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ACCOUNTING

Until Death, or Some Other Sticky Problem, Do Us Part
 

The best advice on partnership is: Don't. But if you must, here's what you need to know.

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Ariane Daguin was a 20-year-old student on loan to the U.S. from her family of Gascon chefs when she met George Faison, a mustachioed Texan with a temper and a taste for French food. It was 1979, and they were students at Columbia University, living in the international dorm. They sealed their friendship over rowdy outings to New York City bistros, where they'd pool funds to split a bottle of good wine among seven students. That is how their story begins.

When Daguin joined a charcuterie company, she suggested that Faison, who had just completed his M.B.A., come run operations, which he did. Then a New York farm announced it would start raising ducks for foie gras. Although foie gras--fattened goose or duck liver--had never been produced or imported fresh in America (the importing of raw meat was prohibited), Daguin had grown up on the stuff in Gascony, and she and Faison believed Americans would devour it. The charcuterie owners disagreed, however, so Daguin and Faison decided to start their own foie gras distributor out of New Jersey in 1985. They were in their twenties, they were full of energy, and they named it D'Artagnan, after Alexandre Dumas's musketeer--all for one and one for all.

They began by distributing foie gras and other local-farm-raised delicacies to chefs. Soon they were selling prepared products to retailers, too. Their partnership was strong: She knew the food and could talk in chefspeak (her father had a renowned restaurant in France) and he ran the business side. And their timing, it turned out, was sublime. Young and influential chefs, trained in "nouvelle" techniques and inspired by the local and seasonal ethos of northern California, were just landing in New York, and they started signing on with D'Artagnan. By 1986, the company was profitable on sales of $2 million. Those were the golden times, those honeymoon months of late nights and tough work and driving that clanking delivery truck around town. That was when they worked in the same office and propped each other up and argued each other down and would uncork a bottle of Armagnac to despair over or celebrate it all. It was going to be forever.

Of course, partners always think their partnerships are going to last forever. (We're talking about partners who are co-owners of a business, whether it's a legal partnership, an LLC, or a corporation. Also, we mean people with roughly the same stake in the business.) Teaming up seems like an easy solution when an entrepreneur needs support--financial, operational, moral--to get a business going. But the problems start when the problems start. That's when the entrepreneurs realize they're not in charge of their own company and they have no choice but to compromise. As the experts say, it's like a marriage. The arguments can be large, such as whether to expand globally. Or they can be small, the what-were-you-thinking variety about expense accounts or a mystifying hire. They can be personal, with one partner becoming bitter because he thinks he works harder than the other. At worst, a bad partnership can sink the business (see "The Worst-Case Scenario"). Even when it works, there are always fears that the partners will develop different goals. "I would never, ever, ever advise someone to go into a partnership," says Clay Nelson, a Santa Barbara business and life coach who works with partners, "unless it's necessary."

And sometimes it is. Whether entrepreneurs are considering a partnership or are already in one, they can take simple steps to preserve the partnership and to protect the business even if the partnership fails. That is exactly what Daguin and Faison attempted to do. Along with presenting their story here, we also shared it with six experts

The Marriage Coach

Susanne Alexander is a marriage educator and relationship coach in Euclid, Ohio, and is co-founder of the Marriage Transformation Project.

The Lawyer

Andrew J. Sherman, a partner at Washington, D.C., law firm Dickstein Shapiro, works with fast-growing companies.

The Finance Guy

Zachary Shulman is a managing partner at Cayuga Venture Fund in Ithaca, New York, and a senior lecturer of entrepreneurship at Cornell University's Johnson School.

The Mediator

Esther Carson Bleuel is a business conflict-resolution specialist in Westlake Village, California.

The Partners

In 1997, Todd Park and Jonathan Bush co-founded Watertown, Massachusetts- based Athenahealth, a two-time Inc. 500 company that helps health care practices manage bills and claims. They remain partners and close friends.
who offered their comments on the steps taken by Daguin and Faison. You'll find those comments annotated throughout the piece. On balance, they suggest that it's never too early to start saving a relationship.

 

In the early years of D'Artagnan, Faison and Daguin, underpaid and subsisting on sample products, took a tag-team approach. When one was begging farms to produce free-range poultry, the other was frantically sorting 12 poussins for this hotel and 16 rabbits for that restaurant and jumping in the truck to make deliveries at dawn. "There was not one day when one of us did not tell the other, 'I'm quitting,' and the other one would say, 'One more day, okay? Just show up tomorrow morning," says Daguin, who wears no makeup, a plastic watch, and sensible shoes like clogs; she smiles only when something's actually amusing, and she retains a heavy French accent ("soupairedoupaire," or superduper, is a favorite adjective). Still, "it was an incredibly good feeling. We felt part of a group of people who were changing the food world." As chefs learned about the new products D'Artagnan could provide, it almost seemed as if business was doubling on a daily basis. "When she first arrived in the U.S., Ariane was quick to realize no one was focusing on high-quality terrines and pâtés," says Daniel Boulud, the chef who owns Daniel, a four-star French restaurant in New York City. "She also focused on sourcing excellent game and poultry farmers. Now we take them for granted, but [D'Artagnan] was one of the first to familiarize American consumers with these products at a very high level of quality."

Delivering that quality required crisis management on the back end. Suppliers were sprinkled all over the country, products would expire if they were in transit too long, and chefs wanted extraordinary quality extraordinarily quickly. Faison and Daguin were together so much that arguments erupted frequently, but they had no choice but to solve them immediately. When resentment lingered, "we would go somewhere else and say, 'Okay. When you did this, I really didn't agree. So I did this because I was pissed off," says Daguin. Perhaps because they're both straightforward and tough--and they're evenly matched physically at six feet tall--the head-on approach seemed to work.

Their first big argument came after Daguin had a daughter

On Personal Lives

The one thing in life you can't control is life. All of a sudden family life started being different, and you see they're pulling apart. The impact of our human lives on our business lives is grossly underestimated. We assume when we're reading a story that it's all business strategy and planning. Well, everyone goes home at some point and has a personal life and personal issues that may spill over into the business. --The Lawyer in June of 1988. A single mother, Daguin brought little Alix to the office and breastfed her there, but caring for the baby

On Bringing Baby to Work

They don't appear to have had a consultative discussion about resolving that. He presented her with a solution and her response was resentment, and I'm not sure she ever forgave him. --The Marriage Coach distracted her. After a couple of months, Faison, visibly upset, sat her down and said he felt she wasn't pulling her weight--and that he should draw more salary for a while. "I thought, what a shitty thing," says Daguin. "But it's his upbringing. And there is truth to it--I'm not working the way I was working before." She agreed to let Faison take more salary for the next six months--until she had finished breastfeeding and hired a nanny.

 

Until 1993, Daguin and Faison were still running the company as informally as they had at the start. But then a team of consultants pitched a makeover of the business, and the partners were eager to get a fresh perspective. For one thing, when they'd set up the company as a corporation at the start, they hadn't established clear roles, which meant they were stepping on each other's toes. The consultants suggested dividing the business into two groups. Daguin took sales and marketing, Faison took finance and operations. It seemed sound, and initially Daguin and Faison were relieved. For the first time, it was obvious who was responsible

On the Loss of Chaos

It seems as if their arguing, their bantering, their disagreements got the company pretty darn far. If some of the chaos was the culture, then the loss of the chaos affects the culture. The consultants did the textbook solution, but I'm not sure it was right for the company. I would have done a less severe solution--put in a third-party advisory board, a board of governors, an on-call mediator--and tried that for a while before going to the solution of physical separation. --The Lawyer for what. But it also meant that the partners were now separated physically and that some employees were now dealing with only one of the partners. And the consultants, in trying to diminish interference between the partners, neglected to suggest that they communicate regularly. They'd have big brainstorming talks once a year or so, but their informal interaction decreased dramatically. By the time Larry Needleman was hired as comptroller in 1996, he wasn't even interviewed by Daguin. He prepared an organization chart soon after, and he remembers looking at it and instantly noting what he considered a serious problem: the stark division

On Working Together

(Bush): There's no relationship, they're not playing together. (Park): There were some things lacking here that have been critical to our partnership. At Athenahealth, there's one CEO. You just can't have a scalable enterprise that's structured the way D'Artagnan was structured. One of the co-founders has to be the ultimate person in charge. --The Partners between the partners.

 

Around the same time, D'Artagnan's lawyer wisely suggested the parties sign a buy-sell agreement.

On Having a Buy-Sell

Come on. The company's been around since the mid-'80s and we're just getting around to a buy-sell? Imagine a husband asking for a prenuptial 10 years into the marriage. It's a little ridiculous. --The Lawyer Buy-sell agreements dictate what happens to a partner's ownership shares if he or she leaves the business (see "How to Write a Buy-Sell Agreement"). In the form Daguin and Faison chose, if a partner died, the survivor would be offered his or her shares at a determined price (the formula they used was a multiple of EBITDA). "Initially," Faison says, "the idea was to make sure that if one of us got hit by a truck, we wouldn't have any succession problems." At the same time, Daguin and Faison took out life insurance

On Taking Out Insurance

Normally, the company itself takes out the insurance policies, not the partners. When someone dies, the company gets the proceeds and buys back the shares. If partners take out personal insurance, there are some tax complications--and weird motivation, if one wanted to kill the other. --The Finance Guy on each other, so that if one died, the insurance payment would fund the survivor's share purchase. They also included what's known as a shotgun clause. The idea is that, if things go south between partners, the shotgun clause provides a fair price for one partner to buy out the other and a lawsuit-free way for the business to survive. For Daguin and Faison, this would become key.

 

By 1999, D'Artagnan was on track to produce $20 million in annual revenue, and it was still growing fast--suppliers were now approaching them, which meant new products and new customers. Then, at Christmas, the highest sales week of the year, some consumers reported they'd gotten sick from D'Artagnan products. A Centers for Disease Control and Prevention investigation found several D'Artagnan items from a single factory tested positive for listeria,

On Protecting Your Assets

For liability issues, when selling a product it's essential to have a legal entity such as a corporation or an LLC. A partnership--i.e., no legal entity--is worthless for protecting either partner's assets. --The Finance Guy a dangerous bacteria. Together, Faison and Daguin responded immediately. They voluntarily recalled all 70,000 pounds of very expensive meat that the factory had processed. Daguin put her name and phone number on press releases for consumers and journalists, and organized calls to all 3,576 people that had bought the products directly from D'Artagnan. On the operations side, Faison fired the plant that had produced the tainted meat, hired a new factory, and required daily and third-party sanitation monitoring. "They handled it very well," says Saul Zabar, who sells D'Artagnan products from his Manhattan retail store, Zabar's. Even a CDC epidemiologist noted that the owners response was "aggressive." But many retailers were angry, and even if they weren't, they needed someone to supply products, and it was five months before D'Artagnan was selling those products again. For the first time, the company lost money--a lot of it.

 

Hoping to rebuild the company's reputation, Daguin decided that opening a restaurant in New York City, a longtime dream, would help. The company tended to get good press only when it launched new products, she told Faison, which shifted too much attention to product development. Opening a new restaurant would address that issue and also further establish D'Artagnan's brand among consumers. It would have to be modest so it wouldn't compete with the company's restaurant clients, but it would sizzle with Gascon flavors. Especially when Daguin was able to line up outside investors, Faison thought it was an excellent notion. As did reviewers--The New York Times awarded D'Artagnan The Rotisserie two stars in July 2001, saying it "has so much personality, it can sell it by the pound."

But seven weeks later, it was September 11. New York's economy plummeted. And a year and a half after that, France opposed the Iraq war and French restaurants were spurned. While Faison spent his days in Newark, where D'Artagnan is headquartered, Daguin was now at the restaurant most afternoons and evenings. They both had to invest more money than they'd expected, and they began to argue about the venture. Faison believed Daguin had pitched it as a side project, and now he found himself going on sales calls for the main business in her place, since she was off at the restaurant all day. "She asked me for help

On Changing Directions

Theoretically they had a shared vision at the start, but if somebody's going to change the rules on you, it's a good idea to talk about it. They might have decided that she would start a different company to have her restaurant. --The Mediator with running the restaurant, and I told her, absolutely not, I had a job," Faison says. Daguin, for her part, thought that while he'd supported the restaurant initially, he was now showing up for a meal there twice a year. "We were in this together,"

On Determining Roles

I'm not clear that he was actually happy with the idea in the beginning. It doesn't look as though they had an agreement as to what Faison's role would be and what Daguin's role would be. Daguin says they were in this together--but was it her perception or was that reality? --The Marriage Coach she says now. "Why wasn't he in there more?" At the same time, she also figured, she loved running the restaurant, and "in some ways, if he had been there, maybe we would have fought about things unnecessarily." But the business never came back, and they agreed to close the restaurant in the beginning of 2004.

 

By that time, though, Faison had come to believe that D'Artagnan's problems extended beyond the restaurant. Daguin's salespeople were getting commissions based largely on sales, which were high, but his operations people were getting bonuses based on profitability, which was low. He also felt the company should focus on more profitable prepared products and restructure the restaurant-distribution business by instituting a minimum order size and cutting the number of routes. Daguin disagreed.

On Resolving Disputes

Either they weren't willing or didn't know how to resolve this. First, you'd clearly and specifically identify the problem--the real one here is, what if we don't agree about what business we're in or that profitability is the priority? Then you either resolve the problem or agree it's a tension you have to manage. So if it's Faison's preference that profitability is the priority, and Daguin's that we want to be influential in the food business, they could perhaps negotiate a level of profitability that's critical. --The Mediator We have no money for publicity, she said, so D'Artagnan gets into retailers only because they know chefs use us. Thus, when chefs need a duck breast in three hours, we must deliver it. Plus, without money for market research, she said, we need to know what influential chefs are ordering so our prepared products remain trendy.

 

The dispute festered. In November 2004, a competitor offered to buy D'Artagnan. The partners asked an investment bank about the offer, and the bank confirmed their sense that the price was too low. The partners rejected the offer, and Daguin assumed the talk of selling was over. "After that, he didn't talk about it anymore. I should have smelled something, but I didn't. I really didn't," she says.

In reality, Faison was warming to the notion of selling. "I did not tell her," he says, "because I felt there was really no respect for the directions we had previously discussed. At that point, it was moot." The problems he'd outlined--which he thought Daguin had pledged to fix--remained. "He thought it could and should be more profitable, and he was right," says Needleman. "But it wasn't going to happen with the two of them running the business at odds with each other."

The rift spread to the employees. When chefs rejected items, Faison's truck drivers wouldn't alert Daguin's salespeople about the issue. Or a salesperson, deciding the warehouse workers were disregarding her specs, would pluck a rack of lamb from the shelves herself. Faison used to ask Daguin to sit in on his operations meetings, but she stopped going, finding his temper too unpredictable and the meetings pointless. "The company was splitting in two, and nothing was getting done," she says. Employees could see the problems growing. "There was a dividing line," says Kris Kelleher, who, as purchasing director, would sit in on meetings with Faison and Daguin and marvel at the consistently different directions they sought. "Sometimes I wondered why it was one company."

Then, in spring 2005, Daguin noticed that Faison had stopped arguing

On Communication

This is why you need a check-in process. If you don't build these things in, it's very easy to get caught up in the tyranny of the urgent. --The Mediator with her. She wrote it off to life changes--she knew his wedding was approaching. Once, she dragged him to a long overdue lunch to try to learn what was wrong. "He was totally closed down," she says.

 

On June 17, she found out why. Faison walked into Daguin's office and handed her a certified letter. She read it, then stared at him, flabbergasted. He was exercising the shotgun clause

On the Shotgun

At this point, this is exactly what the buy-sell shotgun is for, so it seems that Faison was in the right to exercise it. --The Finance Guy and offering to buy the company for several million dollars. By the rules they'd agreed to, she had two choices: She had 30 days to sell her shares at the price he'd offered or buy his shares at the price he'd offered, with another 30 days to raise the money. There could be no negotiating. "It was--wow. I never saw this coming," she says. "And then it was all kinds of feelings: How dare he? How could he do that?" But Faison believed Daguin had stopped listening to him and was wrong on the direction of the company. He felt he was at a dead end.

 

Daguin retreated to a friend's beach house and considered her options. She thought about taking the money and opening a seaside restaurant. But when the now 17-year-old Alix mentioned that she might like to join D'Artagnan someday, Daguin decided, "All right. Let's go fight." She cold-called banks, which wanted a stake in the company, until a friend helped arrange a loan at a French bank. It required higher interest payments and a personal guaranty, but it didn't want shares of D'Artagnan. With that, along with personal savings, Daguin matched Faison's price. When she presented her counterproposal to the surprised Faison, she drew herself to her full six-foot height, and added, imperiously, "And by the way, thank you for your wedding invitation. I will come with pleasure."

The deal closed a month later. In a frosty finish to their 26-year relationship, Faison handed Daguin two letters. One said that he accepted

On Getting Your Way

The incredible thing here is the shotgun provision actually worked the way it is supposed to. Oftentimes the person that does not get his or her way will sue to invalidate the provision--kudos to both of them for not taking that route. --The Finance Guy her purchase price, that D'Artagnan was a great company, and that she shouldn't mess it up. The other asked that she not attend his wedding. They've barely spoken since.

 

Daguin now found herself the head of a 111-person company; she had little idea of what went on in half of it. "It was incredibly frightening to me," she says. In a meeting on the loading dock that afternoon, she stood on a forklift and explained what had happened.

On Taking Over

Daguin's management actions here should be applauded. She aired the dispute in the open and likely gained respect. --The Finance Guy Some employees, especially from Faison's camp, were uneasy; others were relieved that the fighting would stop. "We talked with two voices before, and it's not good for [the company's] well-being," Daguin said. "Now we're going to talk with one voice."

 

D'Artagnan's IT guy stopped her that afternoon and asked what he should do with Faison's e-mail account. That night, in her Manhattan bedroom, she read his sent items, which he'd forgotten to delete. They left her nauseated. She says she learned that Faison had been arranging the deal since December, talking to investors who wanted to minimize the restaurant-distribution side and look into selling the business within a few years. She also saw, she says, that at least one key person had helped Faison. With D'Artagnan entering the busy season, she knew she couldn't afford to lose him. (Faison would not comment on the deal except to say that no one employed by D'Artagnan helped him arrange financing.)

She began arriving at the warehouse at 4 a.m., navigating among the piles of grainy gold chanterelle mushrooms and vacuum-packed boar sausage. "It was a new sheriff in town," says purchasing director Kelleher, who had reported to Faison, "and it became a very efficient warehouse."

On Adopting Ideas

All of the ideas that she implemented after Faison was gone were probably ideas that could have been implemented along the way if they had been talking. --The Marriage Coach Daguin installed scanning equipment so workers didn't have to pack using invoices anymore, which resulted in quicker, more accurate packing. She asked various managers to run meetings so she could get a read on their skills. And she told everyone to float ideas, even bad ones.

 

The company is speaking with one voice

On Getting Big

Yeah, one voice is good, though it took 20 years to get there. It is extremely rare that a company gets to the $30 million to $50 million size with multiple voices. You can wing it to $10 million, maybe even to $30 million, but when you start getting to the size this company was, one last human needs to be in charge. --The Lawyer now, but, since it's Daguin's voice, she's overwhelmed with tiny tasks. In her office, where tins of caviar are piled alongside a QuickBooks user's guide, she'll discuss how to source pig's bladder, what to serve at a Nantucket food festival, where missing capons are, how to fight a Chicago foie gras ban, and how salty the venison bacon should be, before walking to the warehouse to attack a different set of problems. If this level of micromanaging is tenable, it doesn't seem scalable. Still, the company made it through the Christmas season, even handling a New York City transit strike that restricted commercial traffic to the city. Today, D'Artagnan sells 200 prepared products and 700 raw ones. In retail, it's focusing on just 35 or so of those products, is selling them in six-case packs rather than 20-case packs so retailers aren't left with expired product, and is selling them only in stores with high-end demographics. In restaurant sales, it has switched its salespeople from commission to salary-plus-bonus compensation, primarily to discourage them from promising special products to chefs (a hassle for the purchasing side). "The business seems to me to be even more vital and stronger than it was," says Steven Jenkins, a partner in Fairway, a New York City gourmet retailer. "She makes sure [what she sells] is absolutely as good as can be." Annual revenue is now $46 million, up almost 18 percent from when Faison left.

 

That is how their story ends. As for Faison, he now has a nice check

On the Resolution

Many times, the person triggering the buy-sell secretly wants to be bought out himself. It looks as if Faison was hoping the whole time that she would exercise the buy-sell the other way. --The Lawyer and is considering his next move; his noncompete expired in August. "I learned that my identity is not what I do for work," he says, "and if I hadn't had the opportunity to reflect on that, I might never have gotten that gift."

 

And his mark is still on D'Artagnan. It would not be the successful company it is today if it hadn't been for that partnership; neither partner would have, could have, done it alone. But there's also the frustrating thought that D'Artagnan could be much more today had they worked together better or stopped the partnership sooner. "George and Ariane's relationship prevented this organization from becoming everything it can and should be," says Needleman, who's now the CFO of D'Artagnan and owns a small interest in the company. "But that's what happens when a partnership doesn't work."

Stephanie Clifford is a staff writer.

IMAGE: Photographs by Ken Collins
Last updated: Nov 1, 2006




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