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.

By Rieva Lesonsky

Opinions expressed by Entrepreneur contributors are their own.

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

A:Partnerships can so hazardous to a business's health, as youundoubtedly now know. The key is to protect yourself before you getinto the situation you're currently in. It sounds as though youand your partner are having irreconcilable differences. So now youneed to ask yourself, Whose view of this business is morerealistic-yours or your partner's? Does this business actuallyhave the growth potential you think it does? If you think it trulydoes, then where do you intend to find the investors you need togrow the business?

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

Let's say you do decide to start all over again. From yourletter, it seems you want to start a business in the same field asyour current one. Although you say there is nothing legallyprohibiting you from doing this, there's a lot that needs to beaddressed here. Which company gets the "rights" to whichclients? What "trade secrets" will you take with you? (Inmany cases, the courts say you can't take any.) What aboutcurrent employees? Who gets custody? How will you and your formerpartner explain the breakup? Frankly, it's hard to imagine howthis won't get ugly.

If you are certain that this relationship is over, than you haveto do something. You can't stay in a situation where you'reunhappy or uncomfortable. I recommend you seek the advice of anattorney who can protect you and your assets and can negotiate thestrongest deal possible.

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

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

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

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

The opinions expressed in this column are thoseof the author, not of Entrepreneur.com. All answers are intended tobe general in nature, without regard to specific geographical areasor circumstances, and should only be relied upon after consultingan appropriate expert, such as an attorney oraccountant.

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