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When Partnerships Go Bad

When partnerships go bad. Plus: Do you really need a publicist?
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Two years ago, I started a business with two partners. Most, if not all, of our growth has come on the backs of just two of us; the third partner doesn't do much and we would prefer to get rid of him. Can we simply vote him out of the company?
Name withheld
Seattle

If only business partnerships were like Survivor. That way, if someone wasn't catching any fish, you'd simply vote him off the island. Alas, a better source of reality-show guidance is Court TV, because that's where you'll end up if you mishandle your legal relationships. Nor is a lawsuit all you risk. New Jersey entrepreneur Sandra Salter recalls six grueling months of fights with a partner who wasn't hitting her sales goals. Their battles took a toll on employee morale, and revenue fell 40%. "If I could have afforded it, I would have bought her out at a high price," Salter says. Instead, she dissolved the company. She's since started a new one--without a partner.

Extricating yourself from a bad partnership is like defusing a bomb. Sudden moves (plotting a coup or storming into his office flanked by lawyers) can set the whole thing off. Compromise should be the goal, and negotiation the means. Try talking to your partner: He may be unhappy and looking for a graceful exit. If he wants to stay, consider restructuring the partnership to address your unequal contributions. You might adopt a salary structure that pays greater rewards to rainmakers, suggests Larry Weiner, a CPA in Tarrytown, N.Y. As for buyouts, they often end in heartache. They can be murder on your cash flow. And departing partners can walk away with valuable assets--such as real estate or equipment--leaving you to pay their corporate credit card and other debts. What's more, if you don't have a buy-sell agreement in place, a disgruntled partner can demand that a judge set the price; or the judge could even order partners to stay together. Under those conditions, it just might be you who wants to get off the island.

Three years ago, my wife and I bought a 30-year-old motorcycle accessory business. The business has struggled but survived on its name recognition as we've rebuilt its infrastructure. Now, it's time to focus on marketing. Is hiring a PR firm the best course of action?
Bill Nichols
MC Enterprises, Oxnard, Calif.

Ever heard of Ken Schmidt? He's a PR guy who helped turn around another struggling motorcycle company: Harley-Davidson. Among other things, Schmidt taught Harley's leadership the importance of communicating the uniqueness of its product to consumers. Without him, today's hog might be the ride of hoods rather than CEOs. We understand that you're not Harley-Davidson. But Harley has made considerable hay out of its colorful history. And with three decades behind it, your company probably has a rich tale to tell. A smart, experienced professional can help you shape that story, create deeper brand awareness, and identify markets you may not have considered.

And then there's the whole "getting ink" thing. Steve Sims credits his publicist with landing his company, BlueFish Concierge of Delray Beach, Fla., in the pages of Vogue and The New York Times. The publicist also helped forge key business deals, such as the BlueFish MBNA MasterCard. Cost to Sims: about $5,000 a month. Value to Sims of promotions he could never have pulled off on his own: priceless. Publicity can cost anywhere from $20 an hour for an ambitious youngster to as much as $100,000 a year for top-drawer professionals. But whomever you hire, the most important thing is to remember why you're seeking publicity in the first place, says Los Angeles publicist Richard Laermer. "If the message is not close to your mission," he says, "then all you've done is make your mother proud."

I recently asked my insurer for a "claims-paid report," to get some insight into exactly what health benefits my 70 employees are utilizing. I was flatly denied. Is this legal?
John Cauthen
Forestry Resources, Fort Myers, Fla.

In years past, a claims-paid report--which documents which benefits are used, how often, and by whom--was a great way to assess health care costs. With such data, it was easy to tighten a plan by eliminating or cutting back on benefits not being used. But under last year's Health Insurance Portability and Accountability Act, or HIPAA, insurers face fines of up to $250,000 for disclosing a patient's medical information without permission--even to you.

The law does allow insurers to release "summary health data"--essentially claims-paid reports stripped of identifiers like names and social security numbers. But "allow" and "require" are not equivalent: Insurers don't have to share if they don't want to. HIPAA compliance consultant Bob Radecki advises business owners to bone up on the HIPAA rules before asking. "At least that forces insurers to be honest and say, 'Well, it doesn't violate HIPAA, but we won't give it to you anyway." Of course, that doesn't do much for your expenses. If you can't get satisfaction from your carrier, it's probably better to switch than fight.

LOOKING FOR ANSWERS? Stumped by a thorny business problem? Let Inc. help. Send your questions to AskInc@inc.com. We'll consult with experienced entrepreneurs and savvy advisers, folks who've been where you are and figured out what works and what doesn't. If you don't like what we have to say--well, you can tell us that, too.

Last updated: Apr 1, 2004




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