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When Good Partnerships Go Bad

Don't think it can't happen to you. Prepare for the worst before you partner up, and you'll thank yourself later.


Q: I currently own a business with one partner. Due to our contrasting visions for our company, the business is not growing. My partner is happy with the status quo, while I want to grow and bring in investors. We are at an impasse, and I grow frustrated. Would it be wrong for me to start a another business and bow out of this one? Our current operating agreement does not prevent either party from starting a similar business. And if I do go off on my own, what's the best way to contact angel investors or find a pool of investors to whom I can present my business plan?

A: Partnerships can so hazardous to a business's health, as you undoubtedly now know. The key is to protect yourself before you get into the situation you're currently in. It sounds as though you and your partner are having irreconcilable differences. So now you need to ask yourself, Whose view of this business is more realistic-yours or your partner's? Does this business actually have the growth potential you think it does? If you think it truly does, then where do you intend to find the investors you need to grow the business?

Your second question asked about angels. That is certainly an option (see "An Explanation of Angel Investors" for more on this topic)-but in today's recessionary environment, money is very hard for entrepreneurs to come by. Can you grow the business without an outside influx of cash? How much cash do you actually need? If you can resolve or get around the financing question, then the question is, instead of you selling out to your partner, should you buy him out? Would this be cheaper in the long run than launching an entirely new enterprise?

Let's say you do decide to start all over again. From your letter, it seems you want to start a business in the same field as your current one. Although you say there is nothing legally prohibiting you from doing this, there's a lot that needs to be addressed here. Which company gets the "rights" to which clients? What "trade secrets" will you take with you? (In many cases, the courts say you can't take any.) What about current employees? Who gets custody? How will you and your former partner explain the breakup? Frankly, it's hard to imagine how this won't get ugly.

If you are certain that this relationship is over, than you have to do something. You can't stay in a situation where you're unhappy or uncomfortable. I recommend you seek the advice of an attorney who can protect you and your assets and can negotiate the strongest deal possible.

Next Step
Build a partnership that works with Co-Leaders: The Power of Great Partnerships by David A. Heenan and Warren G. Bennis.

I realize that much of what I've written, with some slight changes, could appear in a women's magazine about saving a dying marriage. But that's precisely what a partnership is like: a marriage. Next time (if there is a next time), protect yourself before you get burned. Potential partners need to have long discussions before the business starts. When seeking a partner, look for someone who will make you a better, smarter business owner-someone who has strengths where you're weak and vice versa. And make sure you share the same work ethic and goals. Obviously, in your case, you and your partner have vastly different goals. It would have been better to learn this earlier, before you invested so much in your business.

I would also recommend that anyone entering a partnership agreement have a legal document discussing what happens if the partnership isn't working-who will get the option to buy the other out, etc. It's much like a prenuptial agreement, and it can prevent headaches later. Obviously, it's too late for that now. For now, you need to make sure you would be better off walking than trying to buy out your partner. Good luck.

Rieva Lesonsky is a small-business expert and a senior vice president and editorial director at Entrepreneur Media Inc.

The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.