STREET SMARTS

Knowing When to End a Partnership

Unfortunately it can take some time before you realize that a business partnership isn't built to last, and hopefully you have documents in place to mitigate conflict.

Norm Brodsky is a veteran entrepreneur.

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Dear Norm,

Two years ago, I became a minority investor in a business that does background checks. I work on the sales end. I could be a lot more successful if my partner would give me a hand. But he refuses to pick up the phone or send an e-mail to thank customers for using the service and to find out who referred them. He won't even give me the information so that I can follow up. As a result, I don't get the high-quality leads I could use to bring in more sales. The problem, I think, is that he's content with the income he's earning now and doesn't care about growing. Can you suggest a way to light a fire under him, or is it just time to move on?

—NAME WITHHELD

No partnership can survive for long if the goals of the partners aren't aligned. Unfortunately, partners seldom become aware of their nonalignment until they've been working together for a while. That's why partnerships always need a written document detailing the terms of the arrangement. This is especially important if you're going to be the junior partner. Both parties need to recognize that partners often wind up disagreeing. The document must spell out how such disagreements will be dealt with, as well as how the partnership can be dissolved. There's very little a minority shareholder in a private company can do about conflicts without such a formal agreement.

Our letter writer, unfortunately, did not have one. From the tone of his query, I suspected he already knew his partnership was finished. He told me he was earning about $10,000 annually on the deal, while working 60 to 80 hours per month. I said, "So you're making $10 to $13 an hour, and you're not going to earn more unless this guy starts helping you get better leads, which isn't going to happen. A leopard doesn't change its spots. Could you get your investment back if you left?" He said he could. "So why would you stay?"

He explained that he'd gone back to school, and his earnings from the business were helping to cover his expenses. "OK, fine," I said. "Maybe you keep doing this until you graduate while making a plan about what you'll do when you leave." In any case, he has learned an important lesson. I doubt he'll make the same mistake again.

 

IMAGE: Flickr/Janine
Last updated: Jul 3, 2012

NORM BRODSKY | Columnist

Street Smarts columnist and senior contributing editor Norm Brodsky is a veteran entrepreneur who has founded and expanded six businesses.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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