Thursday, June 3, 2010

Start Planning Today for Your Partner's Exit

I was asked a question the other day about the advisability of starting a business with partners. This is a regularly-discussed topic in Chief Executive Boards International meetings, providing a lot of insight into partner-partner dynamics. I've also had personal experience with 2 different partners in the past and I've developed these points of view with respect to partners.

The advice of several business writers and the advice I've adopted is: The day you start talking with a potential partner, start planning for the partner's exit. I've seen a few (very few) partner situations work out over the long term. When they do work, it's great -- partners have someone else to count on, to confide in, and to pitch in when things get tough.

There are a couple of clear-cut reasons partners eventually disengage.

First, it's not unusual, despite their claims otherwise, for partners to fail to understand, appreciate, respect and value the strengths and contributions of each other. What the other guy is really good at, which may be something you're lousy at, looks easy. That's the way it's supposed to look. Never mind that he may have worked a whole career to hone that skill, and puts a lot more time into it than you ever see. Partners have different work styles. Some work best at their desks. Others work best away from the office. Again, those hours put in out of sight of each other are easy to disregard as contributory to the success of the business. Ultimately, this factor manifests itself in one partner feeling like he's putting in all the work, and then splitting the money. Curiously, as the partnership becomes more dysfunctional it's not unusual for both to hold that same opinion.

The second is more complex. Partners naturally grow apart. The drivers, motivations, ambitions and passions that originally brought the partners together don't evolve and mature at the same pace or in the same directions. One partner loses his passion for the business, or develops a passionate interest in something else. One partner decides it's time to change his work/life balance, perhaps scaling back his interest in the business and paying more attention to his spouse, family, health or volunteer/philanthropic interests. One partner wants to continue to grow the business, thereby building his net worth, while the other has his "number" covered and is looking for more of a lifestyle business - one that provides some cash flow but doesn't require 110% effort every day. One partner suffers a health setback, either his own, a spouse's or an aging parent's, thereby recalibrating the priority of the business in his life.  Kids leave and spouse wants to travel.  Grandkids arrive.  The list is endless. 

Ultimately, as these natural work/life priority changes drive the two partners' interests apart, it becomes ever more challenging to keep the partners feeling like each is carrying his share of the load. At that point, partners separate. In my own case, I once had a partner who had been fully retired for at least 4 years before he joined me. He had never owned a business before. He was getting bored with full-time volunteerism and thought my business would be interesting and fulfilling, which I think it was. One day, however, he came in and said, "You know, this is just starting to seem too much like a job." That said it all. We were at different places in our personal lives (partially due to an age difference), and just weren't on the same page as far as how the business fit into the rest of our lives.

So, start planning at the outset for your partner's departure. How? Buy having a fair, balanced, rock-solid buy-sell agreement in place before you start -- something you can live with if you want out or you want your partner out. Stay abreast of your liability to a partner, just in case he comes in one day and announces he's pulling the buy-sell trigger. If the business has been successful, it'll take some cash to take him out -- perhaps even some debt. In cases where the separation is regarded as fair by both, it's easy for the partners to remain friends, despite having decided they didn't want to work together any more.

If you've had experiences with partners, good or bad, please click "Comment" below and share them with others.

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Terry Weaver

Chief Executive Boards International

Chief Executive Boards International: Freedom for business owners & CEOs -- Less Work, More Money, More Freedom to enjoy it

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