THEY BRING DIFFERENT STRENGTHS TO THE PARTY, COVER YOUR PHONES, AND GIVE YOU someone to talk to over coffee. Sometimes you marry them. Sometimes you divorce. As you’ll see, creating a lasting partnership takes a lot more than saying “I do.”
** The advantages of joining forces with someone are obvious: A partnership offers more security than going it alone, in the form of increased social support, combined assets and talents, and doubled networking possibilities. For entrepreneurs, partnerships offer a solution to some of the vexing problems of sole proprietorship: They allow duties to be divided up, create more opportunities for sales calls and servicing accounts, and free up more time for personal and social obligations, not to mention vacations. Even if you’re not ready to take on a full-time partner, many business owners are discovering the benefits of forming transient partnerships on a project-by-project basis. **
On top of all this, there is also a special allure to partnerships. They offer the ultimate business fantasy that of turning a friendship’s easy back-and-forth into a fulfilling and profitable career. Indeed, if a partnership works out–as in the now fabled tale of young Steven Jobs and Steve Wozniak creating Apple Computer in a family garage the synergy of two sets of talents yoked together can be virtually unstoppable. ** Unfortunately, this fantasy can also be dangerous to a partnership’s health. It may dissuade potential partners from doing crucial and necessary planning, and it may even hinder clear communications. High emotional expectations may delude partners and then, when the veil lifts, spark anger and recriminations. For all of these reasons, it pays to know what makes a partnership work, from the legal, the practical, and the personal points of view.
It’s a sad story but a common one. There were once three partners, men who’d spent 25 years working for the same corporation. Eventually it occurred to them that they could do much better for themselves if they formed a partnership. “It was a good match, on paper,” says Peter Wylie, Ph.D, a psychologist who, with his partner, Mardy Grothe, Ph.D, specializes in counseling partnerships and businesses. “It looked like each of them had some special ability: One had the money to invest, another had tremendous analytical ability, the third guy had good organizational, CEO-type skills.”
The three went into their new business with a philosophy like that of the Three Musketeers: All for one and one for all. But the way they set things up, they created a structural imbalance that soon seemed like a fatal flaw. The firm, which specialized in civil engineering projects, “got its revenues from fees generated individually by each of the three members,” says Wylie. “The better job you did, the better off the firm.” The analytical and the CEO-type partners both established good track records early on; not so the money man, whose capital had been essential to launching the venture.
Wylie continues: “The analytical guy felt his skills were worth a lot more than he was being renumerated for, yet he was the low man on the totem pole. He got pissed as hell at the guy who put up the money, whom he thought of as a lightweight.”
In any business, the question of fairness is always a tender one and must be addressed carefully. But with these partners, communication was not a priority. Having neglected at the outset to discuss their differences, let alone how they would handle changes in their contributions, the partners allowed the atmosphere to thicken with anger. “They didn’t talk about it effectively until it was too late,” says Wylie. “When they did, it was clear that in the opinion of the money guy, he was getting pushed out. Feeling cornered, he went into streetfighter mode. He closed off discussion, would only talk through lawyers. He said, ‘If you want me out, you’re going to have to offer me an unbelievably good package.'”
The long, drawn out battle effectively wrecked the business all three had worked so hard to create.
The moral of their story applies to all partnerships:
1. Anticipate and plan for change in the partnership’s structure and relationships. Going in with a Pollyanna-ish approach to basic issues, such as how changing individual contributions relate to income and equity distribution, is asking for trouble. When someone says, “We’ll cross that bridge when we come to it,” they’re essentially saying they’ll be burning that bridge.
2. Communication is as important as a balance sheet. Any unpleasantness that isn’t quickly derused has the potential to turn into acrimony. Partners have to deal with each other every day. They don’t have the multiple social and professional relationships of an office environment to buffer them from the people they are irritated with. That’s why partners must get along.
A Lifetime of Partnerships
No one knows these morals better than Ron, who agreed to speak candidly on the condition that his identity be concealed. Ron, like many entrepreneurs, has been involved in various types of partnerships as a way of incubating future businesses. He has built a network of partners and discovered their value early in his career. His first partnership, in the summer after college, was with four fellow alumni. “There was nothing in writing between us. One guy turned out to be a crook and ran off with the money. I lost a fair amount of the cash I’d laid out in expenses.”
Ron went to work in an office but bore no ill will toward the friend who’d originally gotten him involved in the venture. “In fact, I’ve been in and out of partnerships with him over the last 20 years,” he says, laughing. His next partnership was with another friend who was about to start work within a large government agency. “I thought there was a potential market for a book explaining how to get contracts through the agency. I said, ‘I don’t know how long you’ll remain there, but will you consider writing a book with me when you move on?’ Four years later he did.”
This time, Ron suggested a written agreement: simply a one-paragraph note that stipulated a 60/40 split in his partner’s favor. The book was eventually sold and it did well enough to inspire a sequel. Again a one-paragraph note was enough to unite the team, with a 50/50 split this time. “A good partnership strengthened the friendship,” he says.
Now a seasoned entrepreneur with a number of partnerships under his belt, Ron launched a company with several partners, none of whom would be involved full-time. When the investor group requested a chief operating officer, Ron suggested an old friend, “who’d just been reorganized out of a job.” The board approved, and the only minor glitch was the friend’s nitpicking over the terms of an employment contract.
Six months later, Ron began to doubt whether his friend was cut out to be an entrepreneur. “He’d come in at nine and leave at five.” Then, after having started a division that hadn’t turned a profit in two years, one day the man presented the board with a fait accompli. As Ron tells it, “He decided to spin off the division and sell it for a dollar in exchange for taking a job with the company he was selling to.” Ron took him to court. “Of course the friendship was irreparably torn apart.”
Ron has since gone on to many other successful partnerships. He’s seen enough to recognize what does and doesn’t work for him. “A lack of communication and a lack of trust destroyed our relationship,” he says, citing the friend’s excessively legalistic approach to his employment contract as a tip-off. “If he’d told us he was in trouble, that his division wasn’t going to work out, that he couldn’t live on his salary, we would have given the division to him for a dollar. The fact that he didn’t tell us was crucial.”
Making It Work
Ron’s experiences illustrate valuable lessons for anyone thinking of forming a partnership–not the least of which is the importance of communication. Wylie, coauthor with Grothe of Can This Partnership Be Saved? (Upstart), suggests that before you form a partnership, you and your potential partner should thoroughly investigate and discuss your business-to-be. Ideally, a series of get-togethers will reveal your expectations of each other, your financial needs, and your long-term plans, but if they don’t, then you should make a point of bringing them up. You should even broach the subject of how you intend to break up the partnership, even though you may have no intention now of doing so. (When else will you be as calm, as unemotional, as at the beginning?)
You should also weigh your and your partner’s talents, working styles, and characters. Don’t search for similar qualities; look for complementary ones. One common shape of partnerships is for one partner to handle the sales and marketing while the other creates the product or service. For instance, Steve Jobs was Apple’s “Mr. Outside,” with boundless energy for marketing and sales, whereas Steve Wozniak was “Mr. Inside,” happiest figuring out new designs and applications.
Many partnerships simply divide the duties more or less on the basis of who likes to do what. Ben Cohen of Ben & Jerry’s Ice Cream enjoyed talking to the press and helped create their public relations image; Jerry Greenfield stayed in the background, working on management issues. Both, however, created flavors and brainstormed ideas.
A definite aim for a good partnerhsip is that it should absorb and use the various talents of the two (or more) people involved. However, there should always be a clear and mutual agreement on the value of everybody’s contributions: Making the morning coffee is not the same as making cold calls. Trouble usually begins with perception: say, when “Mr. Outside” in sales feels he’s pulling more weight than shy and retiring “Mr. Inside,” who merely creates the product. This perception can be true or way off base. But if a system that bases compensation on measurable contributions isn’t addressed at the onset of the partnership agreement, it will be difficult (and probably perceived as unfair) to institute one afterward.
In his years of counseling, Wylie feels that men, in particular, have the most trouble adjusting to partnerships. “Most men do not see the relationship as being as tremendously important as it is,” he says. “Most just think in terms of how much the other person will bring to the party. They don’t think of trust, personality, and style.” Wylie thinks this is a legacy from the male corporate environment, where feelings are always subordinate to executing orders. Men who get along fine in this crisp, military-style chain of command may find a partnership unsettling. “You’re going to be spending 10 to 12 hours a day together,” says Wylie. “In many respects you’re getting married to each other. Once the honeymoon is over, the day-to-day business of running the show, the little things you didn’t realize about each other, can become tremendous irritants. You either work them out or they destroy you. And both your livelihoods are at stake.”
Unlike a corporation, where executives are expected to swallow their anger and get on with the job, partnerships bear the added expectation of being better than the daily grind of working for someone else. “Your relationship with your partner is going to have a tremendous bearing on how much fun and satisfaction you’ll have, not just on your success.”