When Susan Smith (not her real name) opened a restaurant in Southern California two years ago, she reduced her economic investment by starting the business with a friend. Smith, 50, thought it would be a match made in heaven, but within weeks her partner discovered he hated the restaurant business. Eighteen months later, he sold his half to someone else.
"I didn't like the new partner as soon as I met him, but we were splitting the shifts and would only work together a couple of hours a day, so I thought, `How bad could it be?' " recalls Smith. "Boy, was I naive.
"The new partner was obnoxious, difficult and unwilling to be trained," Smith says. "He refused to sign the lease and became verbally abusive, swearing at me when no one was around. Customers didn't like him, either, and sales were sinking like a stone. After he walked out and sued me, dozens of customers told me he had treated them poorly."
Partnerships can be disastrous, says Irwin Gray, who wrote The Perils of Partners: How to Protect Yourself Against Crooked, Conniving and Incompetent Partners (Smith-Johnson Publishing, $22.95, 800-929-7889) after disastrous partnership experiences of his own.
"I went into partnership with a man who turned out to be incompetent and a liar," says Gray, who now runs Smith-Johnson Publishing in Flushing, New York. "It was a giftware business, and he was supposed to handle sales--but I rarely saw him. When he did show up at the office, he'd brag about his successful sales calls. One day he went to meet an important potential client. I called the client's office to give my partner a message, but they said he'd never shown up. Later, I asked him how the meeting went, and he said it was the best ever. At that point, I dissolved the partnership."
Many people don't realize partnerships are a lot like marriages, says Michael Adler, a business lawyer in Pomona, California. "When you're in partnership with someone, you share the workload, the profits, the responsibilities and even the mistakes."
Despite the challenges of partnership, many successful businesses have grown from the meeting of two (or more) minds. Ann Coil, 56, has been involved in two successful partnerships, the first a threesome lasting 10 years. "The partnership worked because we all had our strengths but were flexible and could jump into each other's roles easily," says Coil of the Tustin, California, career consulting firm Coil & Associates. In 1993, Coil started another business with a partner, Ann Crowell. That company, People Works, produces employee-development materials for clients such as UPS and Nordstrom.
Julie Bawden Davis is a freelance writer in Orange, California.
Some people thrive in partnerships, while others should probably stay solo. Are you willing to compromise? Do you feel comfortable trusting someone else to speak for your business and make the right decisions?
Remember, you can be held legally responsible for what your partner says and does. Also know that you aren't going to (and shouldn't try to) find a clone of yourself. A partner brings his or her own ideas and methods to the business. You need to respect that and work as a team.
If you think working with a partner is for you, keep these tips in mind to make the right match:
1. Take your time. Partnership disasters arise because people are in such a rush to get the business started that they don't sit down and assess what kind of partner the person will make, says Amy Stark. The Tustin, California, psychologist and organizational consultant is the author of Because I Said So: Recognize the Influence of Childhood Dynamics on Office Politics andTake Charge of Your Career (Pharos Books, $19.95, 714-376-5821).
Discuss the following issues with a potential partner:
- What will each of you be doing in the partnership? Who will handle bookkeeping? Who's in charge of customer service? Is one of you taking on a visionary, planning position while the other handles the nuts and bolts? How will receipts be handled? Who's responsible for marketing and advertising?
- It's imperative your commitment levels and work ethics be similar. Do you both believe in working as long as it takes to finish a project, or do you insist on going home at a certain time? If there's an emergency, are you both willing to drop everything and focus on the business?
"It's important to know if the other person can handle the details that come with owning a business and is willing to learn, if necessary," says Gray. "If not, you'll end up doing the bulk of the work."
- What do each of you want from the business? Are you most concerned about a steady paycheck, or do you want to take risks and grow the company? Is this a long-term investment, or do you want to sell the business within a specified period of time?
- What sort of business do you both envision? Do you want a small, two-person office that hires independent contractors when necessary, or would you like to expand and eventually hire employees? How much time and money are you willing to spend?
- What stage of life is each of you in, and do those stages mesh? If one of you is just starting a career and wants to expand and the other is winding down, the partnership might not work--unless the idea is for the experienced person to teach the beginner the ropes and then retire.
Also consider the other person's lifestyle, says Coil. "If someone is just starting a family and won't be able to work nights and weekends, even though your business requires it," says Coil, "then you may not have a good match unless you're willing to cover those times."
2. Don't rely on friendship. Although starting a business with a friend sounds like a dream come true, it's not so simple. "Being good friends is not a precursor to a successful partnership," says Coil. "As a matter of fact, it can add a stressful dimension. With all my partnerships, we started out as business associates and became friends, but because we had a business to run, I tried not to overburden them with friendship matters."
Idora Silver, owner of Idora Silver & Associates in Reno, Nevada, learned firsthand that friendship doesn't always spell success in a partnership. "I started a professional-liability risk management business based on friendship and a good working relationship," says Silver, who now owns a management consulting firm and runs Silver State Speakers Bureau with two other partners. "I ended up losing a substantial amount of money when I had to buy my partner out because she got married and decided to stay home [with her] children. Since that experience, I've learned to analyze things at a deeper level when it comes to partners."
3. Consider values, ethics and integrity. Most entrepreneurs agree sharing values is critical to a partnership's success. "First and foremost, what you both stand for must be congruent," says Silver. "Is this person honest? You're putting your livelihood into their hands. What are their basic values on how to run a business--and treat people in general--and do they match yours? When you have the same values, conflicts can usually be resolved because you're coming from the same place."
Find out about the other person's financial ethics, says Stark. "How does he or she pay bills? Is the person a spender or someone who handles money wisely? What's the person's credit rating like?"
Make sure the person is honest with everyone. "If the potential partner cheats customers or suppliers," Gray says, "he or she will eventually cheat you."
Coil agrees. "I considered doing business with someone, but as we discussed the deal and I spent some time with him, a few things happened that disturbed me. Once I saw him treat a clerk badly, and another time he suggested doing something that verged on being unethical. I backed out."
4. Trust your intuition. Don't enter into a partnership without checking with your gut. "The most important message of my book is to trust your intuition if something seems wrong," says Gray. "If you wait until you have concrete proof that something's wrong, you may be in too deep. Trust those gut feelings--they're probably right, and they'll save you a lot of trouble."
To detect a dishonest person, Gray suggests looking for holes in the person's resume. "If a person can explain what happened, that's okay," he says. "But if he or she talks to you in generalities and refuses to be pinned down, you've got a problem."
Don't blindly trust referrals, either. "I made the mistake of accepting my partner because mutual friends had played baseball with him and thought he was great," says Gray. "It turns out all they knew about his business ability was what he had told them."
Put It In Writing
Most people enter partnerships with good intentions, but things don't always work out. "It's important to plan for problems," says Adler. "Like prenuptial agreements, partnership agreements plan for conflict ahead of time--just in case."
Whether you write up a partnership agreement yourself or hire a lawyer, make sure your agreement includes the following:
- the name of the partnership
- when the partnership will begin and when, how and why it may be dissolved
- the initial capital of the partnership
- controls on who can withdraw money; agreement that both partners must consent before money is removed
- a specified draw account and a monthly allowable amount for each partner
- how profits are distributed and who handles expenses
- the general rights and responsibilities of each partner
Putting these items on paper shouldn't cause any problems between you and your prospective partner. If anything you include kills the deal, says Adler, then you'll be better off looking for a more compatible partner.
Michael Adler, c/o Perry Polamero, 1192 N. White Ave., Pomona, CA 91768, (909) 623-5281
Coil & Associates, (714) 573-8226, fax: (714) 505-1689
Idora Silver & Associates, (800) 682-2929, fax: (800) 682-2929
Smith-Johnson Publishing, 175-14 73rd Ave., Flushing, NY 11366, fax: (718) 591-0227
Amy Stark, (714) 544-7609