My only recommendation with regard to fifty-fifty partners is don't do it
None of those friendship issues clouded anything…
Before we ever started it, part of our eight-month planning process was is to figure out how we were going to divide up the business if and when we decided to break it up. Welcome to “Sound Advice” – the brief audio download that brings the best of eClips to you. I’m Kirsten Barker. Today’s topic is “Avoiding The Perils of Partnerships”. At first glance, launching a startup with a business partner seems pretty appealing – after all, it spreads the work and the risk over two people instead of one. And typically, a partnership means more money to help get the business off on the right foot. But while doubling your possibilities by working with a business partner, you might also double your agony. In today’s podcast we will hear eClips excerpts from entrepreneurs and experts who discuss some of the challenges of working in partnerships. First we’ll hear from Mike Practico. As an undergraduate, Mike, along with two other partners, formed Davanita Design, an e-strategy and implementation consulting firm which they later sold to Avatar Technology. He shares thoughts on working with friends…Pratico14_adviceOnPartners
I think you hear a lot of this kind of advice from many people, don't partner with your friends for the wrong reasons, and make sure that you feel as though they're going to be competent business people. That, say for example, you were put at the helm, that you could fire that person. And you hear all these things, and I kind of get the sense that people go, "yeah, yeah, yeah, that's fine", but you really don't understand. That is so, absolutely, critical. I mean, at the end of the day, this is a business, and what's going to happen, is you're going to find that you have people working for you. And it's a tremendous responsibility to be the person that has to put food on someone else's table. And that's the way we always looked at it, and said, "okay, if we don't get payroll out, people don't eat," and some people might say that's overstating it, but I don't think so. I think it's the reality of the situation. You know, they've trusted you to put food on the table. Consequently, if you can't run your partnership real well, that's going to affect the way you provide for the people that work with you. So I think it was good that while Mike and I had known each other, because we'd lived together, we'd never been really close friends, and I didn't know Alex at all. And in some ways, I think that's sort of served us well, because none of those friendship issues clouded anything.
Whether or not you decide to partner with friends, once you decide that a partnership is the way to go, you need to think carefully about the structure. After finding the right partner, the next step is to consider how the partnership will be divided. John Alexander is president and founder of The CBORD Group, Inc, the world’s largest supplier of foodservice related software. He discusses the perils of forming a 50-50 partnership…alex_14partners
I mentioned I had two partners in the beginning. One dropped out within two months. Another one, he and I were fifty-fifty partners for about five years. My only recommendation with regard to fifty-fifty partners is don't do it. It's a big mistake. Anytime there's a tie vote, there's nobody who could vote, and so whatever happens is whoever goes out of town, the other person does whatever they please. It's not a good situation. In a similar vein, here are some comments from Richard Hayman, who ran a successful family business called Hayman Systems, later sold to another player in the industry. He says that you have to take the ego out of the business partnership setup. He mentions his brother Alan, also deeply involved in the family business.
Hayman44_parntersnotequal When you get into 50/50 partnerships, you get into what is fair and what is equal. Now you have to basically take those two notions, there is no such thing as fair and no such thing as equal. Alan and I are paid the same amount of money,but our jobs, responsibilities are not fair nor equal. Under president is not. I think I have more responsibility and he things he brings more money into the business because he's a sales guy. If you can take the ego out of the business and realize that it doesn't belong there, it's simply there to do what's best for the family in this case, there are no arguments. The way to get egos satisfied, and my ego is bigger than anybody's, is outside the company. For example, my brother Alan has a larger office than I have. He drives a nicer car than I do. Who cares? He also lives in a bigger house. So what? It doesn't matter. Get rid of ego and be flexible. Every partnership can work. The other thing is to make sure there is enough money to around so you never have to make a hard decision. While you never want to begin a relationship by talking about how it will end, Scott Stewart, co-founder of Stewart-Peterson Advisory Group, one of the largest agricultural advisory firms in the country, states it is critical to figure out your exit before your enter into a partnership…Stewart30_partnership2
Should never go into partnership with anybody cause they never work. And I would almost be willing to say you know say that that's probably true in most cases. And with that when we started our business before we ever started it, part of our eight-month planning process was is to figure out how we were going to divide up the business if and when we decided to break it up. Because we figured if we had a good divorce agreement before we got married that any day that one of us got mad or upset, you knew exactly where you stood as far as walking away and I would say that's the biggest reason we're still together is because you can't -- you never have to sit and plot and figure all right, I screwed him doing this and if I manipulate the business doing it this way, then ultimately then I can do this and I'll end up with the whole business you know. You can't have these little mind games and figure out how you can sort of you know screw the other guy out of the business because it was on paper before we ever started it.
Finally, we’ll hear from Kimberly Yorio, a business author and successful entrepreneur who is co-founder of YC Media, public relations firm in New York City. Kimberly discusses the success of her relationship with business partner Caitlin Freidman and stresses that ANY hesitation with regards to trust should be a big red flag. Friedman-Yorio19_partnership
I think that the reason that we work really well is because we trust each other. I would never in a million years think Caitlin was trying to take money from me or take away from my family or win the clients and take them for herself. And I think that's the...I think that the second that you stop trusting someone or even if it's a fleeting occurrence, like oh my goodness; they have access to the bank account. Then, even if you think that for a millionth of a second than that partnership is never going to work. To summarize: Be careful of partnering with friends, don’t go 50-50, and figure out your dissolution in the beginning - and most importantly, have a partner you can trust,. Sound advice on forming partnerships from our eClips entrepreneurs and experts. Thanks for listening to this segment. If you are interested in hearing more from any of our featured speakers, please check our website at eclips.cornell.edu. That’s E-C-L-I-P-S. cornell.edu.And remember, if it is a business topic of interest, eClips will bring you “Sound Advice”…