Chapter 12 – Do You Need a Partner?

Like many others have said, it can get awfully lonely at the top.  Being the buck-stopper at any business can be very isolating, especially since none of your staff can probably really relate to what you do.  The thought of bringing someone else on, a peer who can share the load of running the business can be very seductive.  However, the truth is that often these late-stage partnerships can be fraught with difficulty.  Like with most marriages today, most partnerships end in angry separation, usually with lots of damage left behind.

The simple fact is that since you were the one who started the business, you are truly without a peer.  No one else has sacrificed the way that you have, and so no one else is really on the same plane as you are.  No one else has seen what you have seen, or learned what you have learned.  And, to put someone in this sort of role is usually simply providing the key ingredient to resentment soup.  If someone does step in to a partner role now, and they act the part, you will probably grow to resent them for their assumption.  And, they will probably resent you for being stuck in the past and not giving them credit for their current contribution.

Also like a marriage, partnerships are really, really hard to un-do once they have been signed.  It is amazing, you can add someone to your business simply by spending a couple of hours filling out paperwork and paying a few fees.  To take them off the partnership, though, that is a whole other deal.

What a lot of business owners don’t think about when they hand out equity in their company is the cost of taking the equity back.  After all, in the beginning of the partnership everyone is friends, friends full of hope and promise, chomping at the bit to get going.  It is easy to let this celebration atmosphere cloud your thinking, though.  In my opinion, most equity in small businesses is given away way too easily.  Now, I am not talking about being greedy, wanting to keep all of that “cash out” money for yourself.  Besides the fact that most small businesses never “cash out”, having someone else participating in the ownership of a company makes it vastly more complex and full of risk.

Here is an example.  Let’s say you are completely burned out, desperate for someone, anyone, to help you.  Your business is profitable, but the workload of running the thing is taking you down.  Then, one night at a party, you run into an old friend.  You hit it off, just like the old days, and you ask what the friend is doing.  Well, it just so happens that they are “between opportunities” at the moment.  You remark how fantastic this is, and give the friend an offer to come to work with you.  Now, you cannot afford a huge salary, something befitting the skills of your learned friend, so you offer 25% equity in your business.  You and your friend are all smiles and handshakes, and you leave the party thanking the fates for smiling this wonderful opportunity upon the both of you.

When you get to work, though, things are a little different than you imagined.  You see, your friend, while skilled at what he does, does not work as hard as you do.  To add insult to this, your friend, since he was not around to gain appreciation for how hard it is to grow a business, seems to have a bit of an entitlement complex.  He sees himself as being equal to you (and thus above everyone else), and he acts accordingly.  Two hour lunch?  No problem, I am a partner!  No one will appreciate something they were given as much as someone who earned the same thing, and so you now have a spoiled child as a partner.

After time, things continue to grind on.  You have a bad employee, but the situation is worse because this person is a part owner.  Can you even fire this person?  You have no idea.  You are at the end of your rope, though, so you sit your friend down to have “the talk”.

The talk goes well, and your friend understands your position.  Perhaps you both got involved in this a little too quickly.  It was no one’s fault.  However, when you bring up that you need to make a change, and then you see a whole new side to your friend.  He demands to be bought out, or at least receive 25% of the company profit for perpetuity.  You explain that you cannot afford this, but you also know you have no legal foot to stand on.  You are stuck, together with this person, whether you like it or not.  And, if you cannot afford to buy this person out (very, very few small businesses have 25% of their value lying around in cash), you my friend are probably screwed.  The worst part, though, is that you are now in this mess simply because you wanted some help, but now you are left with a situation that is far worse.

The moral of this story is that all of this was not only fairly predictable, but it was also entirely avoidable.  Often, it can be so easy for us business owners to throw business ownership around, since we undervalue our own investment in growing the business to what it is.  It is not until it is too late that we value our contributions fairly, which is sad.

When we find ourselves at the end of our rope, we need to realize that help is available, and we do not need to hand over part of our company to get it.  Lots and lots of people have been where we are, and they have found a way out.  The important thing to remember is to never, ever rush into a partnership.  If you have grown the business to where it is by yourself, chances are you do not need a partner.  You most likely need to institute some better management, perhaps a key hire, and a break.   Realize that you are overwhelmed and need some help.  Take a breath.   Don’t let your own overwhelm lead you to make bad decisions.  Take the time to fix the problem right, thus avoiding any nightmare scenarios like the example above.

But perhaps you are in a different position.  Perhaps you have a key employee who has had a huge impact on the business.  This could be a star salesperson, a dynamite marketing person, etc.  You know this person makes you about an order of magnitude more than their salary, and you are scared to lose them.  It is hard when you have a situation where you know a large percentage of your business would walk out the door if someone was to leave.  Just like with your overwhelm, though, don’t let your fear force you to make bad decisions.  You may be considering putting equity on the table as a way to reward your star performer (and create a situation where they have a vested interest in the sales volume they generate).  However, unless your business is setup to legally issue shares of stock, this could be a very dangerous situation.

Another thing to keep in mind, many (if not most) employees don’t really want to be your partner.  They are employees for a reason, and putting them in this role may not be what either of you really want.  Want to reward them?  Think of something else that accomplishes the same goal.  Want to give them extra money?  Set revenue goals and offer them a percentage over the goal.  Maybe give them a promotion and extra autonomy to do their work.  Most employees don’t want your job anyway, so find out what they do want and work towards that.  You may find a person’s priorities are completely different than you thought.  Perhaps all they really want is an extra week off and a company car.  Compared to getting legally bound to this person through the ownership of your business, these things are easy to do, and more importantly, easy to un-do.  Find out what your performers true priorities are, and play to them.  You will not only keep yourself out of any situations you cannot get yourself out of, but you will also have a more grateful star employee because of it.