No, we haven’t taken a hard left and turned this into a relationship blog. Well, at least not that kind of relationship.
I recently prepared an Operating Agreement for a company of four where two of the partners are highly accomplished in-house attorneys for big companies. One of them asked me to explain the purpose of an Operating Agreement for the benefit of the non-lawyer partners. “A business partnership isn’t much different from a marriage. An Operating Agreement is like a prenup.” <laughter>
Funny but true. Many business owners find themselves spending more of their waking hours with their business partners than their love partners, especially in the first few years. That said, the uncomfortable conversations we know are necessary when first dating someone should also take place before starting a business partnership. If you can tolerate the emotional intensity of these types of conversations with your future (or current) business partner, I can almost guarantee the relationship will be better off for it. Like a Cosmo quiz but with less innuendo, here are some suggested questions and why they are important:
What are your values?
Even as I typed it I realized this is almost impossible to answer. With the exception of some of the stars of my current favorite podcast “My Favorite Murder,” we could all answer this question with abstract concepts like honesty, integrity, kindness, etc. All the Golden Rule stuff. It seems like words fail here. In trying to describe “values,” we might be better off taking the approach the US Supreme Court took to defining obscenity some time ago – they couldn’t reduce it to words but “we know it when we see it.” Jacobellis v. Ohio, 378 U.S. 184 (1964)
So let’s restate the question: What drives you?
Some people are driven by things – houses, cars, jewelry, art. They place a high value on material possessions as tangible proof of their success.
Some, though not all, of the same people are driven by money. Sure, money is the prerequisite to obtaining all those things, but we all know some exceedingly wealthy people who live like paupers.
Others are driven by a need to help others. Some people in the previous category prioritize money, but only to fuel their need to help. They give significantly of their time and their money. Some even prioritize community service over personal wealth.
If one partner is driven by money and the other is driven by community service, you can imagine how they might butt heads if one wants to volunteer his time instead of selling a new account.
This conversation is relatively simple to reconcile if each partner is respectful of the other’s(s’) boundaries and priorities. Maybe they can agree that business hours can be devoted to revenue-generating activities and volunteer work is done over the weekend. Alternatively, maybe the charitable partner can make a case that his volunteer work enhances the company’s reputation in the community and therefore has a value that contributes, though not immediately, to the bottom line.
What are your goals?
Beyond the goals outlined in your business plan, this is a question about your personal goals which, for a business owner, are inextricably linked to the business. This question has surfaced recently for one client in particular. One partner had assumed for the 12-year life of the business that his partner was on board with passing the company down to key employees and gradually spending more time with the grandkids. In fact, the partner wanted to sell to a third party at a higher price, take his proceeds and his much-younger girlfriend, and move to Costa Rica.
It’s obviously important to ensure these goals are aligned in the business plan, but as things change and priorities shift, revisit the topic from a personal goal perspective to make sure all partners’ business and personal goals are compatible.
What is your relationship with money?
Consider not only your partner’s immediate answer to this question, but also his or her background and upbringing (if you know anything about it). I’ve seen people who grew up destitute spend money they don’t have on the most extravagant things. Others with similar childhoods won’t even splurge for extra guacamole. The converse is true. Many people who grew up wealthy didn’t need to learn financial management skills and, as adults, struggle with their personal budgets.
These influences don’t just date back to childhood. Divorce can ruin someone financially and completely change their relationship with money (not to mention their relationships with others).
It’s important to understand your partner’s relationship with money because, even though the dream is to open your doors and immediately turn a profit, statistics suggest that’s the exception rather than the rule. Owners’ agreements usually specify the amount of money each partner initially contributes to the company. Some will include language regarding “capital calls” which require each partner to pony up more money in the event the company needs it. The objective here is to avoid having to bring in additional investor/partners or create more debt of the company for which the partners would likely be personally responsible.
Without awareness and respect for your partner’s answers to the preceding questions, if the need for a capital call arises, a nasty stalemate can result. Maybe one partner thinks he’s been pulling more weight but doesn’t have the funds to contribute. Maybe one of you has spent too much time on volunteer efforts and, “we wouldn’t need a capital call if you’d worked harder on sales, MARGO.”
What is your work ethic?
Everyone wants to believe they have an exemplary work ethic. In truth, some of us tend toward laziness while others are bona fide workaholics. Some of us have self-awareness about this and maybe even have the skills to manage ourselves away from either extreme. However, without some honest discussions about which category you fall into – with yourself AND your partner – resentment is bound to fester.
My favorite story about this is a little more tangible than the question might suggest. We have a client with 50/50 ownership, which normally gives me ulcers, but these guys have proven me wrong with many years of success. They couldn’t be more opposite. When I asked their secret, having seen so many 50/50 partnerships implode, they explained that they agreed to be honest – sometimes painfully, brutally honest – with each other. They had these types of discussions early on, and, among the ways they agreed to run the business, they determined that one guy is a morning person who agreed to tackle all those 7am networking meetings. The other guy is a night owl so happily volunteered to sleep in but stay up to attend all those after-hours mixers. They don’t make a move in the business unless they agree which is SO not what usually happens, but I’m so happy for them that they’ve figured it out.
Will you pull your weight?
This is the follow-up question to the previous one and there are tons of factors that can change the answer. You might have a stellar work ethic but maybe you aren’t as passionate about the business as your partner and, naturally, aren’t going to gravitate toward the workaholic end of the spectrum. Maybe you started off as the company’s biggest cheerleader but now you disagree with the direction of the company and have lost your mojo for it. What happens when the tide turns – do you withdraw and go on strike or do you roll up your sleeves and work harder?
Because there are so many ways the answer to this question can change, I’ll move on but keep in mind it’s a good question to consider and segues into the next one…
How do you deal with stress?
We all deal with stress in different ways – retail therapy, actual therapy, hide in a dark corner, blow your lid, run away, just plain run… While this question might appear to have a simple answer, I’d encourage you to look one layer deeper. Your reflex might be to go on a run but what’s the deeper motivator there? Is “going for a run” a physical manifestation of “running away”? Or, is “going for a run” truly the way you clear your mind and come back to the stress refreshed and ready to work? To beat this analogy a little more, “going for a run” looks very different from “hiding in a dark corner” but the underlying goal might be exactly the same – escape.
So, I’m not a therapist, nor do I play one on TV, but let’s talk a little about escape and where that reflex can lead. We all know (or ourselves are) people who will grab a cocktail or something else when the stress level spikes. Everything in moderation, right? It’s important to lay this foundation of honest communication so that these “escapes” don’t spiral out of control. One of my very first clients was a two-man marketing company. They ran the company basically from their phones but raked in close to $7m in annual revenue at the bottom of the Great Recession. One guy had a drinking problem to begin with, and the stress of dealing with big clients whose payment terms dragged out for months didn’t help. When he would show up for work, he was impaired, then he stopped showing up at all. The customers began to notice and their business began to suffer. His family, his business partner, and I did all we could to help him conquer his addiction, get back on track, and save the company, but eventually the business failed because the other guy couldn’t keep it going by himself. I don’t know which perspective is more heartbreaking – the guy who couldn’t beat his addiction or the guy who watched his life savings disappear into an otherwise very successful business because his partner abandoned ship.
Okay, that was a super depressing tangent. Back to how you deal with stress, which leads to…
How do you fight?
Spouses will fight. So will business partners. What do you do when conflict arises? Do you blow up or freeze out? Don the boxing gloves and climb into the ring? Deliver low blows or keep it clean? Are you an expert in the silent treatment?
I’m sure you know how you fight. Your answer here benefits your partner. I once had a client (another 50/50 deal) where both partners started out as best friends and when their business relationship started to deteriorate, they went to therapy. Like real, actual therapy with an actual licensed therapist. They each learned how the other fought and the therapist gave them tools to gently but effectively call the other out on their “fighting” behavior. This approach isn’t very common, though I’d highly recommend it because even though they came to me when the partnership couldn’t be salvaged, they had the tools and the awareness to communicate with each other and with me to create a (relatively) painless transition.
Speaking of tools, there are lots of ways to address discord between and among partners. Some of them sound cheesy, but hear me out.
The first tool and the one I always recommend, is to have an owners’ agreement in place. I know you’re shocked the lawyer is promoting a written agreement. Truly, having a contract that each partner signed, that stands separate from each partner and therefore lacks its own emotions, is invaluable. That’s really the intangible benefit of any contract – it’s like an invisible, apathetic person in the room who quietly keeps everyone accountable.
Another tool is to call a time-out to create space to discuss the issue. You can say, “hey, can we go grab lunch away from the office to chat?” Sometimes even that’s daunting and emotionally intense to say out loud. So, and don’t laugh, I’d suggest creating a safe word or a code word. Let’s just make it less creepy and call it a code word. Something unrelated to the business that’s devoid of any context that one partner can say to the other(s) to send up a flag. Your employees might wonder why the CFO just stood in the middle of the warehouse and shouted “CANTALOUPE!” at the top of his lungs, but if it keeps you communicating, so be it.
Unlike love partners, business partners don’t (yet) even have the benefit of an online dating profile which allows you to filter results by “hard-worker, good with money, vast network, could sell a cherry popsicle to a woman in white gloves.” Hey LinkedIn! Take a note!
These conversations are not easy. But they’re absolutely worth having to accomplish these objectives:
- Open the lines of communication.
- Find ways to keep those lines of communication open.
- Learn about your partners to confirm you want to “marry.”
- Avoid festering boils of resentment (nice visual, right?).
- Keep the business on track.
- Keep the partners out of court.
- Keep everyone – partners and employees alike – making money and able to take care of their families.
Good luck! If you ever want a non-therapist therapist to help facilitate these conversations, happy to help.