06/08/2018
A few years ago, a business friend of mine called me to ask for advice. Perhaps advice is the wrong word. She called to get the benefit of my experience.
She owned a business that she had founded about 20 years prior with a friend. Both women had gone into the venture with about the same experience in the industry in which they worked, and both had gone “all in.” Neither had given any thought to how they would go about dissolving their partnership.
Now her partner wanted out. Her family circumstances had changed over the years, she was burned out on the business they were in, she wanted to do other things while she was still young enough, she wanted to move to a different part of the country and so on. In short, she wanted my friend to buy her out.
“Well,” I told her, “you’ve just proven one of my theories about business. Eventually all partnerships fail.”
My experience is almost entirely in the publishing business, and her company was not a publisher, but I think the same dynamics would apply. You may have noticed that many of the great publishing houses have had double names, like McGraw-Hill, Simon & Schuster, Houghton-Mifflin, Prentice-Hall, etc. The small-fry like my own are no different.
There are good reasons for that, beginning with division of labor. The company that I started out with, for example, began in 1919 as a partnership between Alfred Harcourt and Donald Brace. Harcourt was the editor, who knew books and authors, while Brace was the salesman, who knew bookstores. Together they built a Fortune 500 company.
In the case of my little company, my partner and I had both worked in sales at Harcourt-Brace, but Tom Williams also had a background in accounting, and I had experience in editorial and manufacturing. It was a good fit, and it worked. We were profitable almost from day one, and within a couple years we were successful far beyond our initial hopes.
It went on that way for about 15 years, but gradually Tom became interested in other endeavors, tired of his long commute, and less engaged with our day-to-day operation. Finally he asked me if I wanted to buy him out. I did not, but some of our employees did, and we managed to work out an arrangement that has been in effect for the past 17 years.
I can sympathize with anyone whose business partner wants to leave. When my partner began to distance himself from the company, both physically and mentally, it became extremely frustrating for me.
What sustained me, and our friendship, was the knowledge that I never would have started the business without Tom, and he said the same thing about me. We were both grateful for what the business had provided for us.
Division of labor is critical, but it’s not the biggest reason we need another person in a startup. The biggest reason is that most of us need the emotional support. We need someone to take as big a risk as we are, someone who believes as much as we do that it can work.
There are exceptions. People like John D. Rockefeller and Mark Zuckerberg, who may have partners but never equal ones, and who generally discard them along the way. I’m a bit introverted myself, but lone wolf entrepreneurs strike me as a little scary.
Then there is the third way, which is commonplace in this and other specialty retail industries. Although we sometimes use the term “mom and pop” to refer to any small business, in many cases it is quite literally true. People often start up firms with the active participation of a spouse or other family member.
I know that some of the best companies in the industry, on both sides of the aisle, are mom and pops. In spite of those obvious high achievers, however, I continue to believe that it’s the most difficult and highly fraught path to success.
First of all, it takes away one of the key elements that causes businesses to prosper. As a company grows and takes on more employees, those people need incentives to excel, and one of the primary motivators is the possibility of advancement. If employees perceive that the opportunities will go to family members, they will not strive for excellence, and are likely to move on.
It is also very important that everyone in an organization has a sense that management is fair. Inevitably, employees have differences, disputes, rivalries and alliances. No matter how Solomonic the owner may be, employees will see a bias in favor of his family members, and that can create toxic internal politics beneath the surface of the company.
Finally, there’s the obvious problem. People cannot fully compartmentalize their lives, which means that stress from the office comes home and vice versa. When you have the same people in both places you increase that tendency geometrically, and trouble in either one becomes trouble in both.
Personally, I want my home to be a refuge where I can get away from the business. When my wife asks me how things are at the office, I generally give her a one-word answer, because the last thing I need is to spend my evening dwelling on the same problems I worry about all day.
So what did I tell my friend, and a lot of other people over the years who have asked me about breaking up a partnership? I told her the same thing she probably would have told me, the same thing most of you would say, the same thing we were all told when we started a business, but most of us ignored.
If I could go back in time there are a whole lot of things I would change first, but somewhere on the list would be the completion of a buy-sell agreement sometime before I actually needed it. Like most builders, though, entrepreneurs rarely think about tearing down the things they are busy building.
That leaves us little choice but to design an exit plan that can be executed immediately, which is a little like building a fire escape after you smell smoke. Ideally, you can find a deal that either partner would take or give, but in reality you both know that the guy who wants out will take a discount.
My advice to my friend was this. “If your partner wants out, let her go. Give her a fair deal without any recriminations. Remember the good times and be grateful for your success.”
If any of you do get the chance to go back in time, though, you might wish to try going it alone. As Harry Truman once said about a career in Washington, “If you want a friend, get a dog.”
