Ombudsperson ADR: “Money Changes Everything”

13 February 2011

I’ve chosen this title as the “theme” for one of the most critical types of situations that I’ve “engaged” for decades in business.  It also creates the most conflict, polarization and chaos in all types of business “personalities”; and it basically has to do with any type of funding to make the entity viable.  Normally I’d practice “ombudsmanship” if this were in my “other practice”, but this time I got a referral from a past client I coached on his dispute as an Independent Contractor.  In this scenario, money acts as a catalyst for change and is regarding the ongoing internal dispute between “owners” of a new start-up e-commerce company.  We handled this using ODR methods with the 6 C’s Of Sociocratic Peace Building process.  The outcome was very successful and it’s been over three months now without any recidivism. As I’ve mentioned previously, a vast majority of our work is “coaching” the dispute process asymmetrically, which continues, but this case was “traditional” and satisfying to handle.

The background on this is that one of the group was referred to me by a previous client and the new client is a 19-year-old “web developer” that has been “informally” participating with a group of about 6-10 guys, depending on the time of year, regarding starting a new web based e-commerce company.  He quickly, verbally, laid out his case as one of the “younger guys” of the informal group, where ages ranged up to the mid twenties.  Key to the informal group structure is that it shrank and grew in its informal membership, where no business plan had been developed, but they would have “lan parties” for gaming and informal pizza and beer meetings over the development of the new start up company.  When I asked how long this “idea” phase of the new business had been going on, my client indicated he’d been “in it from the start” and it has been sporadically ongoing for all of 2010.  What was making things so urgent now was that one of the guys was talking to a “rich guy” about funding their new e-commerce business and got a commitment of $300,000 cash in an email, with contingencies; and so they are all now “rushing” to meet requirements.  Indeed, from this moment forward, money changed everything as every type of dynamic between “business partners”, mostly bad, began to unfold.

To start I simply got my client to email everyone, have a meeting and present me as a person to help them “sort out” their conflict now that “cash” has corrupted everyone. Surprisingly, they all agreed, including more people than has been actively involved.  First step, formally define who’s in and who’s out.  Surprised me again when they had a roster within 48 hours.  Thus we discovered, to my clients elation as he was included out of all the “informal” members to date, a roster of 6 people total.  This process is also indirectly contributing to the planning they overlooked.

Next step, get a one page narrative on the WWWWHW’s (who, what, when, where, how, why) including their role, contributions to date and description of what the conflict is from each individuals perspective.  Again, surprised, all email contact information and cell phone numbers were provided to me and I sent these out… all came back completed within days.

I then did quick 20-30 minute phone interviews with each “member” of the new entity for purposes of building consensus and determining how adaptive each guy would be to formalizing the business structure. I also did some preemptive discussion where I detected an intractable ‘position’ by relaying my years of experience and wisdom in such situations and the “worst case scenarios” I’d witnessed through the years, thus cautioning them all, individually, that if they can’t “play nice in the sandbox”, everyone will be impacted and the financing opportunity they have in front of them would be over.

Everyone agreed that things got “really serious” when the “letter” from the investor offering $300,000 was circulated and this triggered greed and selfishness rather than the continued “fun and teamwork” they had all been demonstrating for a year.  In a conference call I related my previous experiences where the worst I’d seen in my career was a group of  “grown men” who broke from “formal” agreements, business plan and slit throats practically for their own gain over everyone else in their yet to be funded company.  I then asked them, “do you wish to all do the same?”  Verbal consensus quickly came, thus providing the common point of focus to cooperate and continue to have them develop a document that they all sign and agree with so as to have structure and boundaries of membership in the face of potential protest from individuals who are now excluded. Again, I’m surprised, as everyone agreed with roles and titles with responsibilities in the new company based on the “concept” model of the business as discussed.

I then simply laid out, from the interviews, written and verbal, where the “points of conflict” potentially were, got consensus again for a solution as to what would be best based on my business development experience and venture finance, in various areas.  One key point I made was that, “the money is not yours” that you are getting, it’s the funds for the new company as an entity and they are stewards of the money and accountable to each other and their benefactor. It happens in every case I’ve ever had for over two decades that the common misconception is that the beneficiaries think the funds are theirs now.  This fact further stabilized perceptions and brought some order from chaos over “money” issues.

The second common “theme” was that everyone was, in their own way, maneuvering and holding each other “hostage” over “ownership of contributions of Intellectual Property” to make the enterprise run.  Everything from one guy hurrying to register the domain name and then charge everyone thousands of dollars to buy it from him, to another guy wanting royalty payments from his programming of the financial interface on the website as money came in from transactions.  There’s more, but again, once it was pointed out that they were “holding each other hostage”, polarizing the group in to “me versus them”; and not cooperating they began to see more clearly.  At this point I simply asked each person, live in the call, “do you want out now or want in for the long-term?” so as to get intentions out in the open for all to confirm.  In addition to this, the solution everyone is to follow through on their commitments, contributes as they said they would all along and then in reality, for a start-up, revenue sharing of net gains improves as the company performs and does well.  If anyone holds back, it affects everyone.

In the end they completed their “terms of consensus” memorandum as a prelude to their business concept and planning.  I reviewed it for completeness from gathered information, they all signed, I have one on file, and they are now moving ahead with a new company and the understanding that before it’s over, more conflicts will inevitably come up and they now know how to resolve them.  Once again, my previous experience and background go hand in hand as I’m in my second year formally as an OO and referrals now come… a pleasant surprise finally.