An American Dream Gone Wrong - Part I

While most of the reader accounts we publish here concern government mismanagement, we occasionally publish a story taken from the private business world. Our blog today is such an account; it is highly edited to pass muster with our attorneys. For that we apologize to the gentleman who sent the information, but we believe it still gets the point across.

From a reader:

I have been in the counter top business for 20 years, having always worked for others until I had the opportunity to go into business for myself with a partner whom I'll identify simply as BAD. He contacted me about forming a partnership. It seemed simple: I had the knowledge and he had the money. Originally, I assumed this was a 50-50 arrangement, but after I quit my job he tried to negotiate a 70-30 split. I finally managed to get a 60-40 split. He claimed he had the business experience, so he wanted a controlling interest. I agreed simply because I had already quit my job. BAD also made me sign a non-complete agreement so that I couldn't quit. This was a huge mistake on my part. Also, we agreed that he would be a silent partner since builders with whom we did business would not buy from us if they knew a partner was a competitor.

We then began “Counter Top Gallery,” and almost immediately BAD began to tell others he was an owner in the business. I'm guessing it was due mainly to his ego. We were immediately successful since my contacts brought in plenty of work. In a year's time, BAD said we needed to move to a larger location due to this growth, but I soon realized his true intent was to add cabinet manufacture to the counter top business. He placed an ad in the local newspaper naming himself as an owner, an ad of which I knew nothing.

This became a huge problem for me since much of our work came from builders who competed directly with BAD. I soon learned that he wanted the cabinet shop to be run by a family member and that I would receive no share of the profits. Almost immediately, regular customers who were builders began to place orders elsewhere, and we quickly started to lose vital business. Sales dropped approximately 70% in the next year.

During this time frame, I was both 40% owner and employed as the shop manager. My wife was hired to run the office, but BAD began to micromanage and commented on almost every aspect of her job performance. Needless to say, she found this very upset making. With working conditions and business decline, my situation became untenable. I decided to offer to buy BAD out. He agreed if I would pay him 250K. We had borrowed only 100K to finance the business originally, so I then asked if he would purchase my 40% share. He replied that my 40% was worth nothing; yet his 60% was worth 250K? I informed BAD that I could start my own business for 100K, and my troubles really began...

We'll have Part II of our reader's story tomorrow unless our promised breaking news has finally developed. In that case, we'll run Part II on Wednesday. We hope it will serve as a cautionary tale to all those who enter partnerships with an unknown entity.