior, and those who violate behavioral ethics must be educated in a timely and consistent manner. Working as a Team In a successful company each employee does his or her job effectively; people therefore are able to work together harmoniously. Individual goals for training and advancement are defined within the framework of company needs. Any company that does not allow adequate room for individ-

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ual goals within the company goals and policies will undermine the potential benefit of a product partnership. Adapting to Change Innovation and adjustment to change are necessary to success. The challenge comes when the company must cope with changing technology or marketplace conditions, or with making changes in how people work together. Operating with an established routine requires minimum energy and is not demanding emotionally. Performing in an innovative environment is quite different. It requires people who are confident in their abilities and a management that supports and encourages creativity. This is best accomplished in a product partnership Employee Status The adage “A chain is no stronger than its weakest link” is most appropriate in the operation of a business. A highly talented management team cannot fulfill its mission unless it has a competent and motivated work force that will carry out its responsibilities. Regular assessment of employee status will ensure that their needs are being adequately addressed. In this regard, employees must be satisfied with their salary, working conditions, benefits, and the like. Compensation. Is there dissatisfaction with the level of compensation? Is the dissatisfaction general, or is it limited to specific people or areas? Is it out of line with the marketplace for similar work? Is it an expression of other areas of dissatisfaction? Is it related to personal financial pressures? Working Conditions. Are there problems in the physical environment that adversely affect employees’ ability to do their job? Are there problems in defining the workday schedule, the expected number of work hours, or performance expectations? Are there adequate means for addressing employee grievances? Benefits. How well do employees understand their benefits? Do they feel that their problems get adequate attention? Do they feel they are reasonable and equitably exercised? Tension arises when employees believe that some employees are given favored status or when withholding benefits is used as a form of discipline. Opportunity for Advancement. Do hard work and commitment lead to a predictable course of advancement? Does favoritism interfere with this happening? Acknowledgment of Contribution. Are employees’ contributions adequately acknowledged? Morale is quickly undermined when management practices a double standard in acknowledging contributions differently for favored employees. As referred to earlier, a company that downsizes to remain competitive so that it can protect profits while granting large pay increases and perks to management is a good example.

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Respectful Treatment. Do employees feel they are treated with dignity and respect, or do they believe they are treated as expendable or like a piece of equipment? Do their concerns get appropriately acknowledged and addressed? Value Placed on Company Product. Do employees value the product they provide? Do they take pride in their efforts? If not, why not? Employees in a product partnership will take pride in the company’s product, which may not otherwise be the case.

Review of Business Relationships Ongoing relationships develop a characteristic pattern that ideally is productive and satisfying. Often this is not the case, but it becomes easier to live with a dissatisfied relationship than face the uncertainties of changing it. Change occurs when the discomfort of continuing the status quo becomes more painful than the anticipated difficulty of changing it. Relationships are more satisfying and productive when tensions are addressed. Healthy business relationships can be achieved by periodic evaluation of the following issues. Level of Satisfaction in the Partnership Is the business relationship sufficiently satisfying to warrant a full emotional and intellectual commitment? Are partners respectful of one another? Can they constructively resolve their differences? Can they constructively meet personal needs through their business relationship? Satisfaction with the Level of Profitability Is the level of profitability sufficient to warrant continued commitment to the business relationship? In some cases the business relationship is viable, but the level of profitability is not sufficient to support continuing the relationship, and the likelihood of changing it is not foreseeable. If this situation is not addressed quickly, both the business and the relationship will begin to erode to the point where neither will be viable. Satisfaction in Managing a Business Although people may be comfortable in their working relationships, they may lose interest in managing their business as a result of their desire to pursue other interests, changing economic conditions, or personal circumstances. When such changes occur, it becomes too easy to assume that the feeling or need will pass. The discomfort of facing a situation early, however, is much less acute than the discomfort that develops if it is allowed to linger until conditions force it to be addressed.

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Adequate Resources for Nurturing Business Relationships To survive, a relationship must be nurtured. Partnerships thrive on mutual respect and concern for each other’s needs. In this regard, a constructive process must be put in place that will provide safety and freedom to manage different points of view. The partners need to understand the importance of devoting time and energy to maintaining their relationship. This applies to all types of partnerships. Impact of Partners’ Relationship on Employees The partners’ relationship serves as a role model for employees to follow and reflects how the partnership is viewed. A stable positive partner relationship promotes employee confidence and security in the company. The opposite occurs when partners are battling and employees take sides. Impact of Partners’ Relationship on Consumers The same concerns apply to customer/clients as they do to employees. This occurs when employees voice complaints about their company to customers. This has even more impact when one partner complains about the other, especially if the customer/client is asked to take sides. When these things happen, it undermines the collateral partnership as well as the company’s image and the public’s confidence in the company. Also, the tarnished image may spread to other companies. Relationship of Partners to Employees In financial terms, the difference between partners and employees is one of ownership. It takes the combined efforts of owners and employees to produce the company’s commodity. Whether the partners and their managers treat employees as partners in providing a commodity or as expendable resources will impact on the company’s morale and productivity. It is the difference between employees who are committed to their jobs and go beyond what is required and those who meet minimum job requirements. The company’s priorities are important to employees. How does the company balance the goal of maximizing profits with the goal of maximizing the welfare of employees, whose contribution is essential to making the profit? Developing this balance between satisfactory profits and the concern of employees is essential in facilitating a product partnership and gets expressed in both financial terms and recognition for their contributions. An unusual example of a company’s effort to achieve this balance occurred when a textile plant in Malden, Massachusetts, had a major fire just before Christmas in 1995. The fire affected most of the plant and put nearly 4,000 people out of work. The owner of the company, Arnold Fuerstein, was so committed to his workers that he decided to rebuild the plant and

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pay all of his workers for at least 30 days. In this unusual example, the company recognized and respected the contribution of the employees. The owner’s commitment to his business and community was so strong that he did not move his factory to another part of the country, which would have provided cheaper labor. Since this was a privately held company and the owner did not have to answer to a board of directors, this decision was possible. This example gives rise to a challenging question for corporate America: Is there room for commitment to employees and community? The answer is not simple, but it draws attention to the issue of whether product partnerships involving investment in employees and community may be a short-term expense in service of a longer term gain. Relationships between Employees What is the climate of the relationship between employees? Is it collaborative or is it competitive? If competitive, is it in the service of both company and individual needs, or is in the service of self-interest to the possible long-term detriment of the company? Do they have enough means to resolve differences either through their own efforts and abilities or through company assistance? Do their work relationships provide support and a sense of community that will enhance job productivity and satisfaction? For a business to be healthy, these questions must be answered in the affirmative. TOOLS THAT LEAD TO A HEALTHY BUSINESS Meetings Meetings are an effective way to coordinate partnership efforts and to affect the quality of relationships. Recommended guidelines for how the conduct of meetings affects work relationships include the following. Settling on a Reason for the Meeting The primary goals in holding a meeting are to exchange ideas and to make collective decisions. Meetings that are devoted mainly to lengthy presentations become a strain on relationships. Presenters are highly invested in their presentations and can readily get annoyed if they sense that their audience does not share their enthusiasm. Preparing for the Meetings The tedium of listening to long presentations can be avoided by distributing written material to all the participants. In this way, attendees can review the material in their own fashion, which may involve multiple readings and time for thoughtful reflection. The meeting itself should be devoted

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to the exchange of ideas, culminating in either a vote or the delegation of some task. The leadership should expect participants who come to a meeting to be adequately prepared. This does justice both to the presenter and the listeners and encourages cooperation and productivity. Deciding Who Should Attend One way to create tension in a relationship is to require attendance at meetings in which the participant has no active interest. The tension is heightened when attending this meeting is at the expense of other pressing priorities. The productivity of a meeting will be enhanced for all concerned when attending to the meeting’s subject matter is relevant for the attendees. This avoids the problem of the presenter having to decide whether a bored response is due to the presentation or lack of relevance. Determining When the Meetings Should Be Held Meetings are likely to be most productive when members are fresh, alert, and the agenda focuses on an exchange of ideas. Early mornings are likely to bring out the best in attendees. After lunch is the worst time, with the presenter having to compete with lull that follows a meal. Offering a Focused Agenda A clearly focused agenda and a leader with the ability to parry any distractions from the meeting’s established objective are essential. Sticking to the agenda may be difficult for a number of reasons, notably: • Participants have individual interests. Participants may feel that they have more pressing concerns and so may attempt to preempt the official agenda. • The agenda may become a vehicle for expressing conflict. Conflict in a work relationship may be expressed at any presented opportunity, as in a meeting. It is not always easy to tell when people are honestly disagreeing over the substance of an issue, out of anger over some previous issue, or as a means of competing with another participant. • Reflection of struggle for power. A meeting may reflect a power struggle. It may provide an opportunity for a participant to challenge the authority of the leader either directly or indirectly. • Attempt to avoid an agenda item. Resistance to dealing with an agenda item may be expressed by introducing items of greater relative comfort or concern. • Chairperson’s difficulty in conducting the meeting. A chairperson who is ill prepared or uncomfortable in the position can stir restlessness, mistrust, and discomfort in the participants, and so may affect the constructive level of their participation.

Maintaining Interest A meeting’s success depends on holding the attention of the participants. Rossi’s (1991) research on the ultradian rhythm found that the average

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person can maintain a focused concentration span for only an hour and a half to two hours in one sitting. Continued maximum concentration is generally possible if a 20-minute rest period is set aside every hour and a half to two hours. These breaks are not effective, however, if they involve continued discussion of business. Preferably, the break should involve some form of relaxation—taking a walk, getting a bit of fresh air, sitting quietly with eyes closed. Rossi reports that such breaks have been shown to increase productivity rather than detract from it. The renewed efficiency that derives from the break more than makes up for any lost productivity it may cause. Managing the Agenda Responsibility for managing the agenda is only one facet of conducting a satisfactory meeting. It is the joint responsibility of both the chairperson and the participants to maintain respectful interaction, thereby permitting different points of view to be expressed. Acknowledgment of Performance/Contribution Just as food is nourishment for the body, acknowledgment of one’s contribution is nourishment for productive work relationships. Acknowledging contributions encourages motivated and creative employees. This acknowledgment can be made both privately and publicly and can take several forms: • Public acknowledgment of contribution • Financial rewards • Promotions • New responsibilities • Perks such as time off and special privileges • Non-verbal forms of acknowledgment such as smiling, a pat on the back, heightened attention when a person enters or speaks, and a show of respect for opinions

Conflict Management This subject has been discussed in Chapter 8 but bears reviewing for its importance as a tool for managing a healthy business. Priority on Being Heard Managing a business is not a democratic process. Participants may not like decisions that are made. What matters is that employees are consulted in matters that affect them. Essential to a constructive resolution of differences is that employees feel that their point of view was given serious con-

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sideration. When their desires cannot be met, they are given the courtesy of understanding why this is so. Coping with a Stalemate A stalemate occurs when a resolution requires the agreement of both partners and a satisfactory solution cannot be achieved. Binding arbitration may be a solution. One approach is for the parties to select representatives for their point of view. The two representatives then select a third member. The recommendation of this group then becomes binding on both partners. This process provides a way for both parties to deal with issues they could not resolve and addresses these issues in a constructive way before they create problems in their relationship. Commitment to Deal with Conflict Promptly One of the greatest drains on a relationship is to permit unresolved conflict to fester. When this happens more and more energy is dissipated in wasteful tension and less and less is available for constructive efforts. The longer the issues remain unresolved, the more entrenched positions become. Such entrenchment eventually gets to the point of irreversibility. Managing Transitions Chapter 11 described five phases involved in managing transitions. The present discussion illustrates how they may apply in keeping a business healthy. The first two phases encompass what is usually referred to as startup and include anticipating of a coming event and adapting to it when it occurs; the third phase involves maintaining a stable operation; the fourth, managing the termination of the task when it is appropriate or coping with termination when it is undesired or unexpected; and the fifth, integrating the learning gained from the experience. Anticipation of a Forthcoming Event The most common way of anticipating is to have a contract for a product that is to be produced or initiated at some particular time. The second way is to anticipate related events. Anticipation provides the opportunity to prepare for the forthcoming event or situation. This is what we call planning, whether it is short term, long term, strategic, or tactical. The care with which this planning is done is a major factor in the success of projected plans. Determining what resources should be addressed in the planning for such events requires judgment. Too much planning can be wasteful and too little can be disastrous. Anticipation requires talent and vision in being able to estimate the range of events and needs that will require attention. The healthy business is the one with the capacity to anticipate and pre-

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pare for future events. For some businesses their very survival may be dependent on their ability to prepare. Adaptation to a Situation Adaptation, the occurrence of an event, is performance time: the time for implementing plans, starting a contract, providing a service, and beginning production. Adaptation involves putting into practice what was called for in the planning, and it usually involves organizational skill and coordination of people and resources. The challenge comes in being able to cope with unexpected events that can elude even the best of plans. Adaptation requires good diagnostic skills and the ability to think critically and decisively in a sea of tension and emotion when the unexpected occurs. The problem is heightened when one must meet a designated timetable or when the budget is paramount. Stabilization/Maintenance Once a business is operative, the focus shifts to functioning profitably on a day-to-day basis. This involves anticipating and preventing potential problems before they happen. For those problems that do occur, the task is to resolve them efficiently in order to limit any negative impact on the business. In this phase, managing also requires effecting a balance between coping with the short term and planning for the long term. In large organizations, these responsibilities are divided between the chief executive officer (CEO) and the chief operating officer (COO). Terminations/Closings Terminations and closings occur at two levels. The first is the ending of a contract, a product, a service, or a program, or any change in the work environment. The second and vastly more imposing termination occurs when the entire business comes to an end. Business ventures are terminated for many reasons: poor management, conflicted relationships, changing market conditions, obsolete products, insufficient capital, retirement, acquisition by another company, health or personal problems. Such endings may variously be accompanied by feelings of happiness or sadness, and in some cases they include feelings of failure. Although each of these reasons has its own unique implications, they all have one thing in common: everyone involved will have to cope on an emotional and financial level. The situation becomes more devastating when financial ruin is a consequence. Shutting down a business is a complex task, especially when it occurs involuntarily. Also, part of keeping a business healthy is to be able to terminate any part that is no longer operating profitably or is negatively affecting the profitability of other parts of the business. Inability to do so may spell the company’s downfall. It may involve reluctance to give up on a favorite

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project or difficulty in reducing staff because of emotional involvements that gives rise to conflict between survival of the business and unrealistic financial responsibilities for these employees. Learning from Experience Closings that are difficult or traumatic can leave emotional scars that interfere with learning from the experience. This problem is most likely to occur when the closing is experienced in a very personal way that reflects on the entrepreneur’s feelings of competence and self-worth. Necessary for success in any future endeavor is the ability to learn from the terminated experience. Managing Multiple Projects No one has unlimited energies. The undisciplined person who invests in too many projects at the same time can quickly get into trouble. Underestimating a given project’s emotional and physical investment can also be a problem. For this reason adequate assessment of project requirements is essential. To make this assessment, one needs to appreciate what a given project will require and to understand how investment in this project may affect other ongoing projects. Each project has a beginning, undergoes development, and ultimately comes to an end. The greatest drain on resources is likely to occur during the anticipation and adaptation phases. Once a project is viable the demand on resources will diminish to some steady state except when a problem or crisis requires heightened attention. Most projects start simply and become more complex over time. The greater the complexity, the greater the drain on resources. A crisis develops when too many projects demand a company’s resources at the same time. A business remains healthy when it makes a careful evaluation of the resources needed in both the immediate future and the long term. In addition, the healthy company has an effective way of dealing with the allocation of resources when unforeseen circumstances create an overload. Managing multiple projects occurs at three or more levels, depending on their size and complexity: the company, the individual departments, and the individual manager. One challenge in management is juggling the multiple involvements of all department members so that they perform productively without interfering with the productivity of other department members or other parts of the company. One person may be very productive at the expense of needing help from others, which interferes with their productivity. Managing multiple projects can be difficult when the demands of an employee’s personal life interfere with productivity unduly. This problem becomes significant only when the drain occurs over an extended period

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or when it becomes chronic. At these times, the company must decide how much tolerance it can manage without unduly affecting company operations. The sensitivity with which this decision is managed not only affects the relationship between the company and the individual but also carries a message to other employees. Benefit/Cost Influence on Behavior Benefit/Cost considerations are not applicable solely to the purchase of material goods; actually, they apply to all aspects of human behavior. This is discussed in more detail in Chapter 10. Rational decision making involves considering the cost involved in gaining a desired benefit. Entrepreneurs are constantly faced with balancing benefits against costs in employee relationships. Although the dollar cost for benefits is easily determined, determining how this evaluation affects morale, motivation, and commitment to the company is much more difficult. The desire for a given benefit may become so great that the implications of the attached cost are overlooked. This may be passed off with the simple comment, “I’ll worry about the cost later.” Overlooking the implications of attached cost can also occur when an error is made in assessing the cost or in changes in cost over time owing to unforeseen circumstances. Paramount in a healthy business is careful attention to the cost/benefit of an investment in terms of physical and financial commitments or the people they employ. Businesses get into trouble when their enthusiasm for a pet project clouds their assessment of cost. The assessment becomes more difficult when the cost is not readily assessable. The resulting judgment can be highly vulnerable to distortion because of the emotional investment. REGULAR REVIEWS OF BUSINESS MANAGEMENT Staying healthy means that a business must commit to regular reviews of all aspects of its operations. These reviews enable management to spot problems before they happen or to catch them in the early stages when they are most easily correctable. Who should conduct such a review? Having the review conducted by an outside source brings a fresh perspective that will avoid established mind-sets, favored involvements, and the politics of established relationships. Businesses that are volatile and subject to rapid change are likely to need more frequent reviews; conversely, those that are more stable are likely to need them less often. Commonly, six-month or annual reviews are sufficient. Most productive reviews are those that follow a formally defined procedure so that all participants know what is expected of them. These reviews should be seen as a constructive tool rather than an intrusion.

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Content to Be Covered The items to be covered depend on the business plan and the items described above. Of particular importance is an assessment of the partner’s relationship. Special attention should be paid to determining whether adequate resources exist for nurturing the partnership. Also deserving of attention is the partners’ ability to keep personal problems from interfering with the business relationship. Evaluation The general objective of the review is to provide a status report on the operation of the company as a whole and for each of its subdivisions, departments, and other units. Also included should be an identification of those showing notable performance and those whose performance is seriously lacking. The report should make recommendations for needed changes and indicate the company’s perceived ability and commitment to accomplish these changes. REFERENCE Rossi, Ernest L. (1991). The 20-Minute Break. New York: G.P. Putnam’s Sons.

Chapter 16

Signs of Troubled Relationships Developing an “early warning” system is a good way to detect relationship problems before they become serious enough to affect the business’s mission. Early detection identifies developing problems while the means for resolving them are readily available and before adversaries become entrenched in defending their positions. When problems are allowed to fester, they take on a life of their own and too readily take priority over matters of business. For example, two partners may get into a power struggle when winning becomes more important than the impact it has on their business. This chapter focuses on identifying signs of troubled relationships.

BUSINESS RELATIONSHIPS Partnership Difficulties Some people thrive on all the minutiae involved in starting a business and tend to get bored once the business is up and running. The excitement and challenge of starting a business is quite different from operating an ongoing business. Signs of diminished interest quickly become obvious: a drop in the observable level of energy and enthusiasm, less time spent at work, a distracted appearance, diminished quality of work, procrastination, change in work habits, irritability, and increased investment in outside activities. The presence of these characteristics does not always indicate diminished interest but should lead to great deal of questioning and to a search for remedial efforts.

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Example Sam, the son who wasn’t the CEO, appeared disinterested in the business of the insurance firm. He appeared distracted and indifferent, and spent an inordinate amount of time on outside interests. It eventually became clear that this behavior reflected his dissatisfaction with the position he held in the business. Closely involved in this problem was his continuing competition with his brother.

Increasing Unresolved Conflict One’s ability to resolve conflict is tested early in the development of a partnership. Successful resolution involves subordinating individual need to partnership need. When the initial capacity to resolve differences deteriorates into unpleasantness, the results are psychic drain and increased risk to the partnership. Example George and Manny were never very close as brothers, but when their father died and left the family’s furniture business to them, they developed a way to deal with their business differences. Over time their personality differences and divergent views on how to run the business made solutions to their problems increasingly elusive. Eventually, it led to Manny’s buyout of George’s interest in the business.

Effect of Personal Problems Partnerships Personal problems stemming from family or health crises can be a major drain on a partner’s available attention and energy. This situation is particularly difficult for the unaffected partner who must now balance the needs of the business and compassion for the affected partner. Solving this problem without threatening the partner’s personal relationship poses a challenge to the partners’ maturity. Example The Management Consulting Firm partnership suffered the loss of one of its partners as a result of Gregory’s illness. The stress involved in starting the firm and working out relationship issues triggered an illness that led him to resign. His departure and the resulting buyout of his interest resulted in a period of instability that lasted for several months until the necessary reorganization was completed.

Changes in Business Goals Relations between partners deteriorate when shared business goals need to change, and they are unable to make the changes. The challenge they now face is to prevent their dispute from unduly affecting the business. This process can be facilitated once they agree on revised goals while working out their differences in how to get there.

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Example Partners in an advertising business started out with the same business goals, but as the business grew, their goals gradually diverged. With changes in their values, they began to define business goals differently. Kurt’s main goal was to maximize profits. Accordingly all his efforts went into accomplishing this goal so that he sometimes became ruthless with both staff and clients. This conduct was very bothersome to Fred whose ethic demanded that staff and clients be treated respectfully. In the interest of this civility, he was willing to settle for less profit. This behavior in turn irritated Kurt. The stress over these radically different goals led to the breakup of the partnership.

Management–Employee Relationships Working Environment Employers may express regard for their employees by focusing on the quality of the work environment. Emphasizing production with minimal regard for employee comfort and adequacy of needed tools does not invite motivated or creative employees. Instead of fostering a product partnership, entrepreneurs invite a struggle between how much they can get their employees to produce and the employees’ effort to do as little as possible. Problems with Personnel Practices As discussed in Chapter 13, personnel practices define the conditions under which employees pursue the business’s mission. These practices define work hours, benefits, holidays, time off, and any other matters that affect employee behavior. A precise explanation of these practices significantly contributes to healthy employee morale. Concerns about benefits have become especially important in the current climate when the cost of employee benefits has become a major employer concern. Periodic review of personnel practices will help employers detect employee dissatisfaction with benefit concerns. Ambiguous personnel policies, inconsistent application of policies, or adverse and arbitrary changes in benefits are natural breeders of problems. Failing to obtain employee input only exacerbates personnel problems. Inadequate Attention to Employee Contributions Acknowledging employees’ efforts and accomplishments greatly enhances productivity and congenial work relationships. Employees who do not feel appreciated for their performance and believe they are being taken for granted generally underfunction. Giving employees feedback on how they are performing in a desired manner also enhances management–employee relationships. Living by the adage that virtue is its own reward is

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not useful in the workplace. Acknowledging workers’ efforts also helps to broaden employee tolerance for frustration in the working environment. To acknowledge desirable employee performance, management should develop a quality of communication with employees in which there is mutual awareness and respect of each other. Constructive feedback is also an important avenue for management to vent its frustrations and at the same time be nurturing to employees. An atmosphere characterized by two-way constructive communication contributes to positive morale and productivity, and a sense of participation helps to define a product partnership. Inadequate Communication Because job security is a high priority for most employees, any situation that may threaten their jobs will evoke great concern and distract energy from job performance. A problem in performance should promptly be brought to the employee’s attention in a forthright, constructive manner that will provide direction in how to correct any inadequacies. Involving the employee in the solution is a good way to solve the problem and enhance the working relationship. Some concerns about job security cut across the group as a whole rather than just an individual. The causes of such group concern include changing economic conditions, decreased company profits, loss of a major contract, changes in management, and sale of the company. The best way to address resulting employee anxiety is to keep them informed about matters that affect them, be they positive or negative. Ambiguity breeds a climate of anxiety and mistrust so that people ultimately begin to treat their distortions as fact, which in the end only increases the problem. Companies generally keep their financial difficulties secret or even distort information that might reveal the true situation to employees. Fear of creating disruptive problems is the driving force for this behavior. This logic is flawed because problems that affect the operation of a company are not easily kept secret. Employees become very sensitive to picking up both explicit and non-verbal cues that trouble in the company is brewing. When not kept informed, employees will draw their own conclusions and feed off of each other’s anxieties. Taking the risk of letting employees know about problems that face the company and what is being done to address them will eliminate morale problems and mobilize employee resources to support management efforts in coping with any problem. This effort contributes to the employees’ feeling that they are part of a product partnership, not just that they have a job. Example The Management Consulting Firm was in the midst of a financial crisis and attempted to keep the firm’s financial plan from their employees in the mistaken

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belief that this approach would provide the best chance of preserving the firm’s stability. This idea was based on the naive assumption that the company should hide the truth about what was happening. But secrecy was not possible. Staff members quickly sensed that the firm was in financial straits. The problem was only compounded when management denied the situation when questioned. The staff’s realization that management was not being honest with them created mistrust and interfered with the firm’s productivity. Management would have fared better had it been honest with the staff and involved them in working through the problems. In this way, it would have harnessed psychic energy and improved the situation. Instead, staff motivation declined as anxiety about the future of their jobs increased, and the resulting decrease in productivity only added a new problem. Employees also began to look for new jobs.

Compensation Issues Dissatisfaction with lack of promotion, working conditions, and type of work brings much tension to the workplace. Prompt management attention will neutralize dissatisfactions and stop them from becoming problems. Employees may not be happy with their failure to get raises, but their frustrations will be minimized once they understand why it is not possible. Forthrightness enhances morale and a product partnership attitude.

Employee Status Job Satisfaction Job satisfaction is the product of many variables, including salary, working conditions, affirmation, work relationships, job security, benefits, and opportunities for advancement. Dissatisfaction with any one of these variables can become a potential problem. The magnitude of the problem increases as other areas become sources of dissatisfaction. Once a momentum starts, it begins to affect areas that in themselves were not a problem, as in a spreading wildfire. The length of time the problems persist and the number of other people who share the same problems add to the problem. These problems are less likely to occur in the context of a product partnership. Otherwise, these problems readily become a divisive force between management and employees. Motivation Status Monitoring the status of motivation can serve as an early warning notice to management of an incipient problem. Decreased motivation signals that frictional energy is draining productive energies. Prompt attention to determining the source of it will limit the development of negative consequences.

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Productivity Status Decreased productive output is another potential indicator of relationship difficulties. Variables to be considered in determining the source of the problem include conflicts among employees, work conditions, salary or promotion issues, employee–management conflicts, and lack of contribution acknowledgment. Often problems get expressed in behavior before they are expressed in words. Sensitivity to these cues can lead to early detection of problems. Employee Relationships Destructive Competition Healthy competition between employees can be good for both the employees and the company. However, companies sometimes inadvertently foster destructive competition. Competition becomes destructive when the success of one employee is gained at the expense of another one, or when the rewards for achieving are at the expense of neglecting other responsibilities, or when they discourage cooperative effort. Unresolvable Conflicts Conflicts between employees that become chronic undermine motivation, job satisfaction, and productivity. Tolerating chronic conflict chips away at confidence and trust in management and may ultimately lead to the loss of valuable employees. The most desirable approach is to help employees involved to reach their own solution and to provide a mediation mechanism as needed. Management should avoid fostering any feelings of winning and losing battles or showing favorites, for either tactic will only lead to yet more conflict. Impact of Personal Pressures Employees whose personal lives are stable and satisfying are better able to cope with stress on the job and to be most productive. Chronic personal problems ultimately affect one’s work productivity and relationships with other employees. The manager must be sensitive in handling a change in an employee’s performance that apparently is not work related. Calling an employee’s attention to such changes in a nonjudgmental manner is a useful first step. Once the employee acknowledges the existence of a personal problem, the manager needs to determine whether the problem is acute or chronic. If acute, the manager’s best move is to give the employee some latitude until the problem is resolved. If the problem is chronic, then the manager and employee need to determine its impact on job performance. Addressing this problem is in the manager’s and employees’ best interest, perhaps enhancing motivation and heightening commitment to job per-

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formance. It will also likely have similar impact on other employees should they witness the process or hear of it. This approach also contributes to maintaining a product partnership. When the question of diminished performance is not addressed, a number of events occur that almost invariably become interwoven: a lowered expectation of performance, increased tension in relationships, diminished morale, and self-doubt. And after a while it becomes impossible to distinguish the cause from the result. MARKETPLACE PHENOMENA Signs of trouble are also evident in the marketplace. Decrease in Sales A protracted decrease in sales is usually the product of many factors. Therefore, blaming one another or outside forces such as the economy may be a way for both management and employees to vent frustrations, but it is a useless exercise. Not only does it not address the problem, but it also undermines constructive problem resolution. Complaints from Customers/Clients Encouraging customer/client feedback is a good way to detect problems early in their development. Such feedback must be accepted at face value; that is, when a problem is singled out, steps should be taken to correct it. In a collateral partnership between the company and customer/clients there is a receptive and responsive feedback loop that generates enormous good will. Companies that react to feedback defensively and are quick to blame the customer/client for the problem all too often run into trouble and destroy any opportunity for a collateral partnership. Feedback can be gained through a variety of methods, including questionnaires, phone calls, and focus groups. MANAGEMENT Ongoing attention to the issues discussed in Chapter 15 will help provide an early warning system for potential management problems. Tactical Management and Strategic Planning The lifeblood of any company is the quality of work relationships. Tactical management and strategic planning will be more productive when they include consideration of how business plans and management will affect

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relationships and be affected by them. For example, planning a major business strategy that does not consider how it will affect employees in areas of major concern to them—salary, job security, promotions, and more— will wind up with exciting ideas that do not achieve fulfillment. Example After many years of success with their Construction Company, Jerry and Ernie shifted priorities when they began to involve their children in the business without careful consideration of the younger generation’s readiness to assume responsibility. Ernie’s son, Marshall, was ill prepared and had no demonstrated areas of competence. Confounding the problem was the decision to give him too much responsibility with too little supervision. Jerry and Ernie’s strategic plans got lost in the struggle for survival because they did not adequately consider the competence of those who would implement them.

Finances Financial Projections Projections that are grossly inaccurate are generally the product of poor understanding, inadequate preparation, or indulgence in fantasy. Interestingly, these inaccuracies usually take the form of overestimating income and underestimating expenses. Errors of this kind give rise to employee anxiety concerning job security, which is likely to affect productivity and further complicate management of finances, particularly in making projections. Cash-Flow Problems Persistent cash-flow problems are of concern for two reasons. First, they distract attention from other aspects of management, and second, they create employee anxieties regarding the security of their jobs. Employer concerns about meeting payroll and taxes heighten tensions, and there is the potential for this to lower frustration tolerance that might normally be easily be managed but under these circumstances gives rise to secondary problems between partners and between partners and employees. Once a company’s cash-flow problems become known, its credibility and stability in the marketplace begin to erode, provoking greater attention and scrutiny from bankers, suppliers, and customers/clients. This will weaken the various collateral partnerships involved. Debt Service Problems Difficulties with financial projections and cash-flow problems naturally lead to debt service problems. Contributing to the deficiency is management’s ability to convince lenders to provide more financial support than

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the business can carry. Ultimately, the collateral partnership with banks becomes unstable as lenders get nervous about a company’s ability to carry the debt. The pressure on management becomes so great that attention to the business is distracted and these tensions feed employee anxiety. This quickly becomes a vicious cycle that can soon lead to out and out business failure. Example The Sporting Goods business began to experience financial problems after it adopted unrealistic projections. By gearing the staffing and purchases to these projections, cash-flow problems ensued, which in turn created problems in meeting its debt service obligations. The ultimate result was bankruptcy.

Employee Behavior Diminished Morale Employees are a mirror of a company’s health. When problems persist, employees become anxious and express their anxieties in complaints that soon interfere with their work. Management should avoid the temptation to respond with criticism, which would only exacerbate the problem. Instead, it should try to build a product partnership with employees by helping them understand the nature of the problem and the company’s efforts to find a solution and inviting their input. Otherwise morale suffers and the problem only worsens. Breakdown in Behavioral Ethics As tensions increase, all sorts of negative behaviors surface: increased irritability, less cooperation, more conflicts, more complaints, secretive discussions behind closed doors, and more self-serving competition. These behaviors rapidly escalate when management fails to take prompt corrective action. The relationship between partners also deteriorates as their anxieties escalate. With greater stress, they quickly begin to blame each other and their employees, which again exacerbates the situation.

Product Delivery Decrease in Quality Prompt attention to quality control issues can minimize the damage in the collateral customer/client partnership. Quality control is more difficult to maintain in a service-oriented business because it depends heavily on feedback from customer/clients. The success of the collateral partnership

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with customer/clients is largely dependent on the resources the company is willing to invest to make it work. Late Delivery Another dimension in defining the quality of the collateral partnership is the company’s reliability in delivering its product in a timely fashion. Negotiating a process with customer/clients regarding the variables that may influence timely deliveries and how the customer/client needs are being considered will contribute to a productive collateral partnership. This will involve setting up realistic timetables and prompt communication when delays are apparent. Also to be included are provisions to meet emergency needs that communicate the company’s appreciation for customer/client needs.

Part III

When Business Relationships Are No Longer Desirable or Viable

Chapter 17

Evolution of a Business Divorce The term business divorce would seem to focus on failure but this is not necessarily the case. Partnerships change for various reasons, including differences of opinion, boredom, and desire to pursue other interests as well as failure of the business. Actually, business divorces can occur in very successful businesses. Therefore, understanding how to change partnerships is just as important as how to create them. Partnerships don’t break up overnight; rather, dissolution takes place over time even when it may appear impulsive on the surface. A business’s chances for success are enhanced by a harmonious relationship, but as is true in marriages, they can function even in the absence of harmony. As shown earlier, the success of partnerships is more likely when the parties have a clear understanding of each other’s expectations, and this understanding is usually accomplished in a formal partnership agreement. Less clear but no less important is the partners’ emotional commitment to the relationship. The partners must be able to accomplish a balance between individual and joint priorities in the relationship and to develop and maintain open and constructive ways of communicating. Family businesses are often more casual in defining the partnership. This is unfortunate because the more ambiguity, the greater the likelihood that problems will develop in the resulting partnership. Often in family businesses a formal agreement is forgone because of the presumption of trust among family members. This is especially true when a family elder invites a son or other relative into a partnership. For many, questioning the terms of the partnership in the family business suggests lack of trust. A business divorce is likely to produce the same emotional trauma that usually occurs in a marital divorce. The trauma results from a history of

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emotional and financial commitments or the lack thereof. Severing these connections is usually complicated and painful, especially when the relationships are long standing. Separating business and personal relationships is possible in theory but very difficult in practice. The path to a business divorce is often equally complicated. Understanding the process by which it occurs can help to avoid it or to effect a constructive resolution. Application of this learning improves the chances of not encountering the same problems again.

DEVELOPMENTAL HISTORY OF A DIVORCE The seeds of a business divorce may be sown at any point in the relationship. In some businesses, they start at the very beginning when doubts about entering the relationship are relegated to the background and the partners succumb to the seduction of challenge and the vision of success. These self-doubts lie inert until aroused by chronic problems that are increasingly experienced as unresolvable. In other businesses, the relationship may be satisfactory for an extended period of time until the comfort level in working together increasingly runs into problems. The seeds of divorce begin to germinate as differences on important issues remain unresolved or hard feelings develop and go unattended. The confidence gained from past successes in problem resolution is gradually eroded by chronic controversy. A paradigm for business divorce involves progressing through 10 stages. In theory, these stages are distinct from one another, but in practice, they overlap and can be bidirectional. The path of divorce may stabilize at various points along the way and even be interrupted by periods of improvement as the partners temporarily regain their ability to resolve problems. For most, this is a temporary respite, and the unresolvable problems recur. This recycling can go on indefinitely until the partners learn to cope harmoniously on a more satisfactory and consistent basis, or they ultimately end the relationship.

Stage 1: Formation of a Partnership The first point of vulnerability in a partnership is the degree of compatibility of personalities and value systems. The mesmerizing effect of starting a new business can make it easy to overlook these considerations. Incompatibilities in the other partner are observed through the lens of optimism that the offending characteristics will change over time. In much the same way, a man or woman may marry with the idea that he or she will change the unattractive personality traits of the prospective partner. This approach works no better in a business partnership than it does in marriage.

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Example Failure to deal with personality and value compatibility played a significant part in the business divorce of all nine of the case examples. In four of the cases— Management Consulting Firm, Sporting Goods Company, the Furniture Company, and the Insurance Company—the partnerships started with the partners awareness of incompatibilities in personalities. With the exception of the management company, the partnerships were formed in spite of this awareness because of family ties and commitments.

Stage 2: The Business Start-up The climate in which business relationships are initiated varies from great enthusiasm and euphoria to sober attitude. For some, the start of a business relationship is both exciting and challenging. High hopes obscure anxieties, and potential difficulties are further obscured by the absence of a thoughtful business plan. Problems and disagreements are addressed or viewed with the optimism that something will be worked out. Start-up euphoria can give rise to feelings of invincibility and dampen any lingering concern about long-term outcomes. Others may approach a business relationship with careful planning that reflects an awareness of all the considerations that give the business the best chance of success. Vision and enthusiasm are tempered by the consideration of these realities. Example The Management Consulting Firm partners were mesmerized by their visions for their business, which resulted in minimizing basic personality differences and values, only to have them resurface as major issues after a few months. The Nursing Home Company was started after developing a sound business plan and paying careful attention to how it was implemented. The partners had cautious optimism for their business. However, they neglected to devote enough attention to compatibility with their new partners, so despite the partners’ expertise in managing nursing homes, the business failed.

Stage 3: Awareness of a Serious Relationship Problem Concern about the possibility of divorce in the business relationship, as in marriage, starts well before it is talked about or even privately contemplated. Once the business is running well enough to permit time for reflection, attention can be shifted to neglected concerns. Problems that carry the greatest prospect of solution should be addressed first to enhance confidence in the partner relationship. The seeds of emotional divorce are planted when incidents of unresolved tension and mistrust occur with in-

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creasing regularity, eroding any confidence that their differences can be addressed. A serious problem exists when 1. Attempts to resolve problems increasingly become more adversarial than collaborative. 2. Increasingly the focus shifts from issues to blaming the other partner. 3. Values that were once held jointly move in a different direction. 4. Commonly held beliefs about matters related to the business yield to different evaluations. 5. Difficulty in agreement on setting priorities increases. 6. Issues in a partner’s personal life significantly interfere with fulfilling partnership responsibilities. 7. Changes occur in level of commitment to the partnership.

A feeling of camaraderie is gradually replaced by a sense of caution and mistrust. Events that are normally dealt with readily become more difficult to manage. Often it takes more energy to accomplish less. The fulfillment experienced in being in the business together is replaced by stress and avoidance or even hostile confrontation. When the problems persist over time and increase, the awareness gradually emerges that the partnership is in trouble. The relationship becomes increasingly one of high maintenance. Example The subjects in the case examples varied as to how long it took them to become aware of a serious relationship problem. The Sporting Goods Company, the Furniture Company, and the Insurance Company all started their business knowing their working relationships were strained. Finding solutions to problems was often a more adversarial than collaborative process. They had difficulty agreeing on priorities because of value differences and their inability to deal with their differences constructively. In all three cases, the partnerships were formed when the brothers inherited businesses from their fathers; they had varied commitments to making the partnerships work. All of the other enterprises started with the expectation of good working relationships. Months to several years elapsed before serious relationship problems began to surface. The Construction Company, the Law Firm, the Management Consulting Firm, and the Nursing Home Company became aware of serious problems in about a year. In the case of the Medical Practice and the Sporting Goods Company, problems did not occur for several years because their work commitments did not permit the time needed to test their ability to work together.

Stage 4: Attempts to Resolve Relationship Problems In healthy partnerships, partners view the differences between them as an asset. They recognize the complementarity benefit that can accrue from

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personality and value differences. They have confidence in their ability to merge their differences for the benefit of the business. They readily address relationship problems as soon as they arise, and they learn to tolerate those times when the results are disappointing. Cause for concern develops when unsatisfactory occurrences become too frequent, and the residual tension increases the likelihood that the experience will be repeated. Gradually, the partners tend to avoid facing issues which in earlier times they addressed quite comfortably. This process feeds on itself and only leads to increased tension. Example In the Construction Company example, Jerry and Ernie had a successful relationship until Ernie’s son became involved in the business. They allowed his deleterious influence to undermine their relationship. Eventually, the threat of financial disaster enabled them to regain their former relationship. It took the prospect of a financial crisis to compel Ernie to face the disappointment and humiliation of his son’s mismanagement of company finances. The Medical Group Practice and the Law Firm are examples of partnerships that never developed a significant history of trust in being able to resolve differences. In both cases, fundamental value differences in business management resulted in an early termination of the partnership for a member in each situation.

Stage 5: Businesses with an Uncertain Future Chronic difficulty in resolving differences leads to uncertainty about the future of the business relationship, creating a difficult period during which both partners are wondering whether their relationship will survive but do not acknowledge it to one another and at times even to themselves. This felt uncertainty distracts them from business matters and further exacerbates the tensions between them. This readily becomes a vicious cycle that, if left uninterrupted, will hasten the demise of the partnership. The struggle to cope with unresolved tensions often erupts into exchanging blame. The chance of a constructive resolution rapidly diminishes as more energy is expended on the exchange of blame and less on constructive effort. Allowing this behavior to get out of control undermines the functioning of the business and runs the risk of compromising individual and business reputations. The situation gets more complicated and difficult when sale of the business is involved. Example The Sporting Goods Company found itself in a period of serious financial crisis, putting a great deal of strain on the partnership of father and four sons. The tensions increased as the financial crisis grew and it became evident that the partnership would not survive. Relationships between the partners became so tense that

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they could not perform their responsibilities. Ultimately, the financial crisis forced three of the sons to leave the business. A somewhat similar situation developed in the Advertising Company example. The partners had a history of working together for 12 years. Most of this time the business was conducted under conditions of a stressed partnership. Both partners had more and more doubts about the viability of their partnership. Changing business conditions increased pressure on the partnership. Although they finally decided to terminate their partnership, they could not do so for a period of time owing to standing commitments. Their ability to function as partners improved once they agreed on the terms for the divorce, for now anxiety and uncertainty about what was happening had ceased. Knowing the stress would soon end, they could more easily tolerate their differences.

Stage 6: Unresolvable Awareness Differences The realization that differences are unresolvable gives rise to the beginning of anticipatory mourning of the relationship and plans for ending the partnership. This leads to consideration of when and how the partners openly confront the fact that the partnership is in jeopardy. The timing is likely to be guided by efforts to gain advantage before raising the issue. An amicable divorce may occur when one or more partners recognize that their commitment to their business has shifted to such an extent that it interferes with constructively continuing in the business. This may be a statement about their relationship, the nature of the business, or both. Sharing awareness of a shift in priorities with partners as soon as the person holding it becomes aware of it provides an opportunity to evaluate whether mutually acceptable ways can be found to continue or end the partnership, or whether a hostile divorce is likely to occur. Attending to the business during this period heightens the already stressful situation. Preoccupation with the possibility of divorce is likely to hamper judgment and to divert energy investment from current business activities. The business is likely to suffer, particularly as employees pick up the scent of tension that distracts them from adequately attending to their duties. This might also give rise to manipulations within the company on a financial or relationship basis or in developing external opportunities outside of the company. Intermingled with concerns about coping with current issues are thoughts about the possible consequences that might occur should the business relationship come to an end. How these possibilities are experienced as desirable or undesirable and manageable will influence to what extent energies are directed toward resolution and toward pursuit of the divorce. Example The Furniture Company illustrates the process involved when it becomes clear that partner differences are unresolvable. The younger brother, George, recognized

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that the differences between him and his brother were not going to be resolved and he concluded that his brother, Manny, was not going to relate to him in any important way. As a result, he sold his share of the business to him. Another approach to a similar problem occurred in the case of the Insurance Business. The younger brother, Sam, felt disenfranchised when his brother was put in charge of the business. He recognized that he would never have the place in the business that he wanted and felt he deserved. He dealt with his feelings by developing outside deals and interests.

Stage 7: Unresolvable Differences as an Open Issue Eventually, both partners acknowledge the precarious status of the business relationship. As a result, they begin to confront their willingness to resolve the tensions or decide how and when to terminate the relationship. Getting concerns out into the open results in relief from having to carry a secret. The relief is likely to be short lived, however, and last only until the next unresolved argument reminds them of the reality of their relationship. When the possibility of the end of the business relationship is experienced as very threatening, the ability to focus on important issues will be undermined by the anxiety of what might happen. Such distraction is likely to become a self-fulfilling prophecy: The more the distraction occurs, the greater the possibility that problematic behavior will increase and the greater the likelihood of a business divorce. When the partner with these concerns feels helpless to affect evolving events, the impact of the distraction will only increase. Less effort will be expended on resolving differences when continuing the business relationship is viewed with mixed feelings or there is a rumbling desire to get out. Once alternatives to ending the business relationship became sufficiently attractive, the impact will facilitate the termination rather than prevent it. Example The Medical Group Practice and the Law Practice are examples of situations in which publicly proclaiming that differences were unresolvable led to speedy resolutions. In both cases, the partners were able to confront the issue. The absence of sufficient acknowledgments of their concerns, or any good faith effort at negotiation, led to their leaving the partnership. A different outcome occurred in the Management Consulting Group. When Gregory declared that he felt the differences with his other partners were unresolvable, he precipitated a period of open hostility with his partners during which he accused them of ignoring his concerns. This resulted in a protracted period of high stress that permeated the entire staff.

Stage 8: The Decision to Divorce Knowing when to end the struggle and institute the divorce proceeding does not come easily. It occurs when the partners reach the conclusion in

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Stage 6 that their differences are unresolvable or when the differences become an open issue as in Stage 7. Although a variety of reasons may account for the breakdown, the underlying issue is that individual priorities become sufficiently important to overshadow the commitment to shared priorities. The considerations that readily determine the decision to get a divorce are as follows: 1. Whether one partner buys out the other or there is a sale to a third party. 2. The meaning a divorce has for the partners—relief, shame, loss of an opportunity or vision, failure, and so on. 3. Each partner’s confidence in finding new business opportunities after the divorce. 4. The partners’ willingness to negotiate in spite of any personal animosities they may have toward one another. Example In both the Law Firm and the Medical Group cases, Jean and Alex left their partnerships when the differences of opinion about compensation practices were greater than the commitment to shared goals and values. This was also the case in the Advertising Company. Fred’s commitment to the partnership eventually yielded to his growing displeasure over Kurt’s gruff manner in dealing with disagreements. Eventually, Fred concluded that the benefits of the partnership were outweighed by the stress that was required in maintaining it.

Conditions for Amicable Divorce The way the decision to divorce occurs will determine whether the divorce is amicable or hostile. Divorce occurs amicably when the partners jointly recognize that their commitment to participate in their business has shifted so much that they cannot constructively continue the partnership. This breakdown may occur for various reasons: 1. It may be a statement about the perceived irretrievable deterioration in the relationship. 2. The need for the product or service is no longer relevant. 3. One or more partners desires to pursue another business interest. 4. There are personal reasons related to health problems or changing family needs.

Sharing awareness of a shift in priorities with partners as soon as the person becomes aware of it provides an optimal opportunity to evaluate whether there are mutually acceptable ways to continue or end the partnership or whether a hostile divorce is likely to occur.

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Example The decision to divorce was made relatively quickly in the Medical Group Practice, the Law Firm, and the Nursing Home cases once it became clear that a major issue was not resolvable. In the Medical Group and the Law Firm, the issue was about distribution of compensation. The decision in the Nursing Home Case came very quickly after the chief operating officer’s discovery of misallocation of funds was discovered. The decision to divorce was a far more protracted one in the case of the Advertising Business and Furniture Business cases. It took the partners in the Advertising Business a long time to arrive at a decision because the level of dissatisfaction was more tolerable than the anticipated stress of dissolving a 12-year partnership. Eventually, the day-to-day level of dissatisfaction shifted the balance in favor of ending the partnership. The demands of managing a business on a day-to-day basis left little time or energy to face the stress of effecting a divorce. A similar situation occurred in the Furniture Business.

Conditions That Lead to Hostile Divorce 1. One partner may use the threat of divorce as an attempt to manipulate the relationship. This risky effort often backfires when the partner proposing it is not prepared to follow through if the other partner accepts the proposal of a divorce. 2. Personality differences become incompatible. 3. The divorce benefits one partner and not the other. 4. One partner makes accusations of malfeasance against the other.

Stage 9: The Emotional Aspects of Divorce Success in accomplishing a business divorce depends on the combination of conditions that either impede or facilitate the process. Conditions That Impede Resolution of the Divorce Difficulty in Reaching Agreement to Divorce. A business divorce is difficult under the best of conditions. Coming to terms with the prospect of dissolution is made more difficult when a great deal of unresolved anger is present, when only one partner wants a divorce, or when there is resistance to ending the partnership, for a variety of reasons discussed in this chapter. Fear of the Divorce Process. The process of negotiation involves the turmoil of offers and counteroffers and dealing with the waves of frustrations between partners and between partners and lawyers. Complicating the process are interwoven periods of anger and rationality that only add to the turmoil. Free-Floating Anxiety. Proceeding with a divorce can be very difficult when the anxiety surrounding it is free floating. This anxiety may occur as a result of feelings of helplessness and vulnerability regarding the undesir-

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able consequences of divorce. Another possibility is the ending of the partners’ long-held dream and the felt absence of any viable financial opportunity after the divorce. The impact of these concerns feeds a global undefined fear that paralyzes the partners, preventing them from defining and addressing the specifics involved in a divorce. The more they stay at the level of vague fear and its related anxiety, the more difficult it will be to effect a constructive resolution. Absence of Viable Alternatives. Facing divorce is also difficult when there are no viable job alternatives. Persisting in the business relationship may sometimes seem more acceptable than the felt absence of options. The perception that the financial consequences of divorce are either uncertain or troubled can result in hanging on as long as possible even though doing so may be more costly in the long run. Anger. The significant presence of feelings in one or both partners, including blame, anger, resentment, and shame, will interfere with reasoned attempts to find acceptable conditions for accomplishing the business divorce. Facing Failure. Some people hang on to a bad business relationship in an attempt to avoid facing failure. The pain involved in the prospect of confronting failure may override the compelling logic to proceed with the divorce. Characteristically, cognitive behavior becomes subordinate to emotional needs when the emotional discomfort gets high enough. Loss of a Vision. Facing the loss of a dream, image, prestige, or perks can be emotionally compelling reasons for resisting a divorce. People who find it too difficult to face such feelings are likely to hang on to the fantasy that somehow things will work out. Usually, this results in delaying the inevitable under even more difficult circumstances. People at this point are very vulnerable to grabbing at seemingly easy solutions without adequate consideration. The momentary relief is accomplished at the expense of not considering consequences that can become emotionally and financially detrimental and at worst disastrous. Impact of Past History. A previous negative history in coping with divorces and other losses will color the tolerance and ability to cope with the possibility of another loss. A person with a background of painful and unresolved losses is likely to have a low threshold for repeating the experience. This is likely to be expressed in quite different ways, depending on the individual’s personality. It can take the form of being quick to judge and blame for the impending divorce. It can also take the path of denial that anything is wrong until facing the problem can no longer be avoided. Divorce negotiations are likely to arouse feelings of injustices from both the past and the present. These injustices may involve old issues that are being revisited or new ones that may or may not have been previously discussed. At the public level, partners may blame each other, the employees, the economy, government policies, and so on. Privately, they may

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blame themselves, their families, or any other source that will help alleviate their pain. Divorce as Unexpected. The difficulty of coping with the divorce process is further exacerbated if a partner’s decision to divorce is unexpected. Under these conditions, a person needs time to deal with the pain of the impending loss, to explore possible solutions, to find time to prepare for the negotiations, and to consider post-divorce options. Power of Familiarity. Familiarity is a powerful reason for continuing in a bad situation. For many people, the security that comes from knowing how to cope with a difficult situation becomes more acceptable than dealing with the anxiety of uncertainty in coping with unknown situations. Ambivalence about Getting Divorced. When the possibility of terminating the business relationship is viewed with mixed feelings, at times the focus will be on preserving the relationship and times on getting the divorce. This gives rise to a frustrating instability in negotiating a divorce. Positions and feelings may change from day to day, creating great confusion and frustration for all concerned. Conflict in the Attorney–Client Relationship. Often, relationship problems develop between attorney and client. They may be attributable to issues of substance in the negotiation or to tension overflow from the divorce process. It becomes very easy for a client to hold the attorney accountable when negotiations are not going well, either with or without a reasonable basis. Conditions That Facilitate Completion of Divorce Confidence in Post-Divorce Opportunities. Partners can define acceptable consequences that follow the business divorce on both business and personal levels. Agreement on Use of Third Parties. Once partners have made the decision to divorce, their relationship is further tested as they seek to effect the divorce in a constructive manner. If the stress in their relationship does not make this possible, they resort to third parties such as attorneys, accountants, mediators, and therapists. The use of third parties is a mixed blessing. Although it provides the possibility of objectivity, it also carries the potential for more stress in anticipation of an uncertain outcome. Agreement on Business Management during Divorce Negotiations. Agreement on how to cope with day-to-day business problems during the divorce process reduces the possibility of adding problems to ongoing negotiations. Compatibility between Partners and Their Lawyers. The attorney–client relationship becomes a short-term partnership in service of accomplishing acceptable terms for a business divorce. The success of this partnership is subject to some of the same basic principles that apply to any partnership. There is the necessity for open communication, including effective ways to

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deal with differences, understanding and agreement on their expectations of one another, and follow-through on commitments in a timely fashion. Recognition That the Partnership Is No Longer Viable. An amicable joint recognition that there is no longer a desire to continue partnership facilitates the negotiation of a divorce. This possibility is enhanced when the partners have a good working relationship and there are no significant outstanding unresolved issues. Example The partners in the Advertising Business had faced a number of difficulties in coping with the divorce process. They vacillated on the necessity for a divorce for several years. Fred was very threatened by the prospect of going through the negotiations necessary to get a divorce. He was not very comfortable dealing with Kurt’s anger. Both partners harbored anger and resentment surrounding many issues that were never adequately addressed. Both of them were disappointed that they had not achieved their shared vision of a profitable and creative business. Kurt’s experience in going through two marital divorces left him leery about going through a business divorce. Both partners were confident of alternative business opportunities if they dissolved their partnership. Fortunately, the business was sufficiently established that they had little difficulty coping with day-to-day issues during the divorce process. Fred’s wife’s encouragement enabled him to pursue the divorce to completion. The Sporting Goods Business faced a different set of issues in the pursuit of a business divorce. The economic pressures confronting this business forced a change in the partnership, which resulted in three sons leaving. The father, Paul, usually functioned at a high anxiety level, and the prospect of his sons leaving the partnership only increased his anxiety. He dealt with his emotional trouble by denying an issue existed. Instead, economic necessity made the decision for him. The prospect of the divorce became all the more difficult for him because it represented failure and the shattering of his vision of living happily ever after with his sons in a prosperous business that had been started by his own father and grandfather.

Impact of Divorce Process on Partners’ Families Business divorces affect the partners’ families, and families often contribute to divorce when family needs compete with business needs. The degree to which families are affected depends on the kind of changes produced by the divorce, including impact on income, the partner’s greater availability to family, reduction of stress from the business, loss of business perks, and prospects for the future. The tensions of the divorce will result in diminished energy available to the family, which adds more stress to an already over stressed situation. The situation worsens if the family relationships were difficult prior to the beginning of the proceedings. Things can go from bad to worse when the tensions between family and negotiating process begin to feed on each other.

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Family pressures can influence divorce negotiations when family members lobby for their individual needs. When significant family pressures arise, the partner faces additional stress. When these pressures are strong enough, the partners may be willing to endure a greater degree of discontent to avoid the divorce or sacrifice more than they would otherwise be inclined to do to satisfy family needs. Example Fred, a partner in the Advertising case, pursued a business divorce in part because of pressure he was feeling from his wife, Helen, who was increasingly upset at the toll that the partnership was taking on their relationship. She felt they would manage financially and urged him to follow through on the divorce—something he had talked about doing for a long time. The Sporting Goods Business faced a far more difficult situation. The survival of the business was at risk. As a result, the three sons had to leave the partnership, which placed a heavy burden on family relationships. Far more damaging to the family was the fact that the three brothers who left the business were not privy to how the finances were being managed during the period that led up to the crisis. Feelings about this exclusion created a great deal of anger because the three were personally liable for business debts. The way the business problems were handled led to an emotional cutoff between Brad, one of the sons, and his parents and Ethan, the son who remained in the business with his father. As a result, Brad’s three children were cut off from a close relationship with their grandparents. All three sons who left the business suffered significant financial consequences following the breakup of the partnership.

Stage 10: Adjustment after the Business Divorce A painful divorce can have profound negative impact on future relationships. The pain is mitigated if acceptable job opportunities occur. However, the pain of fractured relationships takes time to heal even if the partners part with respect for one another. Often, the painful feelings from a failed business get intertwined with the personal relationship and tend to limit the possibility of a future personal relationship. In difficult cases, professional counseling may be needed to help cope with the consequences of the divorce. GUIDELINES FOR AVOIDING A BUSINESS DIVORCE Having reviewed how a business relationship can result in a business divorce, partners can take a number of steps to minimize the likelihood that it will happen or to mitigate the negative impact if it does occur. 1. Check out compatibility with a potential partner before considering a partnership. This is discussed in the section on selecting a partner.

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2. Regularly review the status of the relationship in a manner parallel to a financial review. Attention should be given to both positive and negative experiences. 3. Promptly address problems that develop in the business relationship. When this is not done, it takes energy away from conducting the business and results in problems that will fester to the point that they must be addressed. Solving the problem at this point becomes much more difficult. 4. Resolve differences when the focus is on specifics and not on generalized concepts that are subject to different interpretations. 5. Be forthright in expressing feelings, needs, and concerns in a constructive way even though it may provoke controversy. This will provide an opportunity to know what the problem is. The greatest danger comes from what is not discussed. 6. Resolve differences in a relationship when both parties are committed to finding solutions that are acceptable to all concerned. Win-lose solutions ultimately lead to lose-lose solutions.

Chapter 18

Coping after the Divorce One tends to think of divorce as a singular negative experience because it is associated with failure. Divorce like any complex relationship cannot be described simply as good or bad. A relationship ends when its benefits are outweighed by its deficits or by external pressures such as involuntary bankruptcy. An opportunity for valuable learning will be lost if the grief surrounding the divorce is permitted to prevent a review of how and why it happened. Equally important is not to let the negative aspect of the experience overshadow appreciating the positive experiences. Engaging in this process helps to heal experienced wounds and integrate learning gained from both successes and failures. When adequately processed, this evaluation or mourning process can provide confidence, rather than pessimism, in approaching future partnership opportunities. COPING WITH THE LOST PARTNERSHIP Undesired and unexpected losses in businesses follow a process of adjustment similar to that which is experienced upon the death of a loved one. The process commonly referred to as mourning characteristically involves a number of stages: disappointment, shock or panic, anger, guilt, blame, and eventual acceptance and replacement with a new experience. Coping with the undesired or unexpected ending of a partnership involves some combination of these experiences, depending on the individual circumstances. The length of time needed to accomplish mourning depends on the meaning individuals attach to ending the relationship and the quality of future prospects. In very difficult situations, a person can become fixated at any step in the process. Some people who lose businesses may never

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recover. That is, they will never be able to risk engaging in another business relationship and exposing themselves to the pain that could result from another disappointment. The consequences of this loss are even more damaging when it undermines self-confidence and willingness to trust. This effect may be expressed in the attitude that losing a relationship is so painful that it is better not to engage in one. One may never get past the anger at the loss or the felt guilt for its occurrence. The successful conclusion of each step in the mourning process is essential to the productive resumption of one’s life. Example Furniture Company: George was never able to come to terms with the breakup of the partnership. Initially, he felt sad and bitter that it was necessary to end the partnership. His sadness and disappointment continued until his death 15 years after the divorce. Even though he was never very fond of his partner—his brother— he regretted that they had not been able to carry out their father’s legacy. Sporting Goods Company: The partnership was dissolved three years ago. All of the partners, a father and four sons, are still actively coping with the consequences of that dissolution. The way the partnership ended had a great impact on all of them financially and on their interpersonal relationships. Robert, the third oldest son, continued to harbor anger and resentment toward his father and brother for their deceit. The result was an emotional cutoff from the family: he asked his parents never to call or visit again, or even to see their grandchildren.

The people who have the most difficulty coming to terms with a lost partnership are those in family businesses because despite the breakup of the partnership, family relationships usually continue, with ongoing contact serving as a bitter reminder of what happened. As a result, the mourning period is prolonged, especially when the termination was acrimonious.

REFLECTION ON THE CAUSE OF DIVORCE Those who suffer significant loss tend to speculate on the precipitating cause. What events caused the change, and could they have been avoided? If so, how and by whom? Often an early reaction is to lay blame for the loss. Generally, it is easier to put the responsibility on others than to consider one’s own contribution. In either case, a range of feelings from anger to guilt affects one’s success in accomplishing the mourning process and greatly complicates closure following the divorce. Example The range of reasons for what caused divorce in the presented examples include:

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1. Construction Company: Mismanagement of finances by Marshall, Ernie’s son, excluding his uncle, Jerry, from participation in making major financial decisions and Ernie’s failure to take corrective action on Jerry’s behalf. 2. Medical Group and Law Firm: A partner’s departure because of the felt imbalance between work productivity and compensation. 3. Management Consulting Firm: Gregory’s development of mental health problems, which interfered with his ability to relate to his partners constructively. 4. Sporting Goods Company: Financial mismanagement by Paul and his son Ethan to the exclusion of the other sons in these matters. 5. Nursing Home Company: Jim’s malfeasance in managing the company. 6. Advertising Company: The chronic incompatibility between Kurt and Fred. 7. Furniture Company: George’s inability to tolerate the incompatibility of his relationship to his older brother, Manny. Manny’s refusal to sell his share in the business, and George’s okay for Manny to buy him out. 8. Insurance Company: Sam’s anger and lackadaisical attitude toward his responsibilities in the company as well as his resentment of his brother’s position led to his leaving.

HOW THE DIVORCE OCCURRED Whether the divorce happened by choice or was imposed will affect how the experience is viewed Divorce by Choice Divorce by choice refers to those situations in which the divorce was precipitated by either partner or by their joint agreement. When Only One Partner Wanted the Divorce Although the partners may share many of the feelings that led to the divorce, they may have quite different feelings about the way it came about. All other issues aside, partners who are forced to end relationships that they feel could become workable are likely to be angry and resentful over the forced termination. The strength of these feelings will depend on the following considerations. • Whether they were able to continue the business by buying their partner’s share of the business and/or finding a new partner, as was the case in the Furniture Company. • Whether the divorce was precipitated by conflict in the relationship or by a reflection of shifting interests, as was the case in the Advertising Company. • Whether the exiting partner was viewed as having made a good-faith effort to find ways to continue the relationship, as was the case in the Insurance Company.

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• The way the partner’s behavior precipitated the divorce. The Furniture Company is an example of destructive behavior that precipitated the divorce, in contrast to the Medical Practice and Law Firm, which accomplished the divorce in a constructive manner. • The way the partner not wanting the divorce will be affected financially and in this partner’s ability to pursue professional objectives. In the Nursing Home Company, Jim was not seriously affected either financially or professionally by being forced out of the partnership.

When Both Partners Agree to Having the Divorce When both partners agree to the divorce, their joint attention can be focused on effecting it. The attitude in accomplishing the divorce will be colored by how they came to make the decision. If the quality of their relationship was not the issue, then the focus may shift to other considerations, including whether there is diminished interest in continuing the business, either out of desire to pursue other interests or their reading that the business will cease being viable. In either case, making the decision brings comfort. The only lingering issue may be their remaining differences in how to terminate the business. Example Three companies were involved in a divorce by mutual consent: the Management Company, the Sporting Goods Company, and the Furniture Company. In all three cases, the divorce was finalized only with great difficulty. In both the Management Company and the Furniture Company the divorce was mainly the result of incompatibility of personalities. In the Sporting Goods Company, financial problems forced the partners to recognize that the partnership as originally defined was no longer viable.

Decision Based on External Influences Sometimes both partners want to continue their relationship but outside considerations such as the following force an end to the business relationship: • Future financial stability is questionable. Financial statements may lead bankers to question the viability of the company and to impose restrictions on available loans or on operating procedures, which ultimately means the demise of the company. • Family needs. A partner’s work responsibilities often have a serious impact on marriage and parental commitments, particularly when a large amount of travel is necessary, work hours are long, or stresses adversely affect family relations. • Health reasons. Partners may decide to leave the business for health reasons— either their own or those of their wife or children. A wife’s health problems or a child’s special emotional or physical problems may require more parental support and involvement than the business responsibilities will allow. At worst, a partner’s

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wife who is significantly handicapped or who dies most likely will require a partner to leave the business.

Imposed Divorce An imposed divorce differs from one obtained by choice inasmuch as ending the business relationship is no longer the partners’ option. This divorce would be independent of the quality of their relationship or their interest in continuing the business. The dissolution occurs when the bank recalls loans, creditors press for bankruptcy, or the need for the business or service becomes obsolete. IMPACT OF THE DIVORCE The effects of the divorce are felt over a long period of time. The impact starts with the first awareness that the divorce might occur, and it continues for some time after it happens. The length of time involved and the degree of impact are a function of the resulting positive and negative consequences and the business opportunities that follow. On the Personal Level Impact of Sense of Self Reflection on the ending of a business relationship is likely to be followed by contemplation of both its satisfying and unpleasant aspects. The experience of the divorce process is likely to include varying intensities of positive and negative feelings depending on circumstances resulting from the divorce. These feelings will diminish with time as attention gradually shifts to developing other career opportunities, attending to family and other personal matters, and accumulating new experiences. Adjustment will be markedly influenced by the degree to which new experiences become more important than past ones. If this is not the case, past disappointments may lead to negative self-fulfilling prophecies. Fear of failure will lead to diminished performance and increased likelihood of repeated failure. • Review of the positive experiences gained in the business might include an appreciation of the information and skills that were learned over the years, nostalgia about lost positive relationships, and relief from negative ones. The nostalgia inevitably includes memories of the satisfying experiences gained in the company. • Negative feelings might include arousal of anger at lost opportunities, mistakes made on the job, injustices experienced, recall of failures, and the resulting embarrassment. The felt intensity of these feelings depends on the degree to which they left permanent scars; those viewed as transient experiences that led to maturity are viewed in a positive light.

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• The nature and weight given to the combination of positive and negative recollections determines whether a person will leave a business divorce with a good sense of self and confidence in one’s abilities. The quality of this perception plays a major role in determining how people approach the next step in their career.

Impact on Health • When the business experience affects a person’s health, the affected partner will be constantly reminded of the lost partnership. When feelings about the partnership are largely positive, the limitations may be viewed as the down side of a productive experience. When they are negative, each experience of the limitation may heighten awareness of the health problem and the anger at the part being played in the partnership. A secondary problem comes into play when such feelings affect family relationships and future work experience. • Leaving the company may have a positive impact on health. Relief from the stress of being in the business provides an opportunity to recover from any transient health problems precipitated by the demands of work. Often, people are not aware of the impact of an experience until they get some distance from it. The awareness of how behaving in the terminated business affects a person’s health provides an opportunity to learn more appropriate behavior for the next work experience. Example Business divorces affected the illustrative companies in various ways. Construction Company: Ernie was embarrassed when his neglect led his son, Marshall, to put the business in jeopardy. Ernie was pleased that he and his brother were able to salvage their partnership. Jerry felt good about his efforts, which saved the business and their partnership. Medical Group and Law Firm: Both Alex and Jean felt good about themselves for promptly extracting themselves from an unfavorable situation once it became clear their point of view would not be adequately addressed. Management Consulting Group: Gregory’s reaction to the divorce was complicated by the fact that his emotional breakdown precipitated its occurrence. He didn’t know how much blame to attribute to his illness and how much to his relationships. His illness required brief hospitalization at the time it became clear a divorce was necessary. Shortly thereafter, Gregory was able to participate in the divorce. Contact with him was lost after the divorce was completed. The other partners were shaken by the emotional events stirred up by the divorce process. They felt they had learned from the experience, particularly the importance of compatibility between partners. Sporting Goods Company: Paul and Ethan, father and son, were embarrassed and guilty because they had mismanaged the finances and had failed to involve the other brothers in financial decision making. However, they did not publicly express their feelings or take responsibility for their actions. Instead, they developed a rationale to justify their behavior, which further stressed their partnership with the other sons. The brothers who were forced to leave the company felt betrayed, angry, and guilty for not having been more aware of what was happening.

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Nursing Home Company: The partnership experienced two modifications. The first occurred when Jeff left, upset that his concerns were not being addressed. He felt abandoned by his long-standing partners and unappreciated for his contributions. His decision to leave the partnership relieved him of the pressures, and confidence in his own abilities remained undaunted. The remaining partners, who prided themselves on their business acumen, were embarrassed by their failure to more closely monitor the performance of their new partners. They took pride in their quick and decisive response as soon as they became aware of the problem. Jim, the managing partner, left the partnership feeling misunderstood and falsely accused. He returned to his former work situation outwardly undaunted. Advertising Company: Fred was relieved that he finally addressed his concerns in pressing for the divorce and was annoyed only that he had taken so long to do it. Kurt regretted that Fred chose to leave the partnership and had no problem in continuing on his own. Furniture Company: George was relieved that he was finally free from the struggle with his brother. The divorce affected neither his confidence in his abilities in business nor his relationships. In retrospect, he felt that the emotional pressure to dissolve the partnership had incurred a greater toll than it should have. Manny was also happy to be free of pressures from his brother. He felt energized when he realized he could to run the company the way he felt it should be run. Insurance Business: Sam was angered by his brother Bill’s mistreatment, and so Sam was happy to be free to pursue his own interests. On the surface, he was optimistic about the many opportunities he saw. Privately, he was anxious about his ability to pursue them, for he was ever mindful of his brother’s accusation that he lacked follow-through. For his part, Bill was happy to be liberated from his struggle with his brother and pressure from his mother to be more understanding of his brother Sam. He was pleased that he would be able to devote more energy to managing the company.

Impact on Family Relationships • The end of a partner’s business relationship has a significant impact on the family. The impact begins to be felt with the awareness that the partnership is going to end. The person involved is likely to be less available and more stressed than usual, thereby exacerbating any preexisting family problems. Going through with the divorce presents a new set of challenges. Will greater availability be applied to improving family relationships? Will feelings about the loss of the business result in added problems? If some of the newly available time is not at least temporarily spent with the family, it may convey the message that family considerations have low priority. This removes any latitude that was given because of the pressure of work. • The newfound time provides an opportunity to redefine family relationships that had suffered during the demanding work commitments. People attempting to improve relationships should anticipate the possibility that their efforts might not meet with the desired response. It is easy to interpret this reaction as a lack of interest in bettering the relationship. A more likely explanation for the seeming rejection is protection from reengaging in a relationship that is likely to revert to the previous state of unavailability once new employment is found.

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• Efforts to relate to family become more challenging when termination of the business relationship results in significant loss of income. Having to compromise or forego material benefits that were taken for granted will test a family’s adaptability and ability to redefine their relationships and life style. The challenge is to work together and to avoid allowing adverse circumstances from feeding dissension between family members. • When the one experiencing the break in a business relationship is also a wife and mother, the consequences may be somewhat different. Her added presence at home will likely have more impact than that of the father and husband. An important consideration in this regard is her feelings about the termination. When the termination is viewed with relief, the newly acquired time will lead to more time for family involvement. When it is experienced as a deprivation, the negative feeling are likely to get expressed in non-verbal, if not verbal, manner in returning to the burdensome routine of homemaking. • Termination can have yet another benefit: it can rekindle or establish relationships with friends which were hampered or not possible when one or both parents were preoccupied with their business relationships. The more available marital partner will provide the opportunity to redefine the marital relationship and address the feelings and problems that resulted from the business relationship. The same applies in relationships to the children.

Business divorce almost always has a major impact when the partners are related. Frustrations and tensions are too easily passed on to the family, a situation that is exacerbated when relationships between the family members involved are already strained. Example Construction Company: Undoubtedly, the relationship between Ernie and Jerry was already strained when a well-functioning partnership was allowed to deteriorate when Ernie’s son mismanaged the company to the point of near bankruptcy. Only when Jerry took legal action could he get his brother’s attention. Sporting Goods Company: Mismanagement of finances by Paul and his son Ethan created a major rift with the families of three of the sons who were forced to leave the partnership. The third son was unhappy but was emotionally unable to address his feelings. Furniture Company: The divorce added tension to a relationship that was already very stressed. Contact between these families was minimal and, at best, civil when circumstances brought them together at the same event. Insurance Company: The mother, Ann, was caught in the cross fire between her two sons. She tended to identify with her younger son, Sam, which only intensified their conflict. It also strained her relationship with her older son, Bill, and his family. The five case examples that were not family businesses did not show any significant family impact. The major reason was that the divorce had little effect on these families.

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Financial Impact The negative consequences of a terminated partnership are mitigated by the financial rewards and enhanced confidence and self-worth that follow. The exception is the termination that is so painful that any positive consequences are at least temporarily obscured. Termination that has a negative impact on the family’s financial status adds great stress on all family members. This outcome makes it harder for the person involved to adjust to the triple loss of the business relationship, financial status, and family stability. The situation becomes even more precarious when leaving the business relationship involves considerable debt or the risk of bankruptcy. The combination of such events undermines selfconfidence and adversely affects resources available for any future business venture. In turn, it adds to the family’s difficulty in adjusting to necessary lifestyle changes. Making future plans becomes clouded by uncertainty. A marriage that was already in trouble before the termination may not survive the added stress.

Example Termination was financially devastating for three of the case examples. Sporting Goods Company: All five partners were pushed to the brink of bankruptcy by the conditions that resulted in the breakup of the partnership. Three of the partners almost lost their homes. The three brothers who left the company were forced into a lifestyle that was far inferior to the one they had enjoyed earlier. Private schools, two-car families, and expensive vacations all fell victim to the change. The uncertainty of their economic future only added to the dire picture. Nursing Home Company: The near bankruptcy resulting from Jim’s mismanagement created a period of great uncertainty. The company was able to escape unscathed only through Sheldon’s determination, personal resources, creativity, and reputation for financial negotiations. Furniture Company: George did not fare well. His desire to distance himself from his brother Manny led him to agree to sell the company to Manny under terms that he would regret for years to come. George’s departure from the partnership resulted in a major change in his lifestyle; the new cars, country club membership, and expensive clothes soon gave way to a modest lifestyle.

Impact Outside of Career and Family For many people, the demands of managing a business leave little time to pursue other interests. Once they leave a business relationship, they may at last be able to pursue neglected interests or to develop new ones. Seeking other opportunities often helps them adjust to the loss. The person who never had other interests finds the post-relationship adjustment more difficult.

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Example Insurance Company: Sam, the disgruntled partner, increasingly turned to racing cars as his disappointment over his place in the company grew.

The Business Level Business divorce has consequences comparable to those experienced at the marital level. Positive Unique Consequences • Knowledge gained from the business experience • Confidence in ability to manage a business • A network of colleagues useful in the pursuit of future ventures • Freedom to pursue new business interests. Negative Consequences • Loss of the enjoyable aspects of the business and partner relationship • Loss of a dream and a challenge • Lost perks • Need to start over • Negative impact on reputation or professional image • Lost time • Loss of valued relationships

LESSONS LEARNED FROM THE EXPERIENCE A forcibly terminated business relationship leads to many negative experiences that are painful and costly in both material and emotional ways. One saving grace of these events is the knowledge gained from the ordeal. The accrued benefits from this knowledge can be lost if the pain of the experience interferes with the ability to learn from it. A battle can ensue when the efforts to identify the learning trigger negative associations that make the effort too difficult. When this happens, the prospect of repeating mistakes is greatly heightened. Conscious effort is needed to resist the temptation to follow familiar paths. The learning that takes place on the business level has a parallel on the personal level. The Personal Level Making a careful assessment of personal gains from the business experience can produce considerable benefits, including gains in knowledge and

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experience, understanding of the needs of others, new skills, emotional maturity, communication skills, and conflict resolution skills. Example Construction Company: Jerry learned that remaining passive when dealing with important matters could be disastrous. He discovered that he had waited much too long to take aggressive action following his knowledge of the direction in which his nephew was taking the business. Both Jerry and Ernie learned it was a mistake to mix family relationships with business. Alex in Medical Practice and Jean in the Law Firm example increased their selfesteem, which resulted from promptly responding to conditions in their partnership once they recognized that their concerns would not be addressed according to the principles enunciated when they first entered their partnerships. Advertising Company: Fred learned that he had subjected himself to much needless frustration and discomfort because of his reluctance to adequately take care of a situation that was not good for him.

Appendix

Business Divorce: Managing the Divorce Process Carl Israel and Marvin Snider

All business partnerships eventually come to an end, and many end prematurely in divorce. A variety of options are available to the divorcing partners for terminating their relationship.

PREPARING FOR DIVORCE The awareness that a divorce in the business relationship is imminent gives rise to strategizing about how to minimize the loss associated with the breakup. This may result in manipulations within the company or in the development of external opportunities outside of the company. The manipulations may be in finances or in relationships, or both. Financial manipulations include diversion of funds, distortion of information, and self-serving expenses. Relationship manipulation involves blaming, shaming, use of guilt, and mobilizing the support of others, such as employees, lawyers, and accountants.

MOVING FROM AWARENESS TO IMPLEMENTATION The overt process leading to divorce occurs in one of three ways: both partners agree to the divorce; they disagree; or banks, creditors or others impose divorce on them. Agreement that divorce is the desired course of action permits all the parties to focus their energies on how to implement it. Disagreement that divorce is necessary leaves open the possibility that it can be avoided. This can happen when the suggestion of divorce leads to a reassessment of the conditions that gave rise to it. The threat can lead to

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changes in attitudes or behaviors that were otherwise intransigent. Failing these changes, energies turn to implementing the divorce. FINDING A BUSINESS DIVORCE LAWYER The first step in preparing for a business divorce is to recognize that an entrepreneur is entering a collateral partnership with a lawyer that warrants the same care exercised in entering a financial partnership. The following criteria should be considered. 1. The lawyer’s personality is compatible with that of the client. 2. The lawyer is responsive to phone calls. 3. The lawyer is available for consultation either by phone or office conference. 4. The lawyer is experienced in corporate and partnership law in general and in business divorces in particular. 5. The lawyer is an experienced negotiator. 6. The lawyer’s office fully explains all fees in advance, and fees are compatible with ability to pay.

Lawyers working with business divorces often have to ask hard questions that may be embarrassing to clients and may involve facing difficult choices. At times, clients will direct their frustration and anger over the process at their attorneys. Venting clients soon learn, however, that directing their anger at the lawyer, their partner, or themself only adds to the problem. Discerning clients quickly learn that the best way to proceed is to focus on how to make the best of the situation rather than seeking out someone to blame. Clients can expect their lawyers to handle these cases without becoming reactive. Clients who find that their attorneys are uncomfortable dealing with their distress should question whether they have a suitable fit with their lawyer. The successful lawyer–client relationship requires that both be able to speak frankly about their respective concerns when a problem develops in the relationship. This is best accomplished when the client’s feelings focus on issues and not on personal judgments—“I am angry at what you did or did not say or what you did or did not do,” as opposed to, “How could you make such a statement,” or “You don’t know what you are talking about.” Clients and their attorneys have enough problems to handle without letting personal differences undermine their working relationship. Clients should expect to be treated with dignity and respect. Going through a business divorce makes people neither second-class citizens nor failures, even though they may feel they are both at times. Ending a business relationship, especially one of long standing, has parallels to coping with

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divorce and death. A major adjustment is required to handle the change, just as a mourning process is necessary in dealing with death. Mourning is a process for adjusting to change, even if the partnership experience was very unpleasant. Attorneys need to know the complete range of problems facing their clients and their clients’ companies. Although the financial aspects of the business are extremely important, the personalities of the players are equally important. Besides knowing all of the client’s problems and concerns, the lawyer also needs to learn what is bothering the partner and why. The attorney must also know as much as possible about the client’s adversary. It’s not always a rational business issue that drives a wedge between partners. Personal matters such as difficulties at home or a myriad of other issues may have caused the breakdown. Whatever it is, the attorney must become aware of it as quickly as possible in order to map out a successful strategy for arriving at a satisfactory conclusion for the business divorce. HOW THE DISSOLUTION IS ACCOMPLISHED Three approaches may be used to effect the business divorce: adversarial, mediation, and arbitration. • Adversarial between partners and their lawyers. Each partner attempts to accomplish an agreement that maximizes his or her interests. This can involve protracted negotiations that could wind up in court. • Mediation. This approach involves the services of a disinterested third party experienced in resolving disputes. It is accomplished by the mediator helping to develop an agreement that is acceptable to both sides. The mediator’s only power is that of facilitator; the mediator has no power to impose a solution. • Arbitration: An arbitrator does the same thing as a mediator with an additional caveat. Both parties, in advance, agree to accept the terms defined by the arbitrator for dissolution of their business.

Freund (1997), an experienced negotiator, recommends a 12-step approach to mediation. Both parties are present for the first three steps. Step 1: Setting the ground rules for the mediation. Step 2: Permitting each party to air grievances in the presence of the other party. Step 3: Asking the parties to rehash their prior settlement negotiations (if any) leading up to the mediation. Step 4: Listening to each partner complain in private about how difficult the other partner is to live with and posing inquiries. The answers to these inquiries will be

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useful to the mediator in helping the parties determine the threshold questions of whether the situation is ripe for a divorce and, if so, what form it should take.

The following steps assume that the mediator and the parties have concluded that the best solution is a split-up of the business. Step 5: Holding an additional separate discussion through which the mediator assesses the parties’ differing priorities on the issues, decides which issues can be resolved and which cannot be, and prepares the parties for Step 6. Step 6: Inviting each party to propose privately a fair basis for split-up and probing each proposal with that party. Step 7: Developing the mediator’s realistic expectation as to the basis on which the company might be divided. Step 8: Presenting orally to each partner a proposal for splitting up the company and receiving their individual critiques. Step 9: Shuttling back and forth between the parties on specific issues—a mix of serving as bearer of each partner’s position and offering the mediator’s own evaluation of what is feasible—determines whether the parties can be brought into closer proximity.

The next step assumes that progress has been made. Step 10: Presenting the parties with a written agreement in principle, which serves to record their agreement on those issues that have been resolved, along with the mediator’s recommendations for handling the matters still in dispute. Step 11: Conducting the final rounds of negotiation to enable the parties to reach agreement in principle. Step 12: Helping the parties turn their agreement in principle into a binding agreement and close the deal.

There is one issue in Freund’s approach that is quite debatable. He states: The guiding principle for the mediator is never to lose sight of rationality. The situation is often highly emotional, sometimes containing a degree of bitterness akin to that in a failed marriage. The mediator’s job, however, is to make the parties realize that what is at issue here, after all, is a business. They have to put their emotions behind them and work out rational, commercially reasonable outcomes.

The presumption that people have the capacity to “put their emotions behind them” does not adequately take into account the phenomenon that when emotions become sufficiently strong they will overpower intellect. This is the case when a person in the guise of behaving rationally persists in adhering to a given position beyond the point supported by the data. A

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more satisfactory outcome is likely to result when emotional issues are addressed before attempting to tackle the business issues. Freund defines the crucial ground rules for dispute resolution from the CPR Institute for Dispute Resolution. 1. Mediation is a voluntary, nonbinding process from which the parties can withdraw if they are not satisfied—but at least they will refrain from making war while they are engaged in the mediation. 2. The mediator is permitted to meet separately with each party and to determine whether meetings should be joint, separate, or a little of each. 3. The mediator will not pass along information received from one party to the other party (or to any third party) unless authorized to do so by the party providing the information. 4. The mediator may express views on the issues in the dispute and can also suggest appropriate resolutions. 5. The entire process is confidential. Nothing is usable in evidence if the parties go back to court. The mediator cannot act as an arbitrator (unless both parties later consent) or be called as a witness, and the documents in the mediator’s possession are not subject to subpoena.

AVAILABLE OPTIONS Two types of options may be used in the dissolution of a business. One concerns what is done and the other the way it is accomplished. One Partner Sells His/Her Interest to the Other Partner This is the most common solution to the problem and depends on one partner willing to leave the business and the other to have both the desire and wherewithal to buy out the departing partner’s interest. This solution is particularly useful if the departing partner no longer wishes to stay in business. It becomes a lot more problematical if the departing partner wants to stay in a similar business and compete with the company. This will likely happen only when the departing partner’s prospects for success offset the lower buyout price that the remaining partner is willing to pay. Certainly, the remaining partner will not be willing to pay for a business that is not fully realized because of competition from the departing partner. He or she might be willing to do so if other compensation is possible—namely, real estate or ownership of products with future potential. From the selling partner’s standpoint, the most important issues usually relate to how much will be received for his or her interest, over what period of time it will be paid, and what security ensures payment of the outstanding amount. Other issues may relate to restrictions on the selling partner’s

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future activities (e.g., noncompete clauses) and outstanding liabilities for which the selling partner may be personally obligated (e.g., bank loans). Aside from any financial considerations, selling out to a partner can have the feeling of losing, no matter how sweet the deal. This can happen even if the partner is happy to get out of the business. Sometimes it can hurt to let something go that a person helped create. Indeed, it is somewhat akin to giving up a child for adoption. Frequently, a partner in this situation goes through a difficult period until he or she becomes accustomed to the idea of being out of the business. One Partner Buys Out the Interest of the Other Partner Here the buyer’s focus is completely different from that of the seller. Buying partners are concerned with how much they are paying for the selling partner’s interest. They will also want to structure the deal in a way that will minimize their tax liability. For the past several years, the tax issues have been a greater concern for the buyer than for the seller. As the capital gains rates decline, the seller’s interest in tax issues rises dramatically. In addition, the buyer may want to make sure the seller doesn’t open the same type of business around the corner, selling to the same customers, in which case the buyer may end up paying for nothing. The buyer therefore may want to insist on a broad noncompetition agreement as part of any buyout package. Buying out a partner can be done with different frames of mind. At one end of the scale partners who buy are thrilled; at the other end they might be filled with apprehension about whether they can carry the business off by themselves. Being thrilled carries with it the presumption of confidence in the buyer’s ability to run the business alone or confidence in finding another partner. One would think this point obvious. But as in marital relationships, people make the same mistakes in going from one relationship to another. This happens because it is difficult to face why the relationship failed. At the apprehensive end of the scale is the challenge to make sure these feelings do not interfere with buyers managing the business on their own. If getting a new partner is the agenda, buyers need to be careful not to let their vulnerability and eagerness for a new partner get in the way of seeking a good fit with the new partner. The prospect for getting this good fit will be enhanced if the search for a new partner is pursued based on the learning gained from the last partnership. Example The Medical Group Practice, the Law Firm, the Management Consulting Company, the Nursing Home Company, and the Furniture Company are all examples

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of one partner’s buyout of one or more partners. In the Medical Practice, Law Firm, and Nursing Home cases, the sellout did not create significant emotional difficulty because of the limited involvement of the partners who were bought out. In the Management Consulting and Furniture Companies, the situation was considerably more difficult. In both these cases, the partner being bought out had considerable emotional investment in the business. Leaving was very difficult for them, even though the terms of the buyout were quite favorable.

One Partner Sells His/Her Interest to a Third Party Occasionally, the breakup is resolved by having one of the parties sell his or her interest to a third party. Technically, if a partner leaves a partnership and another takes the partner’s place, the old partnership is terminated. This is not the case in a corporation. In addition, selling shares does not affect a corporation’s legal status. of the corporation. Even if there are no legal obstacles to transferring an ownership interest to an outside third party, attracting a third party to come uninvited into an unhappy business partnership and pay money to do so is not entirely realistic. It usually works only in a situation where the outside third-party buyer is currently working at the company with either little or no ownership in the company. To be a realistic alternative, however, it will need the blessing of the remaining partner. How a partner reacts to selling his or her interest to a third party depends on how the remaining partner feels about it, the partner’s reason for doing it, and how the partner feels about leaving the business. If leaving the business occurs under amicable circumstances, then the selling partner’s only problem is adjusting to the change of not being in the business. If leaving the business is not by choice, there is the added problem of coping with being forced out. In this case, selling to a third party can be a bitter experience. This problem can be all the more difficult if the departing partner feels the business was his or her creation. This would not be the same if the seller initiated the sale. Sale of the Business to a Third Party Selling the business to a third party can be a very effective way to work out what is usually the most difficult aspect of any buyout: determining the price. When one partner buys out the other, valuation of the selling partner’s interest is the key issue, and it is fraught with problems of conflicting interests—particularly if the parties have not worked out in advance a valuation formula for the buyout. A good way to establish the fair market value of a business is the bid of an interested, legitimate outside third party—and preferably more than one outside bidder. Often irreconcilable business differences fade away when a

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healthy bid comes from an outsider. A common problem is getting the parties to agree to sell to an outsider before their dispute rips their business apart and drives it into the remaining alternatives. The attitude taken to selling to a third party depends on the selling price, the circumstances under which the business is sold, the relationship between partners, and whether more than one alternative is available. Feelings of relief are likely to be present if getting out of the business was viewed as a positive step. These feelings will be enhanced if the partners share them and the relationship is intact. The situation is likely to be quite different if selling the business was not by choice. In this case, the adjustment will be painful, and even more so if the sale was significantly related to the partners’ incompatibility. Having another business opportunity in mind can make the transition easier.

ORDERLY DISSOLUTION AND LIQUIDATION OF A SOLVENT BUSINESS A relatively rare alternative to the breakup of a partnership is an orderly liquidation and dissolution of the business when it is still solvent. This rarely occurs because under normal circumstances, one partner wants to take over running the business, or if not, both parties will sell it to a third party rather than liquidate it. However, if the business’s future prospects are dim and no good will remains, an orderly dissolution of the business and liquidation of the assets can make good sense to both partners. Investing more capital or risk borrowing is not sensible just to keep a doubtful business going. In this situation, economic self-interest should outweigh most internal disputes between the partners. An orderly liquidation or dissolution presumes that there are at least as many assets as there are liabilities, that creditors are paid what they are owed, and that the partners may even be able to walk away free of debt, if not with something in their pockets. As discussed earlier, ending a business for any reason can be difficult. The task is eased when the partners’ relationship is viable and they can jointly experience the mourning process. This makes coping with the loss easier. When the partnership is marked by animosity, the mourning process is greatly complicated, as is the dissolution process.

DEVELOPING A PROCESS FOR RESOLVING DISPUTES Partners should provide a mechanism for resolving disputes in the event terminating the business marriage becomes desirable. This involves developing a game plan and agreeing on the rules to be followed in accomplishing it.

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Prearranged Agreement to Resolve Buyout Disputes Business partners can try to avoid costly and antagonistic disputes when their relationship has broken down. This is similar to a couple’s signing of a prenuptial agreement in anticipation of marriage. These agreements should cover methods of coping with death, disability, retirement, and voluntary or involuntary departure of a partner. They can establish a value for the departing partner’s interest in the business or a procedure to determine its worth. These agreements may also address issues of payout terms, including the number of years the buyer has to pay for the seller’s interest, whether there will be interest on any unpaid balance in the event of an installment sale, and whether the seller will have security in the event of nonpayment. They may also address the question of whether life or disability insurance should be purchased to facilitate the payment for a deceased or disabled partner’s share. Taking the time and effort to draw up this agreement can prevent the grief that comes with having to negotiate the end of a business partnership under stressful conditions. At that time, the stress and anxiety leading to termination of the partnership can handicap one’s ability to make prudent decisions. There is an emotional contradiction in talking about negotiating the end of a relationship before it has started. Under these conditions, it is easy to skimp on the details of this kind of agreement. It is useful to provide for the worst scenario and stipulate how to cope with death, disability, retirement, and voluntary or involuntary departure of either partner. Engaging in this exercise has one added benefit: prospective partners get to know each other under challenging conditions that either reinforce the wisdom of choosing the partner in the first place or become a cause for concern. In the latter case, it is prudent to decide whether the observed behavior of concern during negotiations warrants reevaluation of how or whether to proceed with the partnership. Agreement to a Bidding Process Commonly, partners do not sign or even consider a prearranged agreement for the buyout of a departing partner. Moreover, when the partners are discussing an impending breakup and how to handle it, they are usually in their most emotional and antagonistic states of mind. Nevertheless, it is up to the partners and their advisors to arrive at some mutually acceptable method of dealing with the breakup. One method for deciding who will remain in the business is to conduct a bidding process whereby the high bidder is chosen. This method assumes that both parties want the business. First, the ground rules have to be established, such as the terms for payment. Will payment be all cash, or

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will it be an installment sale? If an installment sale is involved, what period of time, what interest rate factor, what security for payment, and so on are involved? Once all the terms but the price are agreed upon, the rules are established for the bidding. One way to keep everyone honest is to have each party submit a bid in a closed envelope. The high bid gets the business. The secret bid assures the parties of getting the very highest bid, as opposed to conducting an auction in which a partner might hold back depending on how high the other bidding partner is willing to go. This bidding option is attractive to a person with a gambling instinct and a comfortable sense of what the business is worth. The challenge in any such bidding situation is to determine how much the bidder wants the business and how much he or she is willing to risk to get it. One consideration in formulating a bid is the resultant feeling if the offer is too low. The objective is to get the business at the lowest price. Which is more important—paying too much for the business or bidding too low and losing the business? Another consideration in making the bid is to examine how each partner would feel if the other got the business, all other considerations aside. If the partnership relationship has been hostile, one partner might be tempted to make an unrealistically high bid in order to ensure that the other partner doesn’t get the business. The thought of the other partner walking away with all that was invested in the business over the years would be intolerable. When emotions are strong enough, they can short circuit business logic and create a disastrous economic situation for the “winning bidder.” One Partner Sets the Price, the Other One Selects This option presents an interesting challenge. For it to be a viable option, the partners have to be willing to go either way—to buy the business or to leave it. One partner sets the price as low as possible in the event he or she buys it and high enough if he or she is bought out. In return, the other partner decides who buys and who sells. This process yields a realistic price on the business. Agreement to Sell to a Third Party The key words “agreement to sell” assume that the parties have decided to sell to a third party, either an outsider or someone presently in the business who is not an owner. The parties should consider having the business evaluated prior to placing it on the market, particularly if it is either unique or is not commonly sold using some standard formula in its industry. The parties usually have a better chance of achieving their goal if there is some rational foundation for the asking price. Another consideration is whether to use a business broker or whether to

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handle the sale personally. If confidentiality is important, a business broker can be extremely helpful in preventing premature disclosure of the desire to sell the business. Otherwise, there is the risk of losing employees or frightening customers or suppliers through rumors that the business is for sale, as well as leading competitors to circulate rumors designed to hurt the business. In addition to business brokers, businesses are often sold through the use of accountants, banks, investment brokers, and others in the same industry. Newspaper ads are also used. If confidentiality is a concern, it is prudent to use a number to phone other than the business number. A sale to a third party is acceptable unless one of the selling partners is being unduly influenced by too attractive an employment offer by the buyer. If this is the case, it represents an increase in the purchase price paid to one of the selling partners at the expense of the other selling partner. Even if the employment offer to one of the selling partners is at standard rates, it means that one of the selling partners is receiving something in addition to the purchase price that the other selling partner may not be receiving. Such an occurrence should be fully disclosed to all the selling partners in advance of the sale to keep the divorcing partners in line. This option minimizes the possibility that emotional entanglements between the partners will get in the way of making the best possible business decision. One problem that may still occur derives from a history of competition for control of the partnership. Identifying who has the greater influence in negotiating terms for the sale may be as important to the partners as any other consideration. Problems also arise when one partner has real value to the buyer, while the other does not. Another problem will remain if sale of the business was forced by one of the partners. The resentment felt by the other partner could get expressed in difficult negotiations regarding terms of the sale. All such rancor can be avoided if the partners work out their differences before putting the business on the market. This approach will be to their mutual advantage, both for purposes of the sale and their relationship afterward. Agreement to Dissolution and Liquidation If the parties are contemplating a dissolution and liquidation, it means they have usually determined that there is no purchaser for the business or no bid worthy of consideration. The parties have also decided that the liquidated value of the assets either exceeds or is about even with the liabilities so that all the creditors will be paid either what they are owed or what they will accept. Some businesses hold going-out-of-business sales, others bring in auctioneers, and still others sell their businesses piecemeal over an extended period of time. Each situation is different, but the final result is the same. The business comes to an end, the creditors are paid,

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and the partners split the remainder—usually in accordance with the laws of liquidation and dissolution. In brief, the laws usually provide for the following order of payment: all third-party creditors, amounts owed to partners as creditors (i.e., loans to the business), repayment of capital, and profits in proportion to ownership interest. According to the laws in most states, the business, if incorporated, will continue to have a life for a short period of time even after dissolution and liquidation. This protects unpaid creditors or others who are making claims against the business. If it was a partnership, the individual partners will remain liable to those unpaid creditors and claimants.

Forcing a Dissolution and Liquidation In some cases, the parties cannot reach agreement on which direction to take and at least one party will want out of the business. If the business is a partnership, a partner can usually withdraw and demand a dissolution, a liquidation, and an accounting. It is an entirely different story if the business has been incorporated. In that circumstance, most jurisdictions have a mechanism for forcing a dissolution and liquidation, but it may require not only a deadlock of the board of directors and shareholders, but also evidence that the business cannot economically survive if the deadlock continues. In many cases, the business continues to operate profitably despite the deadlock, and the courts may therefore be very reluctant to force a liquidation and dissolution, leading the parties back to square one. That is why cooler heads must try to come up with some agreed upon method to accomplish the business divorce. The partner who chooses to force a liquidation must be prepared for a rough time, whereas the partner who wishes to continue the business is likely to feel betrayed and undermined. This will be all the more of a problem if such action puts the remaining partner in a precarious financial situation or under emotional pressure. Whatever good feelings existed between partners will be at risk. The partner seeking liquidation should be sure that the remaining partner understands that this action is not frivolous but has been necessitated by personal financial or emotional need. The remaining partner will need to understand that it is not in his or her interest for the business to continue under these conditions. The situation with the partner wanting out has its own difficulties. Facing the loss of a business in which he or she has invested a great deal financially and emotionally can weigh heavily. Moreover, leaving a partner of long standing and losing that relationship may be difficult. The situation will be quite the reverse if the relationship has been problematic.

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DISSOLUTION AND LIQUIDATION OF AN INSOLVENT BUSINESS Involuntary Bankruptcy Involuntary bankruptcy is likely to occur if the dispute between the partners has been long, drawn out, and expensive, and therefore has negatively impacted the viability of the business. In this scenario, the company cannot pay its bills as they become due, or it has more liabilities than assets, or both. The real concern, therefore, moves from how much one’s interest in the business is worth to how many personal obligations are involved if the business fails. If the company begins to head in this direction, the attorneys for the partners must make sure their clients are placed in the hands of experts in bankruptcy before the situation becomes a total disaster. Briefly, there are alternatives to bankruptcy such as making an assignment for the benefit of creditors, whereby unsecured creditors are treated the same but usually end up with less than 100 percent on the dollar. Bankruptcy is voluntary when the debtor files or involuntary when the creditors file and force the debtor into bankruptcy. Both are under the auspices of the bankruptcy court. Therefore, there are more formal procedures that are usually more expensive than an assignment for the benefit of creditors. Significant differences exist between a corporation and a partnership going into bankruptcy. A corporation is a legal entity, and it is separate from the owner/stockholders. The shareholders don’t necessarily go into bankruptcy when the business does. They might also be forced into bankruptcy, however, if they are guarantors on the corporate obligations and neither the business nor the shareholders can pay those obligations when due. When a partnership needs to file for bankruptcy, all the partners file as well, since all the partners are jointly and singly responsible for all the debts of the partnership. The partners need not guarantee the debt of the partnership since, by law, they are fully liable for the debts of the partnership. Bankruptcies are very difficult procedures and prove embarrassing when they are viewed as a failure of the partners. Added to the private sense of failure is the public disclosure of it. Attempts to cope with the discomfort often lead the partners to view one another as the cause of the problem. The challenge to partners is to put their energies into ways to fix the problem and get out of the bankruptcy, if that remains an option. Where the bankruptcy forces the termination of the business, the focus is on how to manage the mourning period. Voluntary Filing of Bankruptcy When the parties have agreed to end their relationship as partners by ending their business, the business is insolvent. It either has fewer assets

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than liabilities, or it cannot pay its debts as they come due. One way to avoid being forced into receivership or involuntary bankruptcy is the firststrike action of filing for bankruptcy. This will prevent creditors from forcing bankruptcy. At such times, the help of professionals specializing in this area to guide the partners through the pitfalls is recommended, particularly if the business has not been current with the payment of payroll taxes or if the partners are personally liable for other debt. As noted earlier in this chapter, these are significant differences between corporations and partnerships when it comes to bankruptcy.

Nonbankruptcy Procedures A nonbankruptcy procedure, such as an assignment for the benefit of creditors, may also fit the situation. The key here is for the parties to face reality as soon as possible in order to ward off personal bankruptcy. This alternative is not easy when there is a lot of discord among the partners or when there are personal guarantees on obligations of the business that cannot be paid. Hopefully, the parties can set their differences aside and act for their personal good. Partners would do well to take the peremptory step of initiating the action themselves, giving them some sense of being masters of their own fate.

EVALUATING THE BUSINESS The one crucial piece of information necessary for achieving a satisfactory business divorce is the value of the business itself.

Why an Evaluation Is Needed Once the business partners have decided that a divorce is unavoidable, the next consideration is to determine the value of the business as a whole and the value each owner has in the business. In many cases, a process for effectuating the divorce cannot be started until the parties know what the business is worth. Furthermore, no matter which process is finally chosen, the owners must have a clear value of the business. Determining this value can be tricky and complicated. The more straightforward approach is to determine it based on standard procedures that deal solely with numbers. More difficult to evaluate are intangibles such as good will and the impact of the partners’ personalities on the business profits. Partners may have a hard time dealing with arms-length assessment of their business’s value when these other considerations do not get the attention they think appropriate.

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Choosing the Evaluator In some cases the choice of the evaluator has been predetermined through an agreement between the owners as part of a prenuptial agreement. These agreements are called buyout or stock redemption agreements. Life is simplified when the parties have already agreed on these matters before temperatures run high. However, most business partners don’t execute a prenuptial business agreement, so they are forced into making this evaluation when there is diminished trust between them. At such times, prudent partners will obtain their own evaluators regardless of the process selected for the divorce. Each partner must feel that he or she is receiving advice on the value of the business from a totally independent agent. Utilizing a resource free from conflict of interest eliminates one source of stress and potential conflict. It also assures the partners that their interests are getting the best possible protection. Inside Comptroller/CFO If all parties are confident that the company’s comptroller or chief financial officer can arrive at an unbiased fair value, that person may be a good choice for the evaluator. This is especially true if the type of business in question is normally valued by relying heavily on fixed assets such as inventory, real estate, equipment, and accounts receivable, as opposed to intangibles such as good will or an approach that relies on comparisons with the sale of other businesses in the same industry. Accounting Firm Servicing the Business In many buyout or redemption agreements between business partners, the accountant who is servicing the business is designated as the person who will determine the value of the business. Even if no agreement is in place prior to the divorce negotiations, the accountant may still be the appropriate person. The accountant is likely to be in a better position than the inside CFO to provide comparisons of what similar businesses are selling for, especially if the accountant is servicing clients in the same type of business. The caveat here, as well as when the inside financial officer is being used, is that there is a built-in conflict of interest between the selling partner and an accountant or insider financial officer who hopes to stay on with the company. Obviously, in that situation the selling partner should be aware that the accountant or CFO will naturally want to please the buying partner, who will continue the business and hopefully continue using the services of the accountant or CFO. However, if the playing field is level and both partners are looking to sell to a third party who has his or her own accountant or CFO, much less of a problem arises as long as the accountant or CFO has sufficient knowledge to perform an evaluation of the business.

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The Outside Business Evaluator For many businesses, industry valuations and guidelines have become the customary way to arrive at the sale or market price. In those situations, an evaluator with a good reputation in the specific industry in question is recommended. This brings immediate credibility to the evaluation. In situations where there are two co-owners of the business, they can choose a process whereby one of them will buy out the other. In order to arrive at a price, each party may bring in his or her own industry expert. When these experts are close enough in their evaluations, the two parties can split the difference and arrive at an accepted value for the business. Independent Accounting Firm If the business is not in an industry that has its own unique valuation process and the company’s accountant is expecting to stay on to service the company, the selling partner should seriously consider hiring an independent accounting firm to give advice about the valuation of the business. One reason for doing so is that there are generally three typical approaches to valuing a business: market-based, asset-based, and income-based. Within those three approaches several factors need to be considered. Deciding which approach to emphasize or which factors are most important can be somewhat subjective. It is not an exact science, and therefore the values that are ultimately arrived at can diverge widely. Selling partners will be in a better bargaining position if they have an evaluation that rationally adopts the approach that would place the highest possible value on the company. Independent accountants can also prove very useful to both sides if they come back with an evaluation that agrees with either the value being used by the company’s accountant or another valuation being used by the buying partner. In some cases in the past, independent accountants have not only agreed with the buyer’s evaluation but have also suggested that the buyer’s evaluation was on the optimistic side. This makes it easier to convince selling partners that they are receiving a fair price for their interest in the company. Combination of Methods In certain industries, it is not particularly unusual for the seller and buyer to use different methods for evaluation. Selling or buying parties will want to take an approach that is most advantageous to their position regardless of what may be “traditional.” In that situation, one party may be using an outside industry evaluator, while the other is using an accounting firm. The challenge for the attorneys is to keep the parties talking even if one side feels the evaluation being submitted by the other is way out of line.

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Placing Business for Sale to Third Party In this scenario the parties need to understand what their business is worth in order to effectively sell it to a third party. In most instances, the parties are working together as opposed to working against each other and trying to arrive at the evaluation separately. Furthermore, the parties’ agreement on the value of the business does not mean that the third party is willing to purchase the business. In this instance, the valuation is not the basis of an agreement between the parties but merely a guideline for effectively selling the business to a third party. The business may sell for more or less than the appraisal, depending on market conditions, the needs of the third-party buyer, and the needs of other selling partners. As indicated earlier, once the business is up for sale to the public at large, the parties are usually satisfied that they are receiving the fair market value from the third-party buyer, unless it is considered a forced sale. In this scenario, it is usually possible to avoid wrangling over whose accountant or appraiser provided the true and correct valuation of the business. Other Methods Another method of arriving at valuation is to hold an auction, usually private, but it may be public as well. Sometimes the private auction method is confined to the owners only. In this way, the highest bidder gets it, but since it is not a secret or a sealed bid, the competing parties can pace themselves. This may be an acceptable method, but it doesn’t always ensure that the highest value will be placed on the business. Bidding can also be limited to a select group of third parties who have indicated a desire to purchase, or it can be limited to a combination of owners as well as outside third parties. Here again, the owners should try to obtain an evaluation before putting the business up for auction in the event they want to start the bidding at a certain price. Otherwise, they may make the auctioneer set a minimum bid so that if the bidding doesn’t reach a certain minimum, the owners can withdraw the business. In addition to valuation, the terms of the purchase should also be agreed to before the auction begins so that everyone is on a level playing field. THE BUYOUT AGREEMENT The terms buyout agreement, shareholder redemption agreement, and cross-purchase agreement all connote some type of agreement that the partners/shareholders of a business enter into so that they can establish ground rules in advance in the event a partner/shareholder leaves the business. Eventually, every business partnership relationship, no matter how successful, comes to an end. The termination may be caused by the death or

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retirement of a partner, or more commonly, by a partner’s leaving the business or being asked to leave for any one of myriad reasons. Unlike a prenuptial agreement that must be entered into prior to the marriage of the signatories, so-called buyout agreements can be entered into at any time prior to the breakup. It makes good business sense for the partners to decide how to deal with various breakup events early in their relationship. Like prenuptial agreements, the parties to them can predetermine the disposition of the business between them in the event of a breakup and thereby save the enormous time, energy, and expense that are typically needed when the parties have not signed that type of agreement. Events Included in a Buyout Agreement Death of a Partner All buyout agreements should cover the death of a partner. When asked the question, Do you want your partner’s spouse or children to inherit his or her share of the business and become your new partner when he or she dies? Invariably the answer comes back with an emphatic NO! Interestingly enough, when partners are asked if they feel that their family would be sufficiently protected after their death without a buyout agreement of their interest in the business, the answer is yet another emphatic NO! The family of a deceased partner is usually looking for liquidity to pay bills, taxes, and so on and will not necessarily want to continue to retain its interest in the business. Under ordinary circumstances, both sides usually agree that the surviving partner(s) will carry on the business and that the deceased partner’s estate will be bought out of its share. Obviously, there are exceptions whereby the deceased’s spouse and family continue in the business, but that is not the topic of this discussion. Death as a breakup event can be insured against and therefore can be easier for the business partners to deal with, especially if the subject comes up when they are young, healthy, and insurable. Once the partners have ascertained the desirability of buying out a deceased partner, they have to determine how to arrive at the value of the deceased partner’s interest and when and how that will be paid. Disability The disability of a partner, especially permanent and total disability, is a breakup event like death, which most business partners can agree should be the subject of a buyout agreement, at least with regard to working partners. Unlike death, the concern here is to clearly and unambiguously define what is permanent and total disability. Many people are not aware that a business can arrange through insurance for a lump-sum buyout, just as in death for a disabled partner. This kind of insurance should not be confused

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with a disability income insurance policy that provides the insured with an income in the event of temporary or permanent disability. The income protection–type policy is often a benefit that a company provides to its executive employees, regardless of whether they hold an ownership interest. If one partner holds an ownership interest strictly because he or she has provided needed capital or loans to the business (i.e., this person is an investor partner as opposed to a working partner), the need to buy this partner’s interest out in the event of permanent and total disability may not be a factor. Retirement The retirement of a partner is clearly a breakup event and while the business cannot insure against it, as it can for death or disability, over the course of the partner’s employment it can provide various retirement-type funds that can be factored into the price agreed upon for purchasing the retiring partner’s interest in the business. Eligibility for retirement should depend on what is normal for similar businesses, what the tax code may allow for drawing down from retirement funds without penalties, and what deferred compensation plans stipulate. Another consideration with regard to retirement is whether it would be beneficial to either the business or to the retiree, or both, to consider having them enter into a consulting agreement for a period of time after retirement. This may give the business the benefit of the retiree’s knowledge, deducting the payments for his or her services. Since the business cannot deduct for the payments it makes to buy out the retiree’s interest, it should provide the retiree with a consulting arrangement that will keep the former partner partially employed for a period of time rather than fight over whether the buyout amount for this partner’s interest in the business might be unreasonably high. The idea is to be as creative as possible within the confines of the law and good business sense. The business will also want to consider putting some restrictions on the retiree’s resurfacing as a competitor after announcing retirement. Certainly, if the retiree is getting paid for a percentage of the fair value of the business, the remaining partner will not want to see the retiree come back as a competitor and undermine the value of the business by taking away the business’s clients or accounts. That would amount to double payment. Voluntary or Forced Departure If a partner wants to leave voluntarily or is forced out, the parties can provide for all types of alternatives and work out a buyout of the departing partner’s interest. One alternative is to require the business to purchase the departing partner’s interest. The drawback to this approach is that the remaining partner may resist being forced to buy the interest of the departing partner, depending on how the business is being valued and the

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timing of the departure. This may be particularly true if the partner leaves at a highly profitable stage in the business’s history, which may never be duplicated. Furthermore, a requirement of the business purchase places the control in the hands of the departing partner, not on the business or remaining partner. A better alternative for the business and the remaining partner may be to purchase the departing partner’s share on the date of departure or for some period after departure. This method shifts control of when and if to buy out the departing partner’s interest to the remaining partner. Another alternative is to use the right of first refusal, which gives the business or remaining partner the right to match any offer that the departing partner may receive from an outside party for his or her interest in the business. Unfortunately, a less than 100 percent interest in a nonpublicly traded business is difficult enough to sell; giving a right of first refusal to the business or remaining partner effectively and utterly destroys the departing partner’s ability to sell his or her share to a third party. The parties often resolve the control issue by looking at the reasons for the departure. If partners are being asked to leave because the personality fit isn’t right, because their vision of the business’s future has changed, or because they are no longer productive, the business should be required to buy their interest. On the other hand, if partners decide to leave on their own accord, whether or not they intend to compete, the business should have an option to purchase or have a right of first refusal and not be forced to buy out the departing partner’s interest. Valuation of the Business Regardless of which breakup event occurs, or whether the remaining or departing partner can trigger the buyout, all buyout events require that a methodology be worked out for arriving at the value of the departing partner’s interest and a period of time in which to pay the value. Both the value of the business and the length of time for payment may be influenced by the reason for the departure. If partners leave voluntarily and go into competition with the business, the valuation of their interest may reflect that fact as well as how long the business has to pay them out. To punish departing partners, businesses may purchase their shares at a very low value to be paid over many years. This approach discourages partners from leaving and competing. On the other hand, agreements should reflect the willingness of remaining partners to pay full value to departing partners if they are being asked to leave, or if departing partners are relocating at some noncompetitive distance, or if they are entering a different type of business. Payments should be made over the shortest period the business or the remaining partners can afford without jeopardizing their financial stability.

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The actual methodology used to arrive at the purchase price can vary; there are no general rules of thumb. The Internal Revenue Code has rules for valuing businesses for estate tax purposes. In addition, there are customary valuation rules in many industries or business fields, and the parties and their legal accounting and financial advisers may be helpful in coming up with a figure or formula that everyone can agree upon. If the agreement uses a fixed monetary amount, the parties must carefully review that amount at least once a year to make sure it reflects the current value or must build in flexibility. Thus, in arriving at a figure, the parties are not forced to use a stale number that no longer reflects the actual value of the business. Without flexibility it can be a crap-shoot, at best, as to who might benefit, and at worst, the parties will be litigating. Flexibility can be built into agreements by requiring the parties to arrive at a new figure within a fixed period of time after the end of the tax year. Another way is to value the business at the time of the breakup incident, assuming the last valuation is more than six months old. Using a formula instead of a fixed number gives the parties more flexibility and may not require them to agree on a valuation once a year. In any event, the parties should review the agreement often in order to make sure that any life or disability buyout insurance purchased is still sufficient to cover the purchase of a deceased or disabled partner’s interest. Even if the partners don’t wish to purchase additional insurance, they should at least know how much additional money will be needed beyond the insurance proceeds so that no unpleasant surprises await when the buyout agreement is finally instituted. The formula itself should be reviewed because it may become outdated. For example, businesses in a certain segment of industry may sell at two or three times earnings before taxes, but for many different reasons may later be selling for only one or one and one-half times earnings before taxes. One reason that a business sells for less may be that the profit margin in that industry may have declined; a second reason may be that competition has driven the prices down; and a third may be a pessimistic outlook for the future. To understand this last concept one need only look at the value of local pharmacies or hardware stores over the past 10 to 15 years. Regardless of whether the partners agree on a formula or a fixed amount, they have to determine over what period of time the business or other partners have to pay the agreed upon purchase price. If insurance is involved in the buyout and it fully covers the agreed-upon price, the business may be able to pay the purchase price in one lump sum. However, if the insurance is not sufficient, or if the breakup event is not insurable, such as a voluntary or an involuntary withdrawal from the business, then the payout period becomes extremely important to both the remaining and the departing partners. The remaining partners will want to ensure that they have sufficient capital to operate the business and to address the cost of replacing the de-

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parting partner. They will be more likely to favor a prolonged payment period even if they are required to pay interest on the unpaid balance. From the standpoint of the departing partners, the concerns will be focused on replacing lost income from wages or perhaps on whether the business will be viable enough in the future to make the buyout payments. In fact, the parties often discuss security to insure full payment of the buyout price. Restrictions on Transferability One other reason for entering into a buyout agreement when the business is operated out of a corporate shell is to cover restrictions on the transferability of shares owned by the shareholder/partners. The restrictions usually cover the gift, sale, pledge, or other transfer of stock to a third person or entity from the original shareholder. The restrictions are meant to prevent unwanted transfers from occurring without the opportunity for the corporation or remaining shareholders to buy out the transferring shareholder’s interest. LIABILITY ISSUES Outstanding Liabilities for Consideration by the Exiting Partner Exiting partners’ success in negotiating a deal will be measured not only by how much they got for their share of the business but also by how much relief was achieved from personal obligations. All too often the euphoria of exiting with a “good deal” minimizes the direct or indirect liability obligations of the exiting partner. The partner in a general partnership context is personally liable for all business obligations as well as for the negligent or wrongful acts of copartners. When a partner is bought out, the partnership comes to a technical termination that involves liquidation, dissolution, payment of all debts, and an accounting between partners to divide profits or, if insolvent, to divide the indebtedness. If one is exiting from a general partnership, the person or persons who are going to carry on the business should notify the world at large that the exiting partner is no longer involved. This becomes a major concern if the exiting partner’s name is still being held out to the public as part of the firm. If an outside third party can reasonably assume that the exiting partner is still involved with the business, then the exiting partner can still be liable for the debts of the partnership. The partners’ personal assets are on the line for partnership debts. Therefore, if there are not enough assets to pay the business debts the partners must personally pay for them; all of their personal assets are subject to being taken for payment. In a general partnership, partners do not

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sign personal guarantees for the debts of the partnership, because they are already liable for them. A more common scenario is that of the exiting shareholder in a corporation. A corporation has important advantages over a general partnership, such as limited liability for shareholders. Under ordinary circumstances, therefore, the shareholders are only liable up to their investments in the corporation and not for all of a corporation’s debts. This is because a corporation under the law is considered to be an independent person, albeit an artificial one created by law. In addition, a corporation has continued existence and does not terminate when a shareholder leaves. A shareholder of a corporation can also transfer shares to others without causing dissolution of the business. These factors permit an easier exit from the business. The shareholders of a corporation may sometimes be asked to personally guarantee the obligations of the business. A common example occurs when the business wants to borrow money from a bank. The bank might ask the corporation to sign for the loan and to supply collateral for the payment, which could take many different forms, including having the shareholders personally guarantee the obligations of the corporation. In addition, if the corporation is either new or relatively young, a landlord might ask the shareholders to guarantee the corporate lease. Vendors might ask shareholders to guarantee the debt of a new or financially struggling corporation before supplying product. Exiting shareholders must protect themselves from these obligations, just as they must make sure that the value being offered for their interest is a fair one. One of the biggest mistakes made by new or relatively new entrepreneurs is to be too casual about the consequences of commitments to personal financial vulnerability. It is all too easy to let the full impact of personal signatures slide by. Although the concept may be clear enough, it is hard for the full implication to be perceived on an emotional level, especially when one is blinded by the excitement and potential rewards of the new venture. Time pressures and other demands do not leave much opportunity for contemplation. The problem is not resolved for those who fully appreciate the implications of making such commitments. The belief that “it will never come to having to fulfill it” can lull one into complacency about making the commitment. Another consideration when partners are being asked to make personal commitments is to recognize that the partners may have significantly different personal assets. The partner with little to lose can be more eager to make the personal guarantee than the partner with more responsibilities and assets. The partner with the greater risk will do well to consider personal guarantees under worst case scenarios. When banks call in personal guarantees to cover debts, they go after whoever has the needed assets. Of course, they are more likely to start with those who have the greatest assets.

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Each partner should therefore take this into consideration before committing to any business relationship. Shareholders have the potential for greater protection in a corporation; on the other hand, they do not have any control over what happens unless they are managing partners, directors, or major shareholders. A large shareholder, such as an investment fund, may exerts significant influence on the management of a public company. Getting involved in some form of partnership involves a very different kind of commitment than being a minority stockholder. When being a stockholder involves management responsibility, the differences between being a partner and a stockholder can become very minimal from a practical point of view when personal guarantees are involved. PROTECTING AGAINST OUTSTANDING LIABILITIES The first step in protecting an exiting shareholder from future liability on a guarantee is to require that his or her name be taken off the obligation. This may be accomplished by paying off the obligation in full, paying it down sufficiently so that personal guarantees are no longer required, substituting another’s guarantee, or perhaps merely requesting a release of the exiting shareholder’s personal guarantee. This may work in many instances but not in all. In some circumstances, for instance, the bank or landlord relies heavily on the exiting shareholder’s assets in agreeing to the loan or lease to the business and therefore is not prepared to release the exiting shareholder. This scenario may require the parties to rethink the viability of the buyout. Assuming, however, that the corporation and exiting shareholders are still willing to go through with the buyout, exiting shareholders should now be concerned with protecting themselves in the event the business defaults on its obligation to the bank or landlord. Under those circumstances, exiting shareholders should try to obtain indemnification from the corporation as well as the other shareholders in the event they are forced to pay on their guarantee. In other words, if exiting shareholders become liable for their guarantee, they can try to collect from the remaining shareholders and the corporation. Unfortunately, by the time exiting shareholders are being sued on their guarantee, the business is often already in dire financial straits, as may be the remaining shareholders. The exiting shareholder may want to back the indemnifications of the corporation and the remaining shareholders with collateral, such as a security interest on the assets of the corporation or the remaining shareholders. However, in this case, one needs to determine whether there are any assets not already encumbered by a security interest by the bank. At the very least, one should try to negotiate some protection for those personal obligations that will continue once the shareholder is bought out.

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The complications that can derive from personal guarantees underscore the importance of giving very careful “worst-case” consideration before making such a commitment. This consideration includes being able and willing to risk living with it’s happening. Even when this is done, there is no guarantee that things will work out as planned. There is no way to eliminate risk. This risk is part of the package of being an entrepreneur. The best that can be done is to minimize it, which is accomplished through cold realism about the viability of the business opportunity, the relationships needed to sustain it, and the risks involved. Steps to Limiting Liabilities 1. Have all obligations on which the exiting partner/shareholder is liable paid off or paid down at the time of exit so as to allow for his or her release from those obligations. 2. If obligations cannot be paid off or paid down sufficiently at the time of exit, obtain the release of the exiting partner/shareholder from any responsibility for the obligation. 3. If a release cannot be obtained and the exiting partner/shareholder still wants out, obtain indemnifications from the corporation and the remaining shareholders or, in the case of a partnership, from the partners who are continuing the business. If possible, obtain security for those indemnifications.

These possibilities may not be a problem in a viable business. However, a common reason for wanting to exit a business venture is the perceived risk and a desire to protect against it. When attempting to protect the risk in a business that is in financial straits, it is likely to be a very difficult, if not impossible, process. The difficulty arises because there are insufficient corporate or personal resources to get proper indemnification because the debtor refuses to grant a release. The best way to avoid such a situation is to ensure that the opportunity to exit is adequately considered at the point of entering such an arrangement. The absence of satisfactory arrangement for this purpose should put the wisdom of participating in the venture in question. REFERENCES CPR Institute for Dispute Resolution, 366 Madison Avenue, New York, NY 10017; (212) 949–6490. Freund, James C. (1997). “Anatomy of a Split-Up: Mediating the Business Divorce.” The Business Lawyer 52(2) (February): 479–530.

Selected Bibliography BUSINESS DIVORCE CPR Institute for Dispute Resolution, 366 Madison Avenue, New York, NY 10017; (212) 949–6490. Freund, James C. (1997). “Anatomy of a Split-Up: Mediating the Business Divorce.” The Business Lawyer 52(2) (February): 479–530.

COMMUNICATION Birdwhistle, Ray L. (1962). “An Approach to Communication.” Family Process 1(2): 194–201. Leathers, Dale G. (1976). Nonverbal Communication Systems. Boston: Allyn & Bacon. McKay, Matthew, Martha Davis, and Patrick Fanning. (1983). Messages: The Communication Skills Book. Oakland, CA: New Harbinger. McLagan, Patricia, and Peter Krebs. (1995). On the Level: Performance Communication That Works. San Francisco: Berrett-Koehler.

CONFLICT RESOLUTION Edelman, Joel, and Mary Beth Crain. (1993). The Tao of Negotiation. New York: HarperCollins. Scott, Gini Graham. (1990). Resolving Conflict with Others and Within Yourself. Oakland, CA: New Harbinger.

DECISION MAKING Zey, Mary, ed. (1992). Decision Making. Newbury Park, CA: Sage Publications.

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IMPLEMENTING BUSINESS RELATIONSHIPS Fisher, Marsh. (1996). The Idea Fisher: Creativity in Business. Princeton, NJ: Peterson’s/Pacesetter Books. Kaufman, Roger. (1986). Identifying and Solving Problems. San Diego, CA: University Associates. Rawlinson, J. Geoffrey. (1983). Creative Thinking and Brainstorming. Guildford and King’s Lynn, England: Biddles Ltd. Silver, Susan. (1995). Organized to Be the Best! Los Angeles: Adams-Hall.

KEEPING THE BUSINESS HEALTHY Langer, Ellen J. (1989). Mindfulness. Cambridge, MA: Addison-Wesley. Rossi, Ernest L. (1991). The 20-Minute Break. New York: G.P. Putnam’s Sons.

LEADERSHIP, MANAGEMENT, AND MANAGING RELATIONSHIPS Bennis, Warren. (1989). Why Leaders Can’t Lead. San Francisco: Jossey-Bass. Bennis, Warren, and Robert Townsend. (1985). Reinventing Leadership. New York: William Morrow. Eicholz, Marti. (1997). Business Relationships: The Dynamics of Teamwork. Kirkland, WA: MECA Profiles. Hickman, Craig R. (1990). Mind of a Manager, Souls of a Leader. New York: John Wiley & Sons. Kuhn, Robert Lawrence. (1988). Handbook for Creative and Innovative Managers. New York: McGraw-Hill Publications. Lipman-Blumen, Jean. (1996). The Connective Edge. San Francisco: Jossey-Bass. Shefsky, Lloyd. (1994). Entrepreneurs Are Made Not Born. New York: McGrawHill.

PARTNERSHIP Bell, Chip R., and Heather Shea. (1998). Dance Lessons: Six Steps to Great Partnerships in Business and Life. San Francisco: Berrett-Koehler. Davidson, Robert L. III. (1993). The Small Business Partnership Kit. New York: John Wiley & Sons. Melohn, Tom. (1994). The New Partnership. New York: John Wiley & Sons. Wyman, Jack, and Elaine Wyman. (1999). Married in Business. Scottsdale, AZ: Doer Publications.

POWER Boulding, Kenneth E. (1989). Three Faces of Power. Newbury Park, CA: Sage Publications.

Selected Bibliography

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Cialdini, Robert B. (1993). The Psychology of Influence and Persuasion. New York: William Morrow. French, John R.P., Jr., Dorwin Cartwright, and Alvin Zander. (1968). The Bases of Social Power in Group Dynamics, ed. Dorwin Cartwright and Alvin Zander. 3rd ed. New York: Harper and Row. Lucas, James R. (1998). Balance of Power, Authority or Empowerment. New York: American Management Association. Pfeffer, Jeffrey. (1992). Managing with Power: Politics and Influence in Organizations. Boston: Harvard Business School Press. Wrong, Dennis H. (1980). Power: Its Forms, Bases, and Uses. New York: Harper & Row.

TRANSITIONS Kubler-Ross, Elisabeth. (1979). On Death and Dying. New York: Macmillan. Lazarus, Arnold. (1984). In the Mind’s Eye: The Power of Intimacy for Personal Enrichment. New York: Guilford Press.

VALUES, ATTITUDES, AND BELIEFS Rokeach, Milton. (1968). Beliefs, Attitudes, and Values: A Theory of Organization and Change. San Francisco: Jossey-Bass. Rokeach, Milton. (1980). “Some Unresolved Issues in Theories of Beliefs, Attitudes and Values.” In H.E. Howe, Jr. (ed.), 1979 Nebraska Symposium on Motivation. Lincoln: University of Nebraska Press.

Index Accountability, to self, 56–57 Assumptions, 58–63 Attitudes, 145 Beliefs, 145–150; dimensions, 145–148; intensity of holding, 148–150 Benefit/cost balance, 160, 224 Benefits, 155–157; associated with costs, 158–159; characteristics, 156–157 Bennis, Warren, 49 Birdwhistle, Ray L., 71 Business, healthy: healthy business tools, 218; monitoring vital signs, 213–218; regular business management tools, 224–225 Business culture, 187–193 Developmental phases: closure phase, 192–193; exploratory phase, 188–189; stabilizing phase, 191–192; trust phase, 189–191 Business divorce: coping after, 253– 263; developmental history, 240– 251; guidelines for avoiding, 251– 252 Managing divorce process: accomplishing dissolution, 267–269; available options, 269–272; buy-

out agreement, 281–286; evaluating the business, 278–281; finding a divorce lawyer, 266–267; liability issues, 286–288; liquidating an insolvent business, 277–278; liquidating a solvent business, 272; preparing, 265–266; protecting against outstanding liabilities, 288– 289; resolving disputes, 272–277 Business plan, 194, 196–206 Case illustrations, 9–13 Communication: behaviors that enhance, 68–75; behaviors that impede, 75–78; and change, 78–81 Conflict resolution, 134–144; operational definition, 134 Managing, 136–139; assume conflict resolvable, 137; define negotiating position, 138; tactics, 137 Underlying principles, 135; avoidance increases problem, 135; control of own behavior, 136; judgmental behavior invites like reaction, 135; safety in expressing views, 136; separate effort from outcome, 135–136 Why negotiations fail, 139–144; in-

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dividual needs, 140; relationship stalemate, 141–144 Consultants, 84–93 Costs, 155; associated with known benefits, 159; characteristics, 157– 158; time exposed to benefits, 159– 160 CPR Institute for Dispute Resolution, 269 Davidson, Robert L., 194 Decision making, 127–134; agreement that decision is needed, 128; evaluating data, 129; obtaining needed information, 128–129; process, 127; timing, 129 Context for resolving differences, 129–134; defining similarities and differences, 131; impact of logic and emotion, 130; negotiation process, 131–134; objective, 131; role of empathy, 130; strength and vulnerability assessments, 131 Delegation: delegation process, 210– 211; desired qualities, 208–210; how delegation serves manager’s goals, 211; uses of, 207–208 Entrepreneur, 1–8; approaches to, 2–3; deterrents, 4; how people become, 2; motivation, 1; in organizations, 5; rewards of, 3–4 Familiarity, 81 Fear of failure, 5 Freund, James C., 267–269 Goals, 150–154; evaluation, 152–154; prioritizing, 151–152 Kubler-Ross, Elisabeth, 180 Langer, Ellen J., 192 Lazarus, Arnold, 166 Leader versus manager, 49–50 Leadership, 49–54 Listening, active, 73–74

Managing feelings, 63–68 Nepotism, 195–196 Partner selection, 22–45; desirable qualities, 23; evaluating partner compatibility, 41–45; personality characteristics, 22–41; when active partnerships occur, 41–42 Partnership: active, 15; advantages, 20– 21; collateral, 18; collateral family, 18; collateral with banks, 18; collateral with customers, 19; corporate, 16; defined, 14; defining partnership culture, 8; disadvantages, 21–22; family business, 17; limited, 16; marriage metaphor, 6– 8; problems, 19–20; product, 17; professional, 16; risks in multiple partnerships, 22; silent, 16; types, 15–19 Partnership agreements and relationship: nepotism, 195–196; prenuptial agreement, 195; testing partnership potential, 195 Partnership implementation, 194–206; define and measure accountability, 206; definition of ownership, 203; delivery of product/services, 196– 198; division of labor, 204; evaluation of relationship, 205–206; implementation of business plan, 196–198; negotiation of partners’ compensation, 203–204; standards of behavior, 205; support services, 199–203 Power: between executives and employees, 113; between partners, 112–113; combining types, 124; definition, 112; executives and the outside world, 113–114 Direct ways, 114–120; ambiguity, 115; blaming, 120; capacity to punish/discipline, 117–118; certainty of reward, 117; expectations, 115; expertise, 114–115; expression of affect, 118; grant rewards, 115; guilt, 119; legitimate,

Index 114; obligation, 119–120; over period of time, 116; possessing needed resources, 118; shame, 119; single event, 116; size of reward, 115; status and reward, 116; when given, 116 Employee, 124–126; commitment to company, 126; informal representation, 125; through initiative, 124– 125; representation of company, 125; times of crisis, 126 Indirect ways, 120–124; admiring other’s behavior, 121; distraction, 123–124; guided learning, 120– 121; incompetence, 122–123; indifference, 122; not providing answers, 120; obstruction, 123; silence, 121–122 Prejudice, 53 Prenuptial agreement, 195

Relationships: banks, 95–96; community resources, 94; competitors, 94; to customers, 93; external, 84–93; government agencies, 96–97; internal, 82–84; Internet, 97; pro-bono involvement, 94–95; professional, 94–95 Relationships, signs of trouble: business relationships, 226–232; management, 231–235 Resources: cognitive, 101–108; material, 109; organizational, 109–111 Rituals, 173 Rokeach, Milton, 145

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Role theory, 187–188 Rossi, Ernest L., 39, 219 Scapegoating, 53–54 Shefsky, Lloyd, 50 Speaking, active, 74–75 Transitions, 161–184 Adaptation phase: coping options, 167–169; overview, 162, 167; problems, 169, 222 Anticipation phase: overview, 162; problems, 167, 221–222; relationship impact of anticipated event, 164–167; when anticipated, 163– 164; when can’t be anticipated, 164 Integration phase, overview, 163, 223 Maintenance phase: functioning, 169– 173; overview, 162; problems, 172–173, 222 Termination phase: categories of losses, 177–179; coping with mourning, 179–182; coping with mourning process, 174–177; effect of mourning on entrepreneur, 182– 183; functioning, 173–174; overview, 162–163; problems, 183– 184, 222 Trust, 57 Two-time rule, 72 Uniform Partnership Act, 194 Values, 145–150; dimensions, 145–148; intensity of holding, 148–150

About the Author MARVIN SNIDER is an organizational consultant with a private practice in Waban, Massachusetts. He holds a doctorate in psychology and is the author of an earlier book on process family therapy. Among his past and present clients are hospitals, school systems, banks, law firms, public agencies, and an insurance company. His book emerges, in part, from his own experiences in establishing a professional partnership practice.