The Accidental Entrepreneur: My Crazy Roller Coaster Ride As A Clueless First Time Founder
Part 4: When Partnerships Go Bad
It’s 7:00 p.m. the Friday before Christmas in 1999. My business partners have just both walked into my office a handed me my commission check for the third quarter.
I am shaking as I take the check out of the envelope.
The check is for just over $100,000 after taxes.
This the most money that I’ve ever had in my hands in my life. But the looks on my partner’s faces tell me that they are not exactly happy for me.
“Dude, we need to talk,” they said with stern looks as they each took a seat.
I was about to learn an important lesson when it comes to negotiating a good deal. While there has been a lot written about how to maximize your outcomes in negotiations, there are very real-world situations where a deal that favors one side significantly more than the other can become, ummm…an issue.
This…is one of those stories.
When we had negotiated my compensation plan when we had initially formed the company it had taken almost two full days of discussion to come to an agreement.
I wanted more guaranteed up-front and they wanted more to be performance-based with commissions on consulting revenue and software sales.
Eventually, I had reluctantly agreed because A) They were persistent and not budging. And B) there was a lot greater upside for me if I grew a stable of consultants without taking on that financial risk on my own.
This was a big gamble for me because I had gone from booking $100,000 in revenue in the first month of my new company to accepting a position that only had a $40,000/year guarantee.
But now, almost 2 years later, the business had taken off, well past our expectations, and my compensation had also skyrocketed.
My bet had paid off.
The key terms of my compensation were related to the commission I would be paid for the billable hours of additional consultants. It was set-up as a percentage of the net profits from their billings.
Long-story-short, through getting resources for less and being able to charge more, I was making about 3x as much as they anticipated I would make for each consultant we brought on board. Adding to that, I had grown the number of consultants faster than they had planned.
While these were absolutely great things to happen (higher sales at lower costs) these “miscalculations” had manifested themselves as this very large commission check and it was apparently the straw that broke the camels back with them.
“Dude, we need to make some changes. You will make more this year than the two of us combined.”
So I guess we’re skipping the small talk.
I’m normally very easy going, but I wasn’t about to be walked all over. They had agreed to these terms and needed to hold up their end of the deal. Plain and simple.
“So…?”, I said.
I might as well tossed a grenade in the middle of the room. They got red in the face and their tone got very aggressive.
We got into it. A verbal “tussle” as they say on Letterkenny.
I argued that making more revenue at less cost was a good thing for all of us! They were focused on the wrong thing, my commissions, when they should have been focused on the fact that I had brought in almost 4x the profits we had forecasted over the last two years.
Simply put, they did not care.
As a side note, it infuriates me when I’m involved in an argument where the other person(s) will not agree to simple logic. “Don’t be mad at me for making you more money than you thought” falls directly into that bucket.
They argued that I was making too much, regardless of how much money the company was making. That we needed to be focused on growing the company and coming up with a plan for the current downswing in revenue that we had been experiencing the last few months. Both of these required money, which the company didn’t have they argued because it was going into my bank account.
“Look,” I pushed back, “I get that you’re frustrated that I’m making more money than you are, but the truth is I’ve made a lot less over the last two years than I would have if I had just stayed as an independent consultant. And that’s WITH these big commission checks. I would have been banking more than this EVERY QUARTER for the last two years. But instead, I decided to join up with you and grow this business.”
I continued, “I’m still banking on a big exit to make this worth my while. Hell, my ownership stake won’t even vest for another two years. I’m the one who’s on the short end here, not you. Plus, there’s plenty of money in the company account. You are just planning on divvying most of it up at the end of the year as a dividend to take your own cut of the profits, which by the way, is the most you’ve ever made from this company’s dividends. If you’re so bent on growing the business, don’t take dividends this year.”
From the stammering and red look on of their faces, I quickly concluded that they didn’t give a shit that my ridiculous commission check was less than it should have been. They were even more irate that my proposed solution to our problems was to use money that they had earmarked for themselves.
We went round and round like this for hours, neither side budging. Eventually called it a night with an agreement to pick it up again on Monday.
Just in time for me to catch the last call at the Irish pub across the street and consider my next move.
I went to the bank that next morning, half expecting the commission check to bounce, but it didn’t.
Had I been more experienced or had I known what was coming, I would have put it all into savings as a buffer for bad times. But I was young and stupid. I blew through a huge chunk of it over the next few months and to this day I have no idea what I spent it on. <sigh>
That next Monday morning, after several more hours of heated debate, I agreed to change my compensation to take a much smaller commission on consulting revenue. They, in exchange, had agreed to accelerate my vesting such that I would be completely vested by the end of the year, a few weeks later, effectively cutting my vesting period in half.
I wasn’t happy about it. I felt betrayed that they were going back on our deal. But, after a lot of thought, I had decided it was the best of all shitty outcomes.
My internal rationale was that we did indeed need to do something about the shrinking revenues and that it was going to take more money. If we were able to grow the company the way I thought that we could, by investing in other revenue sources, I could still make a lot of money even with the reduced commission.
And more importantly, we had been arguing a lot more since our failed acquisition disaster. We often weren’t on the same page. And I would absolutely wouldn’t put it past these two to just decide one day not to pay me. If I could lock up ownership in the company now, even if things between me and them were to blow up, I would at least retain my equity.
We went to the lawyer that Friday, informed him of the changes, and he was to draw up the new paperwork.
Fast forward three months.
I was getting extremely agitated with my business partners. Our revenues had been plummeting and we had had to lay-off several of our consultants. I kept offering ideas of ways we could address the situation by investing in new opportunities, but my business partners fought me tooth-n-nail. They wanted to preserve cash, not invest in speculative strategies.
I argued that the entire reason that I took a pay cut was so that we could invest in other opportunities and diversify our revenue, but they refused to listen. No matter what my idea was, they shot it down.
We were arguing. Loudly. A lot.
Frustrated, I decided to take a 3-month consulting gig in California. At this time, I was rarely taking consulting engagements myself because I was plenty busy with running the consulting organization and in software sales. But now the business had slowed way down and the team had been gutted, it seemed that all I was doing was arguing with my business partners ever day.
I decided a change of scenery was in order. It also helped that this was a high-paying gig.
After about two months, the time away and change of scenery had done its job.
After a lot of reflection, I had decided that I was going to leave the company that I had helped start. I would give them one month’s notice to coincide with the end of my consulting engagement. I really didn’t have a plan for after that, I just knew in my heart that this venture had run its course.
I told them as much on our weekly management team call one month before I planned to leave. I calmly explained that I thought it would be best if I moved on to other things and that I would train-up my second in command to take over the majority of my day-to-day activities. I told them that this was the best for all parties.
They both exploded and started screaming at me over the phone!
A slew of F-bombs followed by every name in the book. They were seething. Threatening to throw all my stuff out in the street and set it on fire. They were going to beat the shit out of me the next time they saw me and dump me in the river. I could shove my month’s notice up my ass.
This went on for 20 minutes before I finally just hung up the phone, went to my local tequila bar and ordered my favorite stuff, neat.
I suspected that they weren’t going to take it well, but I had no idea that they would go off the deep end. For two years we had been in the trenches together building this awesome business, but now they had completely turned on me as if I had physically assaulted their mothers. They were absolutely unhinged.
The next morning I got a call from the hotel front desk. They were trying to bill me for the coming month of hotel stay (which I had done to save money), but it seems my corporate Amex card was coming up as declined. They needed to charge $6,000 or I was either going to have to leave by Sunday or start billing at the much higher, daily rate.
Those little shits. I couldn’t believe they canceled my card.
At the time I didn’t have another credit card had a large enough credit line to handle a week of the hotel, never mind a month. I could only take $300/day out of my ATM card (my bank didn’t yet have debit) and my bank didn’t have any branches in California for me to go get cash.
I was about to be homeless 3,000 miles from home unless I came up with a plan, and fast.
It wouldn’t be long before I would learn that canceling my corporate card was just the tip of the iceberg.
In Part 5: Betrayal Is A Powerful Emotion, I will describe how my business partners went on a full-on “Screw Todd” assault and wrap up the story of my time at ConServ.