Why Partnerships Break Up
If he'd observed these three principles, says the author, his own partnership might still be alive.
Two and a half years ago, four of us started out on a great adventure together -- our own consulting partnership. For six months, we struggled along with no clients. Then we hit the big time: a $1.3-million contract. But somehow our success at attracting clients was greater than our ability to work together harmoniously. This April, our original partnership broke up. The experience was one of the toughest I've ever gone through -- but it taught me some valuable lessons about what makes a partnership succeed.
When it became apparent, after several attempted salvage operations, that there were irreconcilable differences in our partnership, we called in our attorney. "Splitting up a partnership," he said, "is just like a divorce without the kids." He meant to reassure us with the comment about kids, but I found that the dissolution of a partnership can be just as emotional as a divorce. Like ours, many partnerships consist of friends and former colleagues, and many other partnerships include relatives. Couple these personal relationships with the intense involvement required to run a small business, and you can see why a failing partnership creates misunderstandings, bruised egos, bitterness, hurt feelings, and anger.
Of course, no one puts together a partnership thinking about the unpleasantness of breaking it up. The key is to recognize that a partnership arrangement is subject to some stresses that are not found in other corporate structures. After our partnership broke up, I began to analyze our experiences and, I found that there were three basic rules that were responsible for our successes when we heeded them, and for our problems when we didn't.
RULE 1: SHARE AND SHARE ALIKE
Very simple, right? Most partners have every intention of doing just that. The problem is to make reality conform with the intent. Unfortunately, as George Orwell pointed out, some of us are more equal than others. Human nature being what it is, some people are more exploitative or manipulative, and some are more easily exploited and manipulated.
Because of various backgrounds and experiences, partners may have different opinions on what risk is justifiable, how money should be managed, and what the work ethic really means. Before you sign your name to a partnership agreement, assess just how everyone views such questions. This will provide a good indication of how equal everyone is likely to be three months or three years later.
Also ask if each partner can contribute enough money. Our experience confirmed that there are those months when the cash flow slows to a trickle or does not flow at all. When that happens, the partners may have to do without. Most partners may agree to such a sacrifice in the excitement of beginning a new venture, but when it comes time to actually go without pay, some partners simply may not be able to do so. The ledger sheet may eventually be brought back into balance, but the psychological effects of unequal sacrifice will probably remain.
Set aside at least one meeting to discuss nothing but the personal ability of each partner to persevere through periods of reduced income. This is not a time to be timid or to worry about being "impolite." Spell out what will be expected of each partner (and it had better be much the same for each) if the worst case occurs. If you have the time, continue to talk about personal financial positions on a regular basis.
The need for the partners to contribute themselves equally to the company is even more important than how much money they can contribute. In many cases, partnerships are formed because one partner can contribute something that the other partners cannot, and that's what a good partnership is all about. But a merger of disparate specialists, no matter how good they are in their particular areas, has a distinct disadvantage. In young, small businesses, everyone has to do a little bit of everything. In our case, the four partners were the entire company for the first six months. That meant that each of us had to raise money, keep the books, research and produce our services, type, make coffee, get the mail, and sweep the steps. If your partners will not share in such tasks -- especially when everyone's personal hard work is the only thing that will earn money -- friction and failure are inevitable. The only safeguard is to spell out from the start who is going to do what, making sure that the tasks and levels of effort are reasonably equitable.
There is no secret of success: It's hard work. If your partners don't see it that way, beware. If everyone is committed to lots of hard work, determine exactly how hard it is going to be. Is everyone going to do his share of overtime? If one of your partners loves golf, sailing, sking, or even church or service organizations more than anything else, does that mean more than the company? Remember, your partners are not likely to change their characters or habits just because you are now a partnership.
But if recreation and outside interests are recognized by the partnership as desirable aspects of the partners' lives, spell it out so that time legitimately taken away from the company is available to everyone in equal portions. One week for a partner to serve as a counselor at scout camp should be matched with one week for the other partners, whether it be for running marathons, lying on a sunny beach, or working for the United Way.
RULE 2: GET IT IN WRITING
In each of the cases mentioned above, your best bet is to get it in writing. Write down who is going to do what tasks. Write down how much everyone is going to work. Write down how much money each partner will invest and where that money will come from. Write down how much money in wages will be given up when there is limited income. Write down your goals and expectations for marketing, production, and routine management. Write down a plan to monitor progress. Write down who will go to training sessions, seminars, and conferences. Write down who will get what perquisites.
All of this writing serves three related purposes: planning, record keeping, and protection. Writing everything out will allow you to encounter and solve many of your problems before they jeopardize your company or destroy your friendships. Once you get going, you should continue to plan on paper. A record of your agreements on goals, policies, and procedures protects the company in general and the partners in particular. If you have agreed to limit spending on a particular marketing target, and the marketing partner exceeds the limit with no results, a reprimand is in order. It's especially important to keep written records because, if worst comes to worst -- if the partnership falters and the separation is contested -- the record will protect the partners who are not at fault by showing exactly who did what.
