Extended honeymoons

All for one, and one for all! It’s the ultimate expression of an optimistic attitude I encountered many times in my venture-capital days, whenever a group of friends came to us in search of funding for their budding enterprise. That spirit of sacrifice and camaraderie is a prerequisite for startup success, and goes a long way toward ensuring the long-term viability of a partner-run business. But if I’ve learned one thing in my 30-plus years as a founder of, investor in and advisor to private companies of all ownership structures, it’s that partnerships are the hardest to sustain.

Inevitably, business partners will disagree about something—it’s the law of human nature. Whatever the subject of the dispute, I’ve found that partnership issues trump business issues. Until you get the former sorted out, it’s hard for co-owners to focus on the latter. The simmering partnership conflict quickly becomes the elephant in the room.

To avoid partnership trouble, try the following strategies that have worked for the various businesses I’ve been a part of:

Don’t have a partner at all! The original incarnation of College Pro Painters was as Stewart and Clark Painters in Thunder Bay, Ont. My friend and I concocted this great plan on the dock of his cottage: because I had another job, I would handle sales, marketing, estimating and accounting; he would work with the actual painting crew. When I landed our first job, I was excited; less so was my partner, who quit.

The lesson here is to question why you want a partner in the first place. The answer will lead to the who—and it might be no one. Some entrepreneurs want to share the journey with a buddy. But as notorious turnaround specialist “Chainsaw” Al Dunlap used to say, “If you want a friend in business, get a dog.” Other founders are attracted to someone who can fill the gaps in their own skill set, but there’s a simpler way to bring those capabilities into your corporation: hiring. Engage people with bonuses, decision-making power, a share of profits and other forms of recognition, but do not make them partners.

Build good fences. There’s nothing like a comprehensive partnership agreement that’s revisited (and maybe revised) regularly. Also known as a shareholders’ agreement, a good one spells out how to share things such as the workload and the reward, and how to resolve disputes between the partners.

It will also address the worst-case scenario: entrepreneurial divorce. Facing this possibility up front will both reduce the chance that it will happen and make it much less threatening to the business should it happen. This termination clause should detail both the breakup process and the pricing formula.

Shotgun clauses, which allow either shareholder to offer to buy out the other, with the caveat that the other shareholder can then become a buyer at the same price and terms being offered, are useful as well. I’ve found that while shotguns are risky (you don’t want your partner to pull it when you can’t fund the purchase of his shares), they tend to keep both sides honest.

Hire someone like me. It helps to work with an independent third party who accepts an ongoing role as a mentor to the founders or chairperson of the company advisory board. It helps even more to start working with such an individual during the honeymoon phase of the partnership, so that a good working relationship and trusting environment exists before the troubles begin—and they can begin very early on.

My practice with the partner-run companies I counsel is to check in with each partner before each advisory board meeting. I try to identify conflicts while they are still minor and address them quickly, using a conflict-resolution model I learned in the early days of College Pro. It starts with getting the issue out of the hallways and onto the table, helping both sides hear each other and defining the real issue (versus its symptoms). With that work done, you can move on to a resolution and followup. This process becomes much easier when facilitated by an objective and trusted third party.

Measure, measure, measure.Ensure you have both tight accounting and metrics for the key deliverables for each partner. The challenge of making key decisions in the business, including the size and timing of payouts, becomes infinitely more difficult when no one agrees on what the numbers are. Lots of measuring also helps with accountability and the division of responsibility. For instance, one partner might take responsibility for the three sales metrics; the other, for the three production metrics.

Be prepared to change and evolve. Roles need to be revisited regularly as the business develops, as does the compensation that goes along with these roles. Any inability to face change in these areas quickly turns them into burrs under the company’s saddle—nothing else will receive sufficient attention until they go away. Performance and role reviews should be planned, annual events rather than reactions to crises. A trusted advisor can help with this process as well.

I would like to say that it is as simple as 1, 2, 3 (4, 5), but it decidedly is not. Long-term relationships are the key to any business. Partnerships bring another layer of relationship complexity that can be very rewarding but also hugely challenging. As with a marriage, good planning (and a prenup and occasional counselling) can increase the rewards and reduce the risks.