Business relationships can sometimes turn bad. Here’s how to protect your business from a bad breakup.
For growing businesses, success involves hiring the right people, bootstrapping through the use of contractors, and building the right relationships with referral partners. But when one of those relationships goes sour, it can create a particularly odorous challenge.
Consider the e-mail we recently received from the owner of a professional services firm:
I brought on a contractor to do some work for us. We agreed to a 6-week trial period and I laid this out in an e-mail. I sent him our standard contractor agreement, which said nothing about the specific work or timing, but laid out the terms of our contractual arrangement. Our standard agreement has an effective end date of three months from the date it was signed, which would come back to haunt me.
Three weeks into his work, it was clear that things weren’t working out. I talked to him and informed him that we would end the relationship after the 6-week trial period and thanked him for his work. I confirmed this via e-mail and we paid him for the 6 weeks of work and assumed everything was fine.
Two months later, we were surprised to receive an additional invoice from him. He was billing us for the remaining 6 weeks of the contract – a time period when he didn’t even pick up a pencil or provide any output!
When I asked him about this, he cited the original contract. I explained to him that while the terms were in effect for three months, we agreed in the initial agreement that we would end the work after 6 weeks if things weren’t working out and confirmed this verbally and in writing. I thought he had no right to ask for additional payment, especially when he didn’t produce any results! What should I do?
This is a tough situation. The business owner had a point: He shouldn’t have to pay for work a contractor didn’t do. But telling a contractor to go pound sand is not always the best approach when you are trying to grow a business, for two reasons: Maintaining long-term relationships are important and potential legal fights are cost prohibitive.
Plus, the business owner clearly made a mistake in structuring the contract for three months without an explicit opt-out clause.
We saw three viable options:
Stand your ground and be prepared for the contractor to initiate legal action.
Swallow your pride, admit you made a mistake in structuring the contract, and pay the guy for the six weeks he didn’t work.
Try to find a middle ground that both sides can agree to – an outcome that might even enable the contractor to use the owner as a reference for future work.
We advised the business owner to pay the contractor for the extra six weeks. We felt it wasn’t worth the distraction or the potential legal costs that a protracted disagreement would cause.
Sometimes, petty disputes are simply not good for business. As business owners, we must look to building alliances–with customers, contractors, employees and referral sources–as a means to grow our business. But every once in awhile, a relationship will sour. Here are three things business owners should keep in mind to minimize the impact of bad relationships.
1) Stay focused on growth
A CEO or business owner needs to accept that the business will hit an occasional speed bump. When you find yourself in a dispute with a contractor or other business partner, it’s important to remain laser focused on the big picture: creating and maintaining growth. If you’ve made a mistake, accept it and move on.
2) Set clear expectations, always
Limit your downside upfront by writing an airtight contract and over-communicating at all stages. In the case of the contractor dispute, if the business owner had included the opt-out language in the original contract, he may have avoided the whole situation.
3) Anticipate all scenarios
Before you enter an agreement, it’s important to remove the rose-colored glasses. Create a flexible agreement that allows for a peaceful, and mutually beneficial, resolution if one or both parties do not live up to the terms of the agreement.
So, continue to build relationships that will help you grow your business. But make sure you’re protected if one of these relationships turns sour.
KARL STARK AND BILL STEWART are managing directors and co-founders of Avondale, a strategic advisory firm focused on growing companies. Avondale, based in Chicago, is a high-growth company itself and is a two-time Inc. 500 honoree. @karlstark