Decision Vision Episode 79: Should I Take on a Business Partner? – An Interview with Evelyn Ashley, Trusted Counsel
Attorney and business advisor Evelyn Ashley joins host Mike Blake to discuss the practical questions of business partnerships and what makes for a good business partnership. “Decision Vision” is presented by Brady Ware & Company.
Evelyn Ashley, Managing Partner, Trusted Counsel Ashley, LLC
Evelyn Ashley advises clients on matters such as mergers and acquisitions, joint ventures, financing and investments, corporate governance, intellectual property strategy, as well as protection, monetization and licensing; commercial agreements and ventures, including manufacturing, distribution, and agency; entity structure and related issues, corporate spin-outs, and international transactions. She has wide ranging experience and brings a refreshing, results focused, pragmatic approach to the practice of law.
She has practiced in large, medium, and boutique legal practices, finding that the latter gives her the most professional and personal satisfaction and flexibility. After practicing with Morris, Manning & Martin and co-founding and building Balboni, Ashley & Schoenberg, Evelyn founded and grew Red Hot Law Group, which quickly became a noted technology boutique law firm. She was also co-founder of Red Hot Venture Consulting, a strategic consulting firm and incubator for technology businesses affiliated with the law firm. Red Hot Law was acquired by Long Aldridge & Norman (now Dentons) in 2001, and Evelyn served as a Partner, heading the Firm’s technology practice. She left the Dentons predecessor at the end of 2003 to form Trusted Counsel Ashley LLC.
Prior to graduation from law school, Evelyn served on The Coca-Cola Company’s mergers and acquisition team that created and took Coca-Cola Enterprises public. Her first employment out of college was as a tender offer corporate paralegal at Skadden, Arps, Slate, Meagher & Flom in New York in the early ‘80s.
Along with Trusted Counsel’s Partner John Monahon, Evelyn co-hosts “In Process: Conversations about Business in the 21st Century,” a radio show and podcast where national guests are interviewed on emerging business trends, ideas and techniques.
Evelyn loves creating and collecting art, choosing on the basis of what she likes, not what “experts” say is art… Evelyn and her husband Alan McKeon are avid travelers to both exotic and “usual suspect” locales.
Michael Blake, Brady Ware & Company
Michael Blake is Host of the “Decision Vision” podcast series and a Director of Brady Ware & Company. Mike specializes in the valuation of intellectual property-driven firms, such as software firms, aerospace firms and professional services firms, most frequently in the capacity as a transaction advisor, helping clients obtain great outcomes from complex transaction opportunities. He is also a specialist in the appraisal of intellectual properties as stand-alone assets, such as software, trade secrets, and patents.
Mike has been a full-time business appraiser for 13 years with public accounting firms, boutique business appraisal firms, and an owner of his own firm. Prior to that, he spent 8 years in venture capital and investment banking, including transactions in the U.S., Israel, Russia, Ukraine, and Belarus.
Brady Ware & Company
Brady Ware & Company is a regional full-service accounting and advisory firm which helps businesses and entrepreneurs make visions a reality. Brady Ware services clients nationally from its offices in Alpharetta, GA; Columbus and Dayton, OH; and Richmond, IN. The firm is growth minded, committed to the regions in which they operate, and most importantly, they make significant investments in their people and service offerings to meet the changing financial needs of those they are privileged to serve. The firm is dedicated to providing results that make a difference for its clients.
Decision Vision Podcast Series
“Decision Vision” is a podcast covering topics and issues facing small business owners and connecting them with solutions from leading experts. This series is presented by Brady Ware & Company. If you are a decision maker for a small business, we’d love to hear from you. Contact us at firstname.lastname@example.org and make sure to listen to every Thursday to the “Decision Vision” podcast.
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Intro: [00:00:02] Welcome to Decision Vision, a podcast series focusing on critical business decisions. Brought to you by Brady Ware & Company. Brady Ware is a regional full service accounting and advisory firm that helps businesses and entrepreneurs make visions a reality.
Mike Blake: [00:00:21] And welcome to Decision Vision, a podcast giving you, the listener, clear vision to make great decisions. In each episode, we discuss the process of decision making on a different topic from the business owner’s or executive’s perspective. We aren’t necessarily telling you what to do, but we can put you in a position to make an informed decision on your own and understand when you might need help along the way.
Mike Blake: [00:00:40] My name is Mike Blake and I’m your host for today’s program. I’m a director at Brady Ware & Company, a full service accounting firm based in Dayton, Ohio. With offices in Dayton, Columbus, Ohio, Richmond, Indiana, and Alpharetta, Georgia. Brady Ware is sponsoring this podcast, which is being recorded in Atlanta for social distancing protocols. If you like this podcast, please subscribe on your favorite podcast aggregator. And please consider leaving a review of the podcast as well.
Mike Blake: [00:01:06] Today’s topic is, should I take on a business partner? And as we record podcast number 79 in the series, I realized I’m derelict in not getting to this topic sooner. It really should have been in one of the top ten and I’m not quite sure why we didn’t get to it sooner. Because this is a topic that, for many people in businesses, is one of the most important decisions they’ll ever make. And it is a decision, as we will learn with our guest, you often have to make many times over in your career or over the life of a business or several businesses. And we see, unfortunately, that quite often making the bad decisions or making this decision poorly can lead to very painful results and outcomes.
Mike Blake: [00:02:05] And I, myself, have been a business partner. I’ve taken on business partners with varying degrees of success. I’m in a partnership now with 23 other people, I think, that have not thrown me out yet. And I’ve only threatened to burn the building down twice. And I’ve been in a business partnership that lasted exactly two months, and really should have lasted one. But the benefit of that was that we all realized that was a mistake early in accordance with best practices of Google. And being inspired by Google, we decided to fail fast. And that also was a very good decision.
Mike Blake: [00:02:49] We’ll probably have an episode at some point soon on should I exit or should I terminate a business partnership. Because, you know, all business partnerships end. It’s just a matter of the manner and expectedness in which they actually do end. So, I’m looking forward to a very deep and profound, a very impactful discussion today. And as our guest noted, this could actually be a-half-a-day seminar just based on the questions I have written. And maybe, maybe we’ll have her back if she’s willing to do it. We have not yet had a repeat guest. Most of them are wise by the end of this thing. But maybe we’ll fool her into coming back. But there’s a lot of – this is a good topic I’m looking forward to.
Mike Blake: [00:03:33] And joining us today is my friend and someone I’ve been trying to get on this podcast for forever. But I think it would have been easier to get Beyonce to come on this thing. But my friend, Evelyn Ashley, who is managing partner of Trusted Counsel, a law firm here in Atlanta. And Evelyn is a person that, herself, has been a partner in law firms, as managing partner of her own firm, has had partners come in, has had partners come out. She’s married to one of them. And she’s really been through – I’m guessing she’s been through or has addressed some permutation of every business partner relationship that you can possibly imagine. And I think we’re going to hear some cool war stories today.
Mike Blake: [00:04:21] Trusted Counsel is a firm specializing in corporate law and intellectual property. They are a WBENC certified woman owned businesses that represent small and medium private company clients on matters such as mergers and acquisitions, financing and investments, intellectual property strategy, commercialization protection, licensing, manufacturing, distribution and destruction related issues, corporate spin outs, international transactions. Their lawyers have wide ranging experience and bring a results focused, pragmatic business approach to the practice of law.
Mike Blake: [00:04:53] Evelyn has practiced in large, medium, and boutique legal practices. Finding that the latter gives her the most professional and personal satisfaction and flexibility. And I suspect, also, that Evelyn is like me, we don’t take orders well. After practicing with Morris, Manning & Martin and co-founding and building Balboni, Ashley & Schoenburg, Evelyn founded and grew Red Hot Law Group, which if you’re not from Atlanta or if you are from Atlanta but you’re not of a certain age, they were the startup law firm. It took a lot of companies from venture or startup to venture funding and took a bunch of them public as well, I believe. So, in their day, they were the name in technology here in Atlanta and, really, in southeast.
Mike Blake: [00:05:40] She was also co-founder of Red Hot Venture Consulting, a strategic consulting firm, an incubator for technology businesses affiliated with the law firm. Red Hot, while it was acquired by Long Aldridge & Norman, now Dentons, in 2001. And Evelyn served as a partner heading the firm’s technology practice. I didn’t know you were acquired by Dentons. She left Dentons predecessor at the end of 2003 to form Trusted Counsel.
Mike Blake: [00:06:07] Prior to graduation from law school, Evelyn served in the Coca-Cola Company’s mergers and acquisitions team that created and took Coca-Cola Enterprises public. I did not know that. Her first employment out of college was as a tender offer corporate paralegal at Skadden, Arps, Slate, Meagher & Flom in New York in the early 1980s. There got to be some stories there. Along with – sorry.
Mike Blake: [00:06:29] Evelyn also co-hosts In Process: Conversations about Business in the 21st Century, a radio show and podcast where national guests are interviewed on an emerging business trends, ideas, and techniques. And her podcast has been around way longer than this one, so do give that a listen. And I think I was on one of the early episodes of that, if I’m not mistaken. Or they may have deleted it.
Mike Blake: [00:06:49] Evelyn loves creating and collecting art, choosing on the basis of what she likes, not what experts say is art. Evelyn and her husband, Alan McKinnon, are avid travelers to both exotic and usual suspect locales. And in fact, sometimes when I’m feeling sort of isolated, I will take their Facebook pictures, put it up on my 4K monitor, grab a cup of Tension Tamer Tea, and will just go to one of those places. And right now, if you want to travel, that’s pretty much the only way to get there. So, I’m glad you’re doing that. Evelyn, thank you for coming on the program.
Evelyn Ashley: [00:07:21] Thanks for having me, Mike. That’s such a mouthful. Now, I’m so exhausted having reflected on what I’ve done over my career. I do think that I need to – well, I need to think about bringing on a business partner so I can retire, you know?
Mike Blake: [00:07:38] Well, the goal is to wear down the gas before we get to the interview. So, I’m glad to hear we may have accomplished that to some extent. So, as I said, one of the reasons I want to get you on this program and talk about this topic is, you know, you don’t just have bias in this topic. You’ve lived it, right? And you’re living kind of one of these partnership moments, if you will, in real time, as we’ve talked about before the program. And I know you’re not going to get into specifics about that, but I think it’s important to understand that you’re not just an academic. You are definitely a practitioner when it comes to business partnerships.
Evelyn Ashley: [00:08:17] That’s true.
Mike Blake: [00:08:17] Business partners can be such a pain in the neck. And I am a pain in the neck business partner. I’ll be the first to tell you and everybody else will be second. Why would you take one on? Why would you deal with this?
Evelyn Ashley: [00:08:33] Well, I mean, I think it’s important for any business owner to actually realize that throughout the growth of a business and then even kind of the exit of that person or the business itself through a sale or maybe retirement, it’s important to know that you probably want to grow. So, increase revenue, expand the territory where your products and services are offered, bring in expertise that you don’t have, bringing capital that you need. And then, you know, that whole idea of succession planning that I already mentioned.
Evelyn Ashley: [00:09:19] So, yes, it can be challenging to have business partners, because we’re all human and we all have different personalities and attitudes. But the reality of a good partnership – and I’m using that kind of in the general business term because there’s a legal term of art that means something completely different. But I think that good partnerships can grow great businesses. And that’s why you actually put up with the challenge of them.
Mike Blake: [00:09:58] So, are there different kinds of business partners? I don’t necessarily mean good partners versus bad partners, because that’s a different kind of case. But are there different kinds of partners? I guess, for example, in the CPA world, we have equity partners, which I happen to be. There are also non-equity equity partners and different sort of classifications. In law, I guess there’s something called of counsel, which I kind of understand. Are there different classifications of business partners and why does that matter? Why do different classifications or partner identifications exist?
Evelyn Ashley: [00:10:39] So, I think within professional services, which really is kind of the law, the management consulting, the accounting and CPA structures, yes, you typically would have, at least, two kinds of partners. An of counsel isn’t really a partner. They might go by that bill at some point, but it’s a misnomer within the scope of the business.
Evelyn Ashley: [00:11:02] And an equity partner, basically, it’s someone who, personally, has the hopes and dreams that they’ll become an equity partner and share in the profits of the business. And then, of course, the equity partners are usually the ones that are very focused on rainmaking and business development, as well as also the doing of the work. And so, tend to share much more in the benefits, the profits that actually come out of that business.
Evelyn Ashley: [00:11:32] Within general businesses, there’s a much more expansive scope of “business partner.” As I kind of alluded, one of the reasons to take partners on, you know, if you look at it from the narrow, a co-owner, but as you broaden the scope of potential, that could also be an investor to the business that doesn’t work in the business, but brings access to not only money but to a network and maybe business introductions for expanding the business. That also can be a “partner.” Although, we’ll talk a little bit more about how they typically interact with the business.
Evelyn Ashley: [00:12:26] But then, also “strategic partners” other businesses that can – because they’re complementary in products and services or perhaps they’re in a different geographic location, they help businesses to expand that business faster without having to have the internal overhead, and cost, and expense, and risk of actually expanding into those areas. So, I think that there’s a large potential scope of what a business partner can be.
Mike Blake: [00:13:02] Now, you and I have one thing in common and that we do a lot of work with emerging technology companies, high growth companies. Part of the recipe there is that they’re taking on some form of equity investment. We typically call them “investors.” But in point of fact, many of them would be considered legally and maybe functionally partners, right?
Evelyn Ashley: [00:13:26] Yeah. Well, because they are – if we’re using the business terminology of a “partner,” then an investor would be a partner. They’re not necessarily – typically, they come in and they want a return on their investment. They are more concerned from the financial perspective of return inside the business. They’re not usually part of the day to day operation of the business. If you have an angel investor that is interested in working for some time, sometimes they’ll actually do that for a while. But it’s very unusual for an investor to actually come in and grow with the intent of every day in their growing the business.
Evelyn Ashley: [00:14:15] So, you know, having that kind of investor relationship, as they said, can be very beneficial growth-wise. And within technology, if you have a technology that has major impact on a market, it’s very typical that you would want external capital to help you actually grow it fast because speed to market and growth is pretty critical in that kind of sector. But there are many other businesses where you might say, “Well, this can actually help me to bootstrap the business faster. I’m not necessarily going to grow it and sell it out or do a public offering.” But there are also reasons to actually have kind of that investor partner involved, too.
Mike Blake: [00:15:07] And the vocabulary, the legal vocabulary makes that, I think, a bit more confusing. Because there is a legal form of a partnership. But investors, like we’re talking about, typically invest in some sort of corporate form, usually a sequel of their venture investor, so they’d be called shareholders. But depending on their involvement, they may function as a partner. Some will actually take on a formal role in the business. And others are kind of more, we would consider, maybe a silent or quasi absentee partner.
Evelyn Ashley: [00:15:38] Yes. Absolutely. I mean, I think it’s important – the legal term of our partner, basically, if we’re in a legal partnership, kind of the most key challenge of those kinds of relationships is, if you and I were in a partnership, and I was kind of wild and did some things that maybe you didn’t agree with, you, under a partnership structure, would be liable for the risk that I have created inside the business or the potential losses.
Evelyn Ashley: [00:16:18] Within a limited liability company, where you have a member, in a corporation where you have shareholders, those individuals are protected. They are essentially capped at their investment in the business with regard to losses and liabilities. Unless, of course, they’ve signed personal guarantees and then that’s a different situation.
Mike Blake: [00:16:40] And that’s a really good point. I, generally, had not thought of that really through. But the nature of the partnership and the relative incentive structures can be very sharply impacted by the nature of the corporate form. And this may be just my myopic view, because I work in finance. I’m in a CPA firm. So, of course, everything to me looks like a tax or a finance problem. So, when people ask me, “What kind of corporate form should I have?” Well, the first thing I do is I tell, “Ask anybody but me.” Because I’m not really that fluent in it. But the answers I hear tend to be more, “Well, if you do this and here’s how the taxes work. If you do this, here’s how taxes work.” But on the legal side, there’s a whole different dynamic of how liability and risk is distributed or not distributed within the firm.
Evelyn Ashley: [00:17:33] Yes. Absolutely. Absolutely. And you’re right, there are – you know, I don’t know if we want to get too much into entity choice at this point. But certainly, there are investors that are very interested, particularly in the early stages of a business, in the losses that can actually come out of a business. Because if I invest cash and I know that business is going to have some losses for the next few years, I can actually get a tax benefit against my profits that I’ve received from other businesses. And so, that can be very attractive, particularly to individual investors and then also family offices, because that’s usually one person or a family’s money. And so, they like to flow it through.
Evelyn Ashley: [00:18:21] Within venture capital, of course, because they have limited partners inside their funds, they want to cut off that flow. And that’s why a C Corp from a tax perspective to them is very attractive. It cuts off the flow. But the other side of that is, they can also rely very much on the statutory structure of corporations, which is very, very expensive. So, things like corporate governance and minority shareholder structures, they can actually – they have confidence that that entity is going to protect them and things will be done in a certain way simply because of the statutory format.
Mike Blake: [00:19:05] Yeah. And I’ll just sort of add a footnote, as Evelyn is alluding to, this in itself could easily be a multi-hour conversation. It really requires an analysis of the particular facts, circumstances, and goals of a particular partnership. So, I don’t think we will – I certainly hope we will never ever have a show specifically on corporate structure.
Evelyn Ashley: [00:19:30] Come on. This is key. And very interesting.
Mike Blake: [00:19:34] For all I know I’m going to get an email tomorrow saying I’ve already done one and I just forgotten. But the point here is that corporate structure is important and it’s complex. Don’t take anything you hear off this show and all of a sudden start filing corporate documents. Talk to both your CPA and your attorney to help you figure out kind of what’s best for you. So, those are disclaimer at no additional cost to the listener.
Evelyn Ashley: [00:20:04] Exactly. Thank you.
Mike Blake: [00:20:06] In your experience, does the distinction between an active versus a silent partner come up? Is it often a choice that’s even in the hands of the founder or whoever is sort of offering the partnership? And let me give us some context to that. As you know, I do a lot of shareholder or membership divorces. And to me, the biggest and the most frequent reason I’m engaged to do one of these is that, at the outset, two or more partners or people had gotten together and said, “We’re going to go build this business. Take over the world.” And then, one or more of them kind of lose interest and stop working. And then, the other one or two feel like they’re doing all the effort and putting all the value. And then, the other person kind of sitting on the beach and doing, say, smoke and drinking cocktails with little umbrellas in them. And so, they want to get that person out. Right? And so, that person can transition from being an active to a silent partner.
Mike Blake: [00:21:14] So, with that in mind, is there a rule or is there kind of a decision flow chart that can help somebody listening identify whether or not they should be seeking or bringing in an act of sort of operational partner? Or if it should be somebody that’s from the outset is designed to be silent, which usually means just give me the capital and maybe some of your Rolodex and I’ll do the rest.
Evelyn Ashley: [00:21:40] Right. You know, I think the choice of the concept of the silent partner, if we call that silent partner as a capital access, I think, those choices really are based on what the business is, what the business plan is, what’s going to happen over the next two, three, five years. And if you’ve got an owner or a group of owners inside that business that have growth plans, therefore, in that situation, a “silent partner” can certainly work.
Evelyn Ashley: [00:22:18] I think from the concept of I’m an operator and I have a silent partner who used to be an operator, but is now sitting on the beach or I’m getting divorced and my spouse is going to end up having a partial ownership in this business as a result, all of those events are usually tied to the fact that you don’t have a very good owner agreement in place with your partner.
Evelyn Ashley: [00:22:53] And you’ll find that in the early years of many businesses, founder-owners will sit there saying, “I can’t have these difficult conversations. I can’t afford to have this conversation. I just don’t want to. I just don’t want to do this.” And that is really where the failing will happen, because something that is going to cost you, probably, a few thousand dollars to get in place in the early years could end up costing you your business in many ways. It could end up costing multi-thousands of dollars to get a whole variety of people in to help break up that relationship. Or it could just lead to being pissed off all the time while that partner is sitting on the beach.
Evelyn Ashley: [00:23:46] I have, years ago, two founders, and they were best friends from high school. And both were very technological programmers. One was very social. And after college, they were like, “Yeah. We’re going to start a business.” They went into it. They had a very basic shareholder agreement. And about ten years into it, the business was growing. It was doing well. It was actually throwing out some profits for them. But one of the owners basically said, “You know, I’m married. You’re not married. I have four kids and a wife. I am going to have a very early mid-life crisis here at 31. And so, I’m not going to divorce my wife and kids, but I’m going to divorce you.” And, unfortunately, it was a 50/50 split. And they didn’t have an agreement that addressed what would happen if someone wanted to leave.
Evelyn Ashley: [00:24:57] And so, in that situation, they could not come to an agreement on a buyout because the departing partner had a very high expectation of what the value was and did not want to believe the appraisal. And so, they could never come to a conclusion on this. The one thing that he did do was he allowed the partner who was – the shareholder who was still in the business to control the board. And so, he was able to do a little bit of work around growth inside of the business. But that is a situation where he was pissed. That partner who stayed was pissed for the next five years, basically. And then, he did raise external capital, which the other agreed to, which kind of broke the breakup between them.
Mike Blake: [00:25:55] Stay on them.
Evelyn Ashley: [00:25:56] Yes, exactly. The deadlock, if you will. But expensive, stressful, horrible, actually. And so, those are all important things to be thinking about as you’re in business. And it doesn’t matter where you are in the business. If you don’t have a good agreement, you really need to take care of it because disaster happens in many ways.
Mike Blake: [00:26:22] I make a lot of money off of bad agreements.
Evelyn Ashley: [00:26:27] Well, you know, and probably good agreement, too, because good agreements will actually call for an appraisal. But what you need in that situation is the process and the procedure to actually make sure that it’ll be followed and the exiting shareholder or owner actually gets out.
Mike Blake: [00:26:47] Yeah. Yeah. So, you know, in your experience, are people who tend to be alike, do they tend to make better business partners? Or people who are less alike, maybe, are more complementary? Do they make better business partners or is that all over the board?
Evelyn Ashley: [00:27:05] I think people who are alike – people need to be alike, but they need to be different. So, I think the best ownership relations are people that have the same attitude toward culture inside the business, with the environment, how do we treat our people, what are the benefits that we want to provide. All of those kind of soft play things that go along with creating a place people want to be. Do we have similar views on money? You know, are we in this because we want to make a massive killing? Are we in it because we just really want to have a a business where we have a great lifestyle? Can I trust you with my money? You know, with each other’s money. What’s our work ethic? What’s our values? Those are things that you really do need to have alignment on.
Evelyn Ashley: [00:28:11] From a different perspective, I think some of the best partners are those that are complementary to each other. Certainly, one needs to be more of the strategist and have the big vision. The other needs to be the executor, needs to kind of be the internal focus. Someone needs to make sales. So, similarities are important, but difference is also important.
Evelyn Ashley: [00:28:49] In your experience, what are the most frequent reasons partnerships don’t work out?
Evelyn Ashley: [00:28:57] Well, because human beings are human beings. And a lot of human beings –
Mike Blake: [00:29:02] Stupid human beings.
Evelyn Ashley: [00:29:02] Yes. Darn. You know, attitudes change, life changes as certain challenges get presented. You know, I think we’re in a big situation right now in a pandemic where it’s pretty clear that cracks in business relationships are probably being identified. Maybe cracks in marriages are being identified as people are spending all day every day with each other. So, I think, it has to do with economic challenges from a broad perspective kind of in the market, but also economic challenges within the business. And, you know, just life will do it.
Mike Blake: [00:30:01] You know, I think that is such a good answer and it’s not the one I expected. But knowing you, I should have expected to hear that from you. And that goes to why the right documentation is so important and so hard, because the one cause about humans is that they change. If you never change as a human being, there’s probably something wrong with you. It’s a natural human condition that your circumstances will change, your health will change, your priorities will change.
Mike Blake: [00:30:39] I was a horrible person in my 20s. I’m a less horrible person in my 50s, I like to think. And we all change, right? And the partnership and the way you think about the partnership and the way you structure it needs to be flexible in order to accommodate the inevitability of change.
Evelyn Ashley: [00:31:00] Absolutely. Absolutely. It’s kind of like, good fences build good neighbors. Good contracts build good partnerships. And, typically, we’ll take into account, basically, every kind of downside that can happen as the business goes forward. The other reason, too, why partnerships fail is that, just as you said, in our 20s, we’re kind of trying to figure it out. In our 30s, we’re kind of getting it together. Sometimes by the time we hit our 30s and our 40s, we’re like, “Holy cow, this isn’t what I want to do with the rest of my life.”
Evelyn Ashley: [00:31:41] Or the business has grown to a size where my skills actually don’t work inside the business anymore. And so, there needs to be a rotation almost of owners. And maybe that doesn’t mean that I have to be gone, you know, out of the business as an owner. But it probably does bring me down to a lower percentage of the business as new people come in that can actually grow it.
Mike Blake: [00:32:12] You know, that latter part is a really smart point and one that I don’t think is talked about – just talked about a lot. When we think of the captains of industry and the ones that have founded companies and are really sort of legendary, whether it’s Steve Jobs, or Mark Zuckerberg, or somebody else.
Evelyn Ashley: [00:32:33] Bill Gates.
Mike Blake: [00:32:35] Bill Gates. It’s not just that they were technology visionaries. Frankly, there are a lot of those. But the fact that they have the skill sets and could evolve to run a startup and to run a publicly held multibillion dollar multinational business, that’s the uniqueness. That’s the prodigy part. And if you happen to be a prodigy, great. But maybe your partnerships – or at least ask the question, well, what if we’re not all prodigies? What if we’re not all the next Bill Gates? And just because a company outgrows somebody’s skill set, it doesn’t mean you have to kick them to the curb, right?
Mike Blake: [00:33:17] Maybe a great example of that is Steve Wozniak. There came a point – I don’t know him. I call him Steve. He calls me who the hell are you? But I suspect that to a point at which he said, “Look, I’m not the guy that’s going to be CTO of a multibillion dollar company. I still want to tinker and invent things and be a futurist and technology advocate.” And Apple didn’t just kick him to the curb. They’ve figured out a way to let him fulfill himself within that company.
Evelyn Ashley: [00:33:45] Exactly. Exactly. And in all honesty, I do think that one of the failings of Media Bites, which I have many opinions on the failings of Media Bites. But with regard to technologists that actually become big leaders and highly successful, I think, what happens is other technologists view them and say, “That’s me. That’s me, too.” But it’s so hard to actually be that person who does go through those transitional elements and allows others, you know, it becomes – it’s respect, actually. It’s respect and it’s trust, which is kind of one of the points I want to raise for choosing a good partner.
Evelyn Ashley: [00:34:40] But if I am the founder of the business, I have to be willing to be respectful of other people’s skills and their ability to get the boat higher in the water, if you will. And I think that’s one of the keys. Steve Jobs, may be not so much really brilliant, complete driver. Not necessarily too respectful of the people around him. But others generally do except that. Other people know things they don’t and they can help them to succeed the critical part of business growth, really. Any business, not just technology.
Mike Blake: [00:35:22] So, many business partnerships, not all, but many arise out of existing friendships. Is that a good basis for a business partnership? Does that create unique dangers in a potential business partnership when, “Hey, we’ve been friends for a long time. We got to be business partners. Let’s go.”
Evelyn Ashley: [00:35:44] Yeah, I don’t agree in a – I guess I don’t agree with the idea that, “Wow. Because we are besties or really long term and we just love each other,” subjective reasons are not the reasons to actually have a business partner. You have to have a set of objective criteria of what am I trying to achieve. Or if we’re together and we’re putting that together, again, what do we have with regard to the business? How are we alike? How are we different? How would we handle X, Y, Z?
Evelyn Ashley: [00:36:24] So, I think it’s critically important when you’re thinking about going into business or bringing in someone after, do they meet the key objective criteria? I think it can be great fun. It’s important to like your partners. You don’t necessarily have to love them. And you don’t have to want to spend all your time with them. You’re going to spend a good amount of time with them. So, you probably don’t want to be, like, totally annoyed by them.
Evelyn Ashley: [00:36:59] But I just think the other thing, you have to look at it like – you have to look at a business partnership almost like marriage. You have to choose based on what your personal criteria really are. And you can’t look at someone and say, “Not to worry. They’re almost there because I can change them and then they’ll be perfect.” It fails every time, right?
Mike Blake: [00:37:30] Yeah. You know, and the partnership I was in that – and I was not exaggerating – last two months or the last one, we were friends. We had a conversation for years and really thought we knew each other. We thought that was just going to sort of lead to the nirvana. But then, once we actually had to operate with each other, we actually had different communication styles, different priorities, different skill sets, frankly.
Mike Blake: [00:37:57] And particularly, since I was joining a partnership, I have skill sets that were very valuable, just not to them. And the things they needed were things that I was not good at and didn’t want to get better at. It was a real shock to the system. It shocked us that it didn’t work. And I think it shocked a lot of observers in the market, our competitors. I mean, they were really afraid when we joined forces that we were going to dominate the market. And it it collapsed very quickly. And I’m glad that it did, because we’re now still friends. If we tried to hang on for six months, we would not still be friends.
Evelyn Ashley: [00:38:34] I think that’s really important. I’ve got a great example of friends. So, two women that actually met each other at another company became very close friends. Very different, one a creative, the other kind of much more of the seller, the kind of externally focused, let’s drive revenue, but also very process oriented, which is pretty unusual in a sales person. Not to insult salespeople. But the two of them came together, decided to form a business. And within the first three months, nearly blew up because, one, the process oriented one was, “What the heck is she doing all day? Oh, my God. She’s completely ADD. She cannot focus on anything.” And the other one was, “Why is she harassing me all of the time? Leave me alone. I can’t think.”
Evelyn Ashley: [00:39:38] So, the two of them – and I thought this was really very, very unique. There are certainly business consultants that can actually help to bring partners together and kind of help them sort things out. They couldn’t afford that. It was very early stage in the business. They did find out that the health care that they had from their spouses actually provided counseling services. So, the two of them went to counseling for six months. And so, ten years later, great business, did $64 million dollars in revenue last year. Amazing. A complete turnaround. They understand the nuances and the personalities of the others and now they know how to work together. It’s cool.
Mike Blake: [00:40:23] What a great story. And a thing I want to dive into, too, that I hadn’t thought about asking, but now begs the question is that, there’s a skill to becoming a business partner, isn’t there? I mean, if you haven’t done it before and you’re used to being an employee or you’re used to being a sole practitioner or anything other than a partner, you don’t just walk in and become a great business partner in a lot of cases,. There’s a little bit of a training period.
Evelyn Ashley: [00:40:52] Oh, yeah. Absolutely. I mean, I think one of the challenges, particularly in professional services, is that lawyers, CPAs, financial people go into a partnership, are there for quite – or go into what is a partnership as an employee, perhaps an associate level. And over time have the expectation that they will become a partner. And I think what I’ve learned kind of both by doing and also by helping is, you never want to bring on a partner because of expectations. Because an employee will often always be an employee. They will not be able to handle the shifts and the changes and kind of the non-business elements, the communication, the interaction, the discussion. How do you actually come to decisions on behalf of the business together?
Evelyn Ashley: [00:42:06] And certainly founders, solos particularly, they have a challenge, too, because once you’re used to making all the decisions, it’s pretty hard to actually let somebody else in. So, there is communication and wanting to succeed together is absolutely critical.
Mike Blake: [00:42:29] So, that segues nicely to the next question, which is – and I know you’ve been in this position – when you’re considering to take somebody on as a business partner, how do you vet them? What are the most important things you do to vet a potential business partner?
Evelyn Ashley: [00:42:47] So, really, the first thing is, what, again, is the criteria for the right partner? What does the business need? And so, once you’ve identified that, I think you have to ask the question – and this was actually put to me many, many years ago as I was going into founding my first law firm with another partner. He told me, you must have mutual respect or you must have mutual trust. But you always must have financial integrity. So, you can respect that person. It’s great if you also trust that person. But as long as you respect that person, you don’t necessarily have to be completely trustworthy. But within the business, you have to know that you could trust that person from the financial perspective of the business itself.
Evelyn Ashley: [00:43:57] So, you know, these are all elements, so it is both a soft element, but it’s also, again, what’s their work ethic? Does our work ethic mesh? Because if one of us wants to retire and the other one wants to grow big, is that going to be a challenge or can we actually just migrate it to allow that person to take the reins and move forward? I think what’s really important too, again, in business partnerships – and this doesn’t work so much, certainly, not in the Dentons world or anything. But you do need to have someone who acts as the CEO. And that could be an executive committee of a large partnership to a small group of partners that kind of are making choices. But it’s very hard for us all to move together forward and be successful. You know, typically you need to allow someone to have the responsibility, the control, and, again, trust that they will do the right thing on behalf of everyone in the business and, certainly, the owners of the business.
Mike Blake: [00:45:24] So, assuming that it’s an external partner – if it’s an internal partner, there’s a different dynamic because you have information inside. You would not as easily obtain from an externally sourced partner. So, you know, if you’re considering – I know you brought in external partners. If you’re looking at an externally sourced partner, how do you go about finding those things out? Do you do a background check? Do you ask to see work samples? Do you talk to their clients? Do you consult the tarot deck? What do you do?
Evelyn Ashley: [00:46:01] Well, I’ve always relied on the tarot myself. But, absolutely, you want to take up as much reference as you possibly can. You know, one of the things that you might think about if you kind of go through a diligence process and feel like, “Yeah. This is the person.” I think the other thing, assuming that person coming in is amenable to the idea, I think, having a six month or a 12 month period where it’s kind of, “Let’s see how it goes. Let’s work together. Let’s do this.” Maybe it depends on what business we’re talking about. But, certainly, if we’re talking about professional services, maybe that’s, “We’re working together, but we’re going to be separate entities from a back office perspective. Clients won’t necessarily know. But, you know, we will go forward as a group. But we actually have the ability to split without too much of an issue.”
Evelyn Ashley: [00:47:08] Within kind of a more product based business, it’s not unique to actually say, “Come in. Let’s work together for X amount of time. And let’s put a contract in place. If we are both agreeable to this relationship going forward, within a year the contract will actually trigger an ownership structure, a buy in or, you know, an option grant, or a restricted stock grant, or something along those lines within the business. And then, from there, we can go forward.” Pretty much if you spend time, basically, that six month to 12 month period, you’re going to know. You might know in three months, right? You might know in a month, like you did, right?
Mike Blake: [00:48:06] Yeah. And thank God we did. So, we’re speaking with Evelyn Ashley of Trusted Counsel about should I take on a business partner. And we touched upon this a little bit, but I want to come back and be explicit. What do you think about 50/50 partnerships? Can they work? I know people that are in the camp of avoid them at all costs and avoid them like murder hornets. And I know others are kind of sanguine about it. Where do you fall on that?
Evelyn Ashley: [00:48:39] So, the way I look at 50/50 partners is they happen much more often than I ever will recommend. And so, if you’re going to do it, it’s fine, but you have got to have a great contract between the two of you. Because, invariably, as we’ve already discussed, things change, people change, business changes. And so, essentially, you want to have a roadmap to separate, to divorce, if you will, the business divorce. And unfortunately, with 50/50 partners who basically split everything down the middle, all decisions we made together. It gets to a point where I think, “Wow. More power to you if you can do it.”
Evelyn Ashley: [00:49:38] And there are 50/50 partners that can do it. But at some point there’s going to be a disagreement or a split. It’s very likely. Now, it turns into can we communicate our way out of it? Can we know that, “All right. I’m going to go with what you’re so passionate with and go forward.” Or do I have to rely on my agreement that’s probably going to put me in a situation where we both agree to an independent who will come in that we both respect. Maybe that we both know that we respect that can help us to resolve our business issue. Or do I have to hire a mediator to do that?
Evelyn Ashley: [00:50:22] And then, if that doesn’t succeed, then typically what you’re going to warrant is what’s termed a Texas shootout. And essentially, if I want you out, I will make an offer to you that, basically, I would be willing to be bought out myself because I make the offer to you, you decide, fine. I’ll buy you out and take over the company. Or fine, go ahead, buy me out. And so, it does create a dynamic.
Evelyn Ashley: [00:51:01] When I first started dealing with this, I was like, “Oh, disastrous.” But the other side of that is at least it’s a process that can keep the business intact. And certainly that buyout doesn’t have to be cash. It can be a note. And so, again, you might be looking at an appraisal situation in that situation. You’ve probably dealt with those too. But sometimes they’ll just pull it from the air because they really want to get it over with. So, again, yes, they can work. And wow, there’s lots of litigation out there on the books, too, for 50/50 owners that could not agree as to what the next step of the business was. And that’s unfortunate when a judge or a jury has to make those decisions for business partners.
Mike Blake: [00:51:59] Yeah. Pretty much everybody loses at that point.
Evelyn Ashley: [00:52:04] Absolutely.
Mike Blake: [00:52:07] Do you recommend trial periods for partnerships?
Evelyn Ashley: [00:52:11] Well, like I said, I think trial partners are a good idea. You know, if you can’t actually – if there’s someone that you want to be in business with, I think you can go ahead and make the commitment to each other. But again, I think you need to know that there’s a lot of things that can come about when you start working together. That over time you realize this is not going to work. And so you, again, have to have that good agreement to figure out how do we separate from this situation.
Evelyn Ashley: [00:53:00] I think certainly from the employee perspective, in a situation where you’ve got – perhaps you’ve got an owner that wants to retire out of the business. And if you’ve got, you know, a young, sharp employee in there that wants to take it to the next level, and has worked with you for years, and you trust them, and you respect them and you know they have financial integrity, then I would say, yeah, that’s a great way of getting to the next point in the business.
Mike Blake: [00:53:39] Evelyn, we’ve covered a ton of ground today and as we predicted, I’m not going to get to all the questions, but that’s okay. I think we’ve got most of the very critical ones.
Evelyn Ashley: [00:53:50] Quite a lot.
Mike Blake: [00:53:51] If somebody wants to find out more about this topic, can they contact you? And if so, how would they best be able to do that?
Evelyn Ashley: [00:54:00] Absolutely. So, I can be reached at info@trusted-counsel, C-O-U-N-S-E-L,.com. The number is 404-898-2900. And I really would thank you very much for the promotion on the podcast. But I also want to kind of reiterate that our impressive podcasts can be found on our website. And because we focus on business conversations, typically there’s about five years of content sitting there. So, private company owners often find it very helpful and educational kind of with regard to their businesses. So, I hope they’ll go check it out.
Mike Blake: [00:54:53] Yeah. Right after you listen to this podcast, go check that one out. You will not be disappointed. And that’s going to wrap it up –
Evelyn Ashley: [00:55:00] And your podcast is still up there, Mike
Mike Blake: [00:55:03] Oh, good. Good. I appreciate that.
Evelyn Ashley: [00:55:09] Of course. We –
Mike Blake: [00:55:09] That’s going to wrap it up for today’s program. I’d like to thank Evelyn Ashley so much for joining us and sharing her expertise with us today. We’ll be exploring a new topic each week, so please tune in so that when you’re faced with your next executive decision, you have clear vision when making it. If you enjoy these podcasts, please consider leaving a review with your favorite podcast aggregator. That helps people find us that we can help them.
Mike Blake: [00:55:32] Once again, this is Mike Blake. Our sponsor is Brady Ware & Company. And this has been the Decision Vision podcast.