Conscious Uncoupling
Gwyneth Paltrow coined this delightful euphemism for divorce. Sounds painless!
Conscious uncoupling rates in New Zealand continue to decline, from 13 per 1000 marriages in 1998 to 9 per 1000 in 2013.
Businesses however are nine times less enduring – 85 per 1000 died in 2013. If we assume that start-up businesses are 75% multiple ownership, then 32,000 partnership entities are born and die each year. Only 27% of these survive till their 10th year. (Stats NZ). So, a partnership is really just a joint venture, with a limited life expectancy.
Altiora Associates regularly advises on resolving partnership disputes and departnering –about two every year. I will discuss the avoidable traps going in and during the life of the partnership, and some guidelines for partners as their partnership breaks down – and up.
Hindsight wisdom for start-up:
- Be sure you need a partner –more prudent to share expenses, not profit.
- Know why you are entering a partnership.
- Don’t partner because you cannot afford to pay the person. This particularly applies to the General Manager – use quasi-equity.
- If partnering with a friend, don’t expect the friendship to survive the partnership breakup.
- Debt money is far cheaper than equity in the long run.
- Agree your business purpose, plan and funding.
- Agree control and leadership. Don’t have a 50/50.
- Know partners’ strengths and competencies – yours and theirs. Agree expected contribution and gainshare.
- Insist on a pre-nup – a written and signed partnership agreement, drawn up by an experienced lawyer.
- Use the limited liability benefit of a company.
- Write down the exit strategy and mechanism, and disputes resolution process.
Hindsight wisdom for operating and co-operating:
- Periodically review business purpose, SWOT and strategies.
- Regularly review roles, responsibilities and contributions for best outcome and work satisfaction.
- Focus on the business or systems issue, not the person.
- Try to show EQ in all partner interaction, keeping open and trusting dialogue which aims at solutions.
- Don’t let a grievance (e.g. about unequal contribution) fester – talk it through and resolve it.
- Equally, when making significant money for the partnership, ensure your partner knows.
- Consider an advisory board for perspective and for pushing partners above the operational trap.
- Partnership danger rises in losses or in big profits.
Managing partner disputes:
- Get the right professional help, who brings experience, judgement, calmness and caring, plus courtesy / respect for the Other Party.
- Check your rights and obligations.
- Anticipate wealth destruction if the business is neglected through a protracted dispute, especially if it escalates into litigation.
- Manage your emotions, accepting that most partnerships terminate.
- Define early your objective – fix or split.
- Behave honourably throughout. Feels better and plays better if the dispute ever reaches court.
To my several former and present partners, thanks for the dreams, the experience and the fun.