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Partnerships and Defining the Rules

You better have all your eggs in a row before jumping into the deep end with a partner.

Global Influencer

Global Influencer
Global Influencer

So, you have a great idea, you hate the risk associated with it and want to mitigate that risk by having a partner. Another idea occurs to you that a partner can address the skills you’re lacking, maybe finance or management skills.

After all, you have the brilliant idea so how hard is it to find a ‘partner’ with some skills you don’t have and the money you need to fulfil your idea?

You better have all your eggs in a row before jumping into the deep end with a partner. Imagine finding the most beautiful girl and marrying her for her beauty not your compatibility. Oops could be the wrong analogy because I’m sure some of you have pursued that dream.

I’m in the midst of mediation. I’ve been asked to try to bring two partners together who have found, after being together for a couple of years, that nothing was put down on paper as to expectations, duties and compensation. Now, there is conflict– what?

The most common conflict facing partners is that one partner may feel he is doing most of the work or putting most of the money into the organization and the other partner is ‘coasting’.You never really know someone until you marry them or take him or her on as a partner.

Just like a marriage, every business will have conflict, however, every possible scenario should have been itemized and explained in your partnership agreement before you started the business. Any conflicts that could arise would have been considered and a solution would have been in place.

This brings me to the current case study I am working on. Imagine two partners, life long friends, who care deeply about each other. They have gone into business together without a partnership agreement. Partner A should have known better as he was a student of mine many years ago in my business incubator. Besides a business plan, it was drilled into his head that a partnership agreement was paramount to a peaceful and long sustaining partnership.

Partner B, is the money guy, the hardworking man who made wise choices in his life, made some money and now has the power to make deals happen. He also is the guy who has financed this new company, a partnership in the retail industry.

Imagine that both of you have worked towards a goal for two years and have finally finished and have just launched the enterprise. One partner thinks they are 50/50 partners and the other; the guy with the money, has different ideas. The latter is not being greedy it’s just that from the beginning he assumed that since he worked hard on the business too and put all the money in he deserved a bigger piece of the pie. Yikes, a recipe for conflict.

They never had the conversation. You know, the tough one like percentages of the business, the friendship breaker, the bad feeling conversation. While both partners were happily working toward the launch, one started to feel there may be inequality. The partner with the financing just assumes he is in control and was making a lot of the decisions. The reality is that the guy with the money is always in control!

Partner A wants to talk to someone, anyone, because he feels short-changed while the other partner is merrily unaware of any issues. Who does Partner A talk to, a friend, an employee, his mother? It’s tough but he needs to talk to a third party unencumbered by feelings or bias.

A mediator can address the issues, show each party the problems from an outsider’s position and offer solutions based on good business principles not loyalty or feelings.

I’ve been asked to have a meeting with these two guys. There is conflict brewing but both remain steadfast friends unwilling to talk about the looming issues. Should of, could of questions are now creeping into their psyche.Both have a mutual vision and are close to realizing it. They are also, now, facing the realities of business operations and the lack of planning.

Conflicts happen, and the ultimate goal should always be to resolve matters peacefully so that you and your partner can continue growing your business together.

We’re not talking about money disputes per se, operational problems, management philosophy or intellectual properties. It’s much simpler than that. You wouldn’t leave your job, move to another city or join the French Foreign Legion without a plan so why would you start a business with someone without an agreement?

I’m talking about a partner who thinks that he owns half the business only to find out in conversation that he owns 15 percent of it. A mind blowing scenario for sure. When you look at the basics the 15 percenter has put a lot of blood and sweat into the business but is replaceable at the end of the day. If it goes bust he is only out his time while his partner will lose a great deal of money. He is not the genius who put the business together; in fact, it was a simple idea that just took hard work and money to accomplish. The business is not rocket science!

When you look at the specifics, Partner B has put his money, time and credit on the line, with a strong vision for the future. Partner A, who asked me to mediate a better arrangement, is replaceable, like a cook in a restaurant. He has a short vision for the future and has a couple of side-lines that are off-shoots of the current business. He feels slighted but realistically is in a weaker position than his partner both in goals and strengths.

Partner A has offered to hire me to mediate without telling his ‘partner’ that he is paying me for my services. I was candid with ‘A’ that from what he has told me I may favour his partner in a mediation. The exercise will bring all the issues and more into the light and hopefully will result in mutual decisions that will make the business stronger.

The partnership needs to have a win-win scenario where neither party feels like they have lost, the values of the business are upheld and the equilibrium is maintained so no one feels cheated or disrespected.

In a typical mediation setting both parties know there is a problem. In this case, one partner feels slighted and is averse to discussing it with his long time friend. The mediation needs to be more of a discussion where both parties see each other’s interests not positions, where the results are favourable to both parties and compromise is reached.

Partner A, the slighted party, may need to be more committed to the business and vend in the other offshoots into the main business while planning for a longer commitment. Partner B may feel a small percentage of the business is fair but may not have considered the full ramifications of a partner who feels marginalized.

One of the main concerns for me is that Partner B does not walk into a meeting and is blindsided. Even a short discussion about the need for a mentor to discuss management issues may be enough but I think the conversation should be about the share structure so everything is on the table when we meet.

The mediator must ensure that each side is giving up a fair amount, and that no one leaves the negotiating table feeling ripped off. Each partner needs to know his obligations and duties to the company and to each other as well as defined roles in the business. Then there is the question of control and by whom.

The situation should have been dealt with months ago but it continues to fester and is damaging the relationship. I’m assuming other issues will come out of a meeting that may simply be for addressing the issues and letting them work things out.

I wish they had done a partnership agreement in the beginning; life would have been so simple.

Gary is a Management Consultant in Vancouver. His email is [email protected]