We had yet another discussion in a monthly Acumen team regarding a strained partnership. It was a classic case of miscommunication, false expectation, finger-pointing, lack of communication, clarity, and uneven value working in the business.

Equity ownership shouldn’t be taken lightly.

My business partner (notice the irony), Dan Cooper, recently wrote a blog about partnerships. In his write up he noted the great Dave Ramsey quote, “The only ships that don’t sail are partnerships.” Dan and I both realize that the odds are not in our favor for success. People change. Circumstances change. Priorities change. Economic conditions change. Life stage and life cycles change.

Change is inevitable and as a result, maintaining a healthy business partnership is difficult.

True equity ownership is frequently an inappropriate instrument of reward, retention, or incentive for a highly valued member of a company. It’s often misunderstood, encumbering and unsatisfying, and frankly, some people should not be owners! In fact, many people should not be.

Will they understand the risk, responsibility, duty, obligation, burden, tax implications, cash call possibilities, personal guarantees, dilution, or liabilities that accompany true equity ownership? Or will they want all the glory and status (and distributions), but desire none of the responsibility?

Do they have an appreciation for the grit it truly takes to create a successful and profitable business? This is not to say in absolute terms that equity ownership should not be extended to key paradigm shifting people. But, owner beware!

It’s a marriage. Is this person someone you want to figuratively be married to? If the answer isn’t a resounding yes, what other options can you evaluate for retention and reward incentives? Phantom stock, profit sharing, stock options, and incentive/deferred compensation models, etc. could be better options and be more satisfying and meaningful.

Equity ownership comes with encumbrances that can often taint the well. Take time to carefully examine and communicate clarity of your expectations and all of the responsibility. Give careful consideration to whom equity is offered.

Drew Hiss
Post by Drew Hiss
August 1, 2018
Drew Hiss launched his outsourced payroll and HR technology solutions company, Checkdate Solutions, in 1994. The entrepreneurial venture was a classic bootstrap start-up whose launch plan underestimated capital needs and ramp up time by significant multiples. The adventure predictably included scrapping for cash, overhauling the business model, rebranding, refocusing, redirecting resources, shifting tech platforms, praying, seeking counsel and wisdom, etc.. Not surprisingly, deep entrepreneurial scar tissue was forged. Ultimately Checkdate Solutions became one of Kansas City’s fastest growing companies and was named one of the Greater KC Chamber of Commerce Best Businesses not once, but twice. Additionally, Checkdate Solutions ranked as one of KC’s top 100 fastest growing companies for nine consecutive years and was in the top 25 nationally in its industry. Today’s workplace culture tends to compartmentalize personal virtues from commerce, creating silos and compartmentalization between business, family, community, values and faith. But as a CEO, Drew and his company grew when he “decompartmentalized:” on his journey, he learned to integrate his life of commerce and his life of family, faith and values. Drew merged Checkdate Solutions with payroll industry leader Paycor, stepping away from the company in 2008 and serving on its board for eight years. Drew remains an owner in the firm. Today, Drew’s heart to help business owners leverage the influence of their business platform for eternal impact is at the core of Acumen which he founded late in 2015. Acumen is a catalytic iron-sharpening-iron environment forged from the fiery furnace of entrepreneurial battle, marketplace survival and integration of the timeless wisdom of the ages. Drew and his wife, Sarah have been married for 32 years and have four children (plus two beautiful daughters in law) ranging in age from 28 to 22. In early 2020, Drew and Sarah relocated to Evergreen, CO, He is a raving-fan congregant of Flatirons Community Church in Lafayette, CO, and enjoys snowboarding, hunting, cycling, hiking, and a variety of outdoor activities and adventures including running with his two dogs.