Forming Sound Business Relationships

One of my primary businesses is real estate investing and includes being a landlord. Early in my experience, I decided to manage some of my own properties, partly to learn the process and partly to save a little money. One of the opportunities that presented itself was an opportunity to attend a seminar with a gentleman who identifies himself as “Mr. Landlord.” I learned several good lessons from him, but the most profound is the concept that tenants in our properties have nowhere to go to learn how to be good tenants, and if we are having unfavorable results with our tenants, it is because we have not properly trained them to be good tenants. They will usually resort to irresponsible actions, and we, as landlords have no one to blame but ourselves when this occurs. Mr. Landlord then proceeded to explain that tenants need to be trained and they respond best to a system of rewards and punishments, sort of like children, and pets.

It has always amazed me that a good lesson in life has many applications. I started building rewards and penalties into my rental agreements, and as Mr. Landlord advised, the rewards and penalties were instantly applied. Rewards for good behavior were provided soon after the good behavior took place, and the same with the penalties following bad behavior. If not applied quickly, people do not intrinsically connect the behavior and the consequences. It worked! I am happy to say that my tenants began to behave more predictably and avoid the bad behaviors. And while not perfect as tenants, they also began to do more of the good things that brought them rewards.

As a business owner, I have also formed other relationships, with partners, and with other professionals. Now we might think that these people are a little more educated to proper business behavior and activities, but that is a dangerous assumption. This assumption leads to such results as fraud, cheating, embezzlement, and a whole litany of other illegal, immoral, and unethical practices that destroy friendships and businesses, and sometimes marriages too (if the business partners are spouses).

Amazingly, the same system of immediate rewards and penalties can solve most, if not all these issues. Before I identify a few specifics, I want to share another foundational principle in dealing with people. “Honest people have no problem with putting their honesty in writing.” So, as I talk about documents and a few other items, I want to caution you to “get it in writing.”

  1. ALWAYS Do your Due Diligence—Just as I carefully evaluate a property, I am planning to acquire to make sure that I have no unpleasant surprises in the future, we all need to evaluate all potential business partners, and professionals we intend to work with such as attorneys, accountants, bookkeepers, employees, and contractors. Get references, review their past professional and personal relationships, and make sure there is nothing shady that arises. I have a rule that I do not form any long-term associations until I have already worked with the person or company on a short-term basis and have met people that they associate with.
  2. If possible, create your own company, such as an LLC, and then have your company form another company with your partner. This way, you have two layers of protection between your business activities with the partner, and your personal assets. They would have a very difficult time creating a drain on anything except the combined assets of the partnership company.
  3. Have professionals create the partnership entity. They can build in some key limitations, such as limits on spending and check writing for individual partners and signing of any legal contracts and obligations. It is better to have two signatures required on any large items for your company.
  4. Have a partnership agreement to accompany the Entity documents—A partnership agreement clearly defines the responsibilities of each partner, their method of compensation for completing these responsibilities, and the penalties for failure to do so. Put some “teeth” in the agreement. A massive failure to perform on the part of a partner should have painful penalties associated. Also clearly define exit strategies for each partner, survivorship rights, etc. Again, if all partners are honest people, they will embrace rather than fighting against clearly defined requirements to be in the partnership company.
  5. Be quick to reward and to penalize—As mentioned above, humans are “hardwired” to connect a penalty or reward that is quickly applied to the activity or behavior that precipitated it. Like touching a hotplate, when you feel the pain of a burn immediately, you know what caused it.
  6. Be your best self in all your relationships—If you are going to expect positive action from your partners and other business associates, realize that you are under the same magnifying glass as they are, and it is your duty to perform admirably under all circumstances. Set a positive example.

All business relationships can and will have challenging moments. It is part of how we grow in life. If you accept this from the beginning, then the only logical approach is to solve as many problems as possible, accept that there will be others that you cannot foresee, and take affirmative action to resolve them when they surface. And finally, it is not what you expect, but what you inspect that counts. Always be vigilant of your business and your relationships and take a pro-active approach to all business operations.





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