Should You Ditch Your Business Partner Now?

Most startups are formed by two or more business partners--usually best friends, family members or former corporate co-worker collaborations.

As the economy perks up, I’m receiving more letters from fed-up business partners who want out but don’t really know if now is the right time to get out.  They’ve survived the hard times of the recession and want to explore if they are better off making-up or breaking-up.   

How do you know if the magic and productivity of your business partnership is really over?  Here are my five warning signs that your business partnership needs attention now.

1. You miss the thrill.  Entrepreneurs are determined, goal-seeking creatures. In addition to making money, so much of the satisfaction of business ownership is related to setting ambitious goals and then achieving them. 

Can you and your partner agree on the company’s next big opportunities?  If you and your partner can’t find a way to look upward together and tap into the visionary soul of an entrepreneurial partnership, it’s time to call it a day.

2. You resent the equity split.  Do you believe you do 95% of the work but own 50% of the company?  Do you grumble when you look at payroll reports and see identical compensation for you and your lollygagging partner?  Do you find yourself monitoring exactly when your partner arrives at work and leaves each day?  Are you seething more than smiling?

I’ve never been a fan of 50%-50% partnerships because highly productive, growth-oriented companies are always organized around one leadership voice.  One partner will always contribute more, pursue more, care more, and lead more than the other partner.  Recessions and challenging business problems tend to highlight these differences. 

It is possible to reinvent the ownership and compensation structure of a business if compensation and recognition are truly the heart of the partners’ disagreements.  That’s the good news.  But the subject is best handled with the help of tactful board members or other independent advisors. 

In my experience, partnership compensation terms are more easily changed as part of the implementation of a major new strategic initiative.  At the same time one partner accepts a greater compensation package, the lead partner publicly accepts responsibility for more of the company’s future business results too.

3. You’re overwhelmed by the nitpicking abyss.  Take this test.  For the next week, add up all the time you spend questioning your partner.  Now compare this total to the amount of time you spend pursuing new customer relationships.  

When a company’s leadership is distracted by petty grievances, competitors have a perfect opportunity to steal away their best customers.  And of course, if a company is not dedicated to bringing in new business, eventually it will go out of business.   Can you both get back to the business of serving customers?  If not, it’s time to split.

4. You don’t agree on spending priorities.  How a company invests its cash in new product development, marketing, customer service and personnel reflects the leadership authority of a business.  When partners feud, spending decisions are no longer made in terms of what will advance a company in a profitable way but tend to favor initiatives that might advance the authority of one partner over the other partner. 

If you and your partner can’t agree on spending initiatives, your best course of action is no action.  Save your company’s most precious, hard-to-replace asset.  When you finally get around to dealing with partnership differences, having available cash in the company can help pay off partnership liabilities, if and when you do split.

5. You don’t trust your partner.  Do you trust your business partner to do the right thing with customers, vendors, investors, lenders and employees?  Do you trust your business partner with the company’s funds and not retaliate against you by making foolish choices or incurring new financial obligations? 

The most destructive situation for any business partner is when there is no trust between business partners.  If this describes your partnership relationship, then it’s time to pull out your company’s partnership agreement to review the process for selling your stake or buying out your partner’s stake.  Then call you attorney to identify your next well-planned steps forward.

One thing is certain in any enterprise that is consumed by leadership squabbles.  The longer you wait to confront and solve your partnership conflicts, the less your company will be worth to you, your partner or potential business buyers in the year ahead.

Employees, vendors and customers recognize the dysfunctional situation.  Customers will discreetly seek out other service options.  Employees will spend more time gossiping than working.  Vendors and lenders will tighten their credit terms to protect their interests.  The spiral downward grows in intensity.  Simply stated, the more you wait, the more you lose.

Susan Schreter is a veteran of the venture finance community, educator and expert on the issues that cause promising companies to fail.  She is the author of the comprehensive new book, Start On Purpose  which provides easy, risk-adverse strategies to double and triple the financial value of startups and small businesses in America.    

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