Tuesday, January 25, 2011

Screwing your Business Partner

The indecipherable expression on a young man's face as his business partner threatens to sue him for everything is definitely the best scene of Andrew Sorkin's The Social Network. Mark Zuckerberg just stares at his best friend Eduardo Saverin who is flipping out after being screwed out of their business.  Jesee Eisenberg potrays  Zuckenberg the youngest (self-made) billionaire in the world ($6.9B as at Oct 2010) who built facebook into a network of 500 million friends but lost his only friend along the way.

No, this is not a how-to get into your business partners pants post. Rather I want to talk about the little considered but very important relationship that you have with your business partner  and how to balance the pursuit of profit with keeping the friendship going. I cannot overstate the importance of maintaining a healthy friendly relationship with your business partner. As Eduardo found out, the minute the friendship starts deteriorating, so goes the business relationship.

Disagree in Black and White
When two entrepreneurs combine their creative forces, passion for business, and capital to launch a business you can expect fireworks. Most times these sparks work in the favour of the business and a great innovative business can result. However sometimes, a difference in opinion can lead to bitter disagreements that threaten to tear down the entire business. This is especially the case where the entrepreneurs are 'blessed' with sizeable egos.

Just like in medicine, prevention is usually better than cure; which means that you should probably pick a business partner with whom you already get along with. This is however no guarantee that disagreements will not crop up. How to handle these disagreements can determine whether your business fails or succeed.

One way I have found effective in handling disagreements is to reduce your disagreements into writing. Once you start writing you will be forced to introduce rationale and logic to state your case. You will also usually avoid the shouting and ad hominem that is so common with verbal arguments. Written arguments also serve as evidence of your position on the matter that can be referred to in future.

Who does what
Unless you have venture capital backing or lots of money to waste, the first employees in a startup are usually the owners. This creates unique challenges for business owners without any entrepreneurial experience or those that have come from an established office environment. The reality usually is that entrepreneurs have to be prepared to be the CEO and the janitor.

When a business has two or more owners who are expected to be working in the business, then it is critical that from the very beginning it is clearly spelled out who does what. Duties should be collectively agreed upon and should be assigned based on someone's existing strengths. If a business owner will not be able to contribute working in the business then this should be discussed early on and the appropriate financial implications (shares held, profit to be earned) revised accordingly.

The worst possible situation is when a business owner starts to resent their duties or his partners because he or she feels: a) overworked b) treated condescendingly/ like an employee by other partners  c) not useful / his or her efforts not contributing to the development of the business.

If your business is in this situation then you only have two options open to you. Either:

  1. Close down the business - feelings of resentment will inevitably destroy the business and you should just quit while you are still ahead.
  2. Less dramatically, you can start from square one - this means that you re-assign duties to be undertaken considering ability, skills, and share of business. As a transitory period a good way to appreciate each others' frustrations is to exchange roles, or literally step in each others' shoes. Think Wife Swap reality show - you should go the full length if possible and take over each others' telephones, apartments, email accounts etc. Within one week of this, any feelings of resentment will disappear as you will come to deeply understand each other.

Honesty is the really the Best Policy
When a partnership starts breaking down one of the signs is the concealment of information or untruthfulness. Lack of honesty breeds mistrust which is a death knell for a business partnership. Dishonesty that creeps up in the course of a business (as opposed to from the very beginning) usually has one of these two origins:

  1. The dishonest partner conceals information which might embarrass him or subject him to reproach by the other partners. This is more likely if previously disclosing such information led to negative criticism from the other partner/partners. To avoid this scenario, care must be taken to always balance criticism with viable solutions. The sandwich approach where you place the criticism inside a positive statement and a positive solution is very effective.
  2. The dishonest partner has personal financial problems and starts using the business fund to resolve these problems without consulting the other partners - the best safeguard to this is to have strict financial controls. Ensuring all receipts are deposited in a jointly controlled bank is a simple yet effective control.
Starting and running a business with a partner can be a rewarding and enjoyable experience. Partners lighten the heavy load of start up stress financially and mentally, temper risky endeavours, and can result in a great friendship. Work on these three things this year to avoid screwing your business partner