NEW YORK – Nearly a year after Courtney Jackson launched her clothing business, she took on a partner to help manage the company's growth. A month into the partnership, something was wrong.
Jackson's partner was supposed to handle half the company's workload, but that didn't happen. So Jackson began taking on more of the responsibilities. When Jackson tried to discuss the division of work, "she was a little defensive at first, and asked me to be patient." The situation didn't improve, and they agreed to part at the end of last year, just three months after the partnership began. But under their partnership agreement, drawn up without an attorney, dividing the company's assets would have weakened it financially. The partners decided to close, and Jackson lost her company.
The failure of a partnership often brings hard lessons for company owners. Problems can start when prospective partners don't think through all the ramifications of what they are doing — including whether they will be a good fit. They may not be clear on their expectations for each other and how they will resolve conflicts. And they may not consider the legal consequences of how they set up their partnership and how difficult it might be to unwind it; rather than hire an attorney, they write their own agreement that can be problematic when the relationship turns sour.
Jackson's experience taught her that she needed to be more strategic in choosing a partner — Jackson had met hers through a mutual acquaintance.
"You need to make sure you know the person well enough to know what their strengths are and their weaknesses," says Jackson. She now is the sole owner of an information technology company in Tampa, Fla.
Owners are so caught up in the idea of finding a partner to get investment money, help and expertise that they don't do the kind of due diligence they would do before hiring an employee, said Michael Howard, a management professor at Texas A&M University's Mays Business School.
"What will happen when you grow? What's your process for resolving problems? How should we manage this project? If you ask these kind of questions, it could reveal a lot of problems in advance," Howard said.
While partnering with strangers has potential pitfalls, so does going into business with friends.
"It's important to have trust and strong social ties, but if maintaining them comes at the loss of business success, that's not really appropriate," Howard said.
Partners also need to be sure they share the same goals for the business, or at least understand what their differences are.
"You need to talk up front about what your expectations are, for the long term, short term, two-year and five-year picture," says Sandy Jap, a marketing professor at Emory University's Goizueta Business School. She suggests owners talk to references in much the same way they would check a job candidate's credentials.
Lisa Shepherd needed cash to help her marketing business grow, so she gave three employees equity stakes. Within two years, the deal went bad as the four owners argued over whether to reinvest earnings into the business or distribute the profits among the partners. They also disagreed about workloads — "each person thought that he or she was working incredibly hard, while the others weren't," said Shepherd, owner of the Mezzanine Group, based in Toronto.
The partners who did the day-to-day work accused Shepherd of going out for lunch too often rather than working, although those meetings led to new business.
"My work was outside the company, networking, opening doors," Shepherd says. They thought, 'she's having a grand old time and not doing any work.' "
Shepherd did have an attorney draw up a partnership agreement at the start, ultimately the "best business decision ever, worth its weight in gold," she says.
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