When Partnerships Go Bad

Almost no company can survive warring partners – even if they have great employees and great products. When there is entrenched conflict at the ownership level, it is predictable that the company’s top talent will grow weary of managing the office politics that is a result of the conflict and find greener pastures in which to graze. Moreover, if the conflict gets nasty, the partners may fight just to “win” and sacrifice their company’s reputation and customer base in the process. If the “throat slashing” stage is reached, it nearly impossible to revive the business outside of a sale of its’ stock or assets.

Teaming with the wrong partner will only lead to heartache and pain. The “right” partners must have more than just complimentary skills. They must have a relationship that is synergistic on a number of levels. If there is a mismatch in only one of these levels, the partnership will likely survive. But two or more mismatches and that business is doomed. Here are the key elements that will make a partnership (and business) thrive.

While this post is focused on business partnership, it applies equally well to family-owned businesses, especially when the ownership is multi-generational.

Character

Both partners must have good character. In my book, this means honesty + humility + graciousness + trustworthiness. It means being able to face into the negatives of the partnership and the business and find ways to resolve, end or transform into opportunities conflicts so that they don’t fester and injure the business. It means holding personally to a similar set of core values.

True partnerships build trust through honesty – yes – but also through the knowledge that each partner is genuinely looking out for the other guy. It takes a while to build such trust. But then again, it takes even longer to build the type of character that is needed in such an intense relationship as a business partner. Don’t look for someone to use the business ownership experience to build their character. Only partner with those who already have the character necessary to be in a healthy partnership.

To this end, if the other person is married, spend time with them as a couple. Observe how s/he treats his/her spouse. If they argue a lot or if they are dishonest with each other, then don’t partner with him/her. Why? Because the dysfunction that exists in their marriage will be replayed in your partnership with them. Count on it. Don’t gloss over taking time to observe them in multiple, dissimilar social situations with their spouse.

You are picking your partner for the long haul, so be careful in who you choose. Don’t jump into a partnership swiftly – if you do, you’ll likely look back on your decision with whom to partner as the single-most injurious decision you ever made in business.

Communication and Civility

Good partnerships maintain a level of decorum that is never violated when the stress and emotions run high. This means that good partners aren’t just blatantly honest: sheer honesty, by itself, is not terribly helpful. Instead, the honesty needs to be coupled with humility. I’ve seen countless people justify clearly arrogant and uncivil honesty with the phrase: “Hey, I’m just being honest!” It’s as if a person is let off the hook for any incivility or injurious behavior as long as they are honest. Such is not the case. Incivility and/or dishonesty in a partnership is a business killer. It will inevitably ask your staff to take sides and that, in turn, leads to horrible office politics. Only partner with those who can be graciously honest and civil in *all* of their interactions.

Contribution

Each partner needs to make a continuing, valuable contribution to the business. Otherwise, resentment builds up between those who are carrying their weight and others who aren’t. Don’t partner with another person for the long-haul in order to solve a short-term need. You can always contract out short-term needs. Only partner with someone who can make a real contribution in at least three ways:

  1. Financial
  2. Management
  3. Technical skills

If your partner won’t invest real money – not only sweat equity and have the ability to manage their part of the business while bringing a complimentary set of technical skills to the table, then consider hiring contractors to fill your void. Don’t partner for only one or two of these elements. Be sure to partner only when all three elements exist.

If the work and rewards are not equally shared, resentment will grow within the partnership and that will be particularly disastrous to your business.

In terms of their financial abilities, don’t be afraid to ask for a credit score and credit history and be willing to share your personal financial situation with the other party. The reason for this is because I’ve seen more than a few businesses where one partner thought the other was credit worthy and they later found out that partner couldn’t get a JC Penny credit card, let alone qualify for a large business line of credit. Insist on partnering only with those who have both the capacity to take on additional debt and who are able to qualify for such debt.

Do your due diligence in these areas.

Compatibility

You get what you see. Don’t count on your partner changing. Give up the notion that if they treated you with distain in the first 90 minutes that they won’t continue to do this in the next 90 years. Keep your eyes open and walk away as soon as you can when a potential partner exhibits serious incompatibility.

Also, each partner should hold the other accountable for meeting performance goals. This requires a type of mutual submission that is difficult to find in the business world today. If one partner refuses to be held to any type of performance goals, you can count on the business losing money on that partner’s work.

Control

Someone must be clearly in charge. I usually advise against 50-50 partnership because in the end, no one can win. Assuming other things are equal, if one partner is investing $25,000 and the other $35,000, then the higher investor should get the majority of the stock in the company. The majority shareholder wins. Stay away from equal shareholder arrangements. If the relationship heads south, the inability of one person to make decisions can paralyze the company into bankruptcy.

Corporation: Act Like One

Get incorporated. Hold annual shareholder and director meetings. And above all else, have a shareholder agreement (commonly known as a “buy/sell” agreement) that specifies what the rights and responsibilities of the partners when certain events happen, such as a divorce, filing for bankruptcy, gross negligence and so forth. Paying attention to the legal aspects of the partnership will ensure that neither partner is taken advantage of.

Cash

I used “cash” because I couldn’t think of a “C” word to talk about how you plan to leave your business. Talk about your long-term personal and business goals as soon as possible. If one partner wants a lifestyle business and the other wants to grow the business for a sale, then those two shouldn’t partner. But neither partner will know if they should partner until they have talked about it and reached an agreement.

As Christian Business Owners, we should not be in the position of yoking ourselves to another who doesn’t know the Lord. I’ve seen it happen multiple times in business – where one or two Christians partnered with one or two unbelievers. In most cases, the value differences become so prominent and sharp that the business is forced into a sale or it dissolves under the weight of the conflict. In a few situations, the everyone walked away happy, with more money than they had when they started. Regardless, the Bible is clear that we shouldn’t be entering into intimate relationships with those who don’t have Christ as their Lord. It’s not that we’re better than them – far from it. It’s that we submit to a higher power that, at some level, our unbelieving friends don’t submit to. It’s really that simple.

Business is tough, as the papers and news reveals every week. It’s much too tough to be fighting with your partners. Pick well. And if you find yourself in an entrenched conflict, consider contact me to help with the resolution of that conflict at bill.english @ theplatinumgrp.com.

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