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We work with a lot of partnerships. Some of these entail family-member or husband-and-wife teams, like our own. Often, they are friends who want to work together because each brings something unique and useful to the partnership.
Related: Everything You Need to Know About Business Partnerships
There have been many brilliant partnerships (think Steve Jobs/Steve Wozniak/Ronald Wayne, at Apple; or Larry Page and Sergey Brin, at Google; even Fred Astaire and Ginger Rogers; and Laurel and Hardy!). However, whether it’s a family relationship or not, partnerships come with both blessings and issues. If you are already in a partnership or just considering the move, here is some advice we’ve learned firsthand over our decades of experience.
Make sure goals align.
Once, when we were hired to set strategy for a company owned by two equal partners, we asked what they wanted the company to look like in ten years. They described completely different visions of the future!
One partner described the one location business they currently owned as having additional square footage and better operating procedures. The other described a 100-location franchise operation. So, we had to start by spending the next two days getting the partners to compromise on a business plan. Five years earlier, the partners had been on the same page, but over time their visions for the business had changed. Unfortunately, this can and does happen.
Here’s how to act when this happens to you:
Communicate openly and honestly. When you are in business with others, it is imperative that you speak frequently about the organization. Both the current and future organization. If this stirs unpleasant emotions, partners may choose to stay silent. But that is a response that can only lead to disaster down the line.
It can be helpful to work with someone from outside the company to facilitate communication between you and your partner. Look for a coach or consultant with excellent communication skills and a background in business and someone whom both partners can respect. Yes, it is a bit like marriage counseling, but a partnership is very much like a marriage.
Related: 13 Tips to Create the Perfect Partnership
Set written goals at least annually. Another way to ensure that both partners work toward common goals is to write them down. Okay, we know this isn’t new advice, but frequency also matters. We suggest an annual goal-setting/strategy session with more frequent meetings to review and determine actions. We find that this keeps partners communicating and focused on the most important issues and opportunities.
At the beginning, consider the end.
While you’re forming your partnership, think about how you will unravel the business when the time comes — and it will, in scenarios like these:
One partner wants to sell and the other doesn’t. Whether it is because of age, desire or a myriad of other reasons, one partner may decide it is time to get out, while the other wants to continue in the business. For instance, we know of a company where one partner is 25 years older than the other.
Within the next 10 years, the older partner will want to start unwinding his holdings in preparation for retirement. Unfortunately, the partners haven’t discussed how this will happen. How will they value the company? How will the business afford to pay the partner who wants to sell? If possible, while the partnership is amicable, we believe the partners should make these decisions.
A partner dies. Are you prepared if your partner dies? First, the business may suffer some degree of trauma due to its losing one of its principals. However, unless you have made provisions in advance, you, as the remaining partner, will inherit one or more new “partners.” Specifically, the heirs of the deceased partner will own his/her shares. If you don’t want to be in business with your partner’s spouse and/or kids, you should look into key man insurance or put other provisions into your partnership agreement.
Both partners are ready to retire or want to sell the business. This is the easiest situation. Both partners agree that it is time to sell. However, there can still be complications if one partner wants to sell his/her shares to a family member or to key employees while the other partner has different plans. Again, make sure that you know how you will value the business in order to ensure that the sale is fair to all.
Know how you will negotiate tough decisions.
All partners eventually face disagreements. When this happens to you, how will you decide? In 50/50 partnerships,disagreements can be difficult, especially if both partners feel strongly about going in different directions. We worked briefly with 50/50 partners who had a history of butting heads. We worked with them through a couple of their battles.
However, in the end, they came to an impasse and decided the only way out was to sell the company. This might have been avoided had they predetermined a tie-breaking mechanism — while the relationship was still amicable.
Here are ways to address such an impasse:
Expertise or roles rule. If the partners have specific expertise or roles within the organization, the partners may agree to defer to that partner’s expertise. For instance, in our partnership, Doug’s expertise includes finance, accounting – basically anything to do with numbers. Polly’s expertise lies with the people realm.
Polly always defers to Doug when it comes to decisions that have to do with finance. Doug defers to Polly when the decision has to do with people. This could also work when roles are well defined in categories like sales and marketing versus operations.
Bring in a neutral third party (NTP). We have helped partners to work with an NTP who can be the deciding vote. We ourselves have played this role in some partnerships. To make this work, the partners agree, in advance, that they will pitch their ideas or side to the NTP.
The NTP then votes in favor of whichever idea appears to be in the company’s best interest. This person can be a paid outside coach or consultant. Alternately, he or she may be someone to whom the company gives a small amount (e.g. 2 percent) of the company’s stock, in return for this service. That way, the mediator has a vested interest in the company’s success.
Partners often find each other through mutual passions. Other times, it’s through the combining of disparate skills that make the union a cohesive whole.
Related: 3 Reasons Why Partnerships Need to be Part of Your Growth Strategy
Unfortunately, however blessed the “marriage” seems in the beginning, it is bound to run into issues as it progresses. To navigate the rough times, make sure you have ways to stay aligned, make tough decisions and, when needed, eventually dissolve the partnership. Having these tools in place will make the partnership stronger — to say nothing of more pleasant.