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The Partnership charter

The Partnership Charter by David Gage Millions of people co-own closely held companies, family businesses, and business partnerships, but establishing them and keeping them together is never easy. Here, finally, is the guide they have been waiting for.... Read More
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Can’t We Get Along

Fortune

by Lori Ioannou
Fortune
December 7, 1998

When dynamic duos become sparring partners, it’s time to hire a business mediator

Entrepreneurs are used to warfare, whether it’s in the boardroom with venture capitalists or on the competitive battlefield. But nothing leaves more scars than partnership brawls. When such conflicts arise, co-founders usually take out the big guns. The upshot: The business gets embroiled in litigation and is often sold to end the whole nasty affair. Unless, of course, entrepreneurs seek the help of business mediators like Dr. David Gage. The psychologist, a self-proclaimed shuttle diplomat who runs BMC Associates in Washington, D.C., has helped founders of 100 partnerships resolve disputes amicably. Recently, he told FORTUNE how small-business owners should become partners in the first place.

What percentage of small businesses are partnerships?

That’s difficult to quantify since numbers range wildly. I do know it’s more than people believe. Microsoft is a good example. A lot of people think Bill Gates is the sole founder of the company. But it was really Gates and Paul Allen who started the business. The only reliable data on this are from the IRS. It reports that there are at least 1.5 million partnerships that file tax returns each year.

Does partnership warfare get ugly?

You bet it does. Partners have screamed and threatened and come to blows with each other in the office. This really spooks the staff. Key employees often leave to find a better work environment.

Do a large number of partnerships fail?

Believe it or not, more business partnerships end in divorce than do marriages. That’s because entrepreneurs often enter such relationships blindly and don’t mull over alternatives. Sometimes they look for a partner if they need money. Other times they look for one because they’re scared of running a business alone. In those cases it makes more sense to look for temporary outside help, like a banker or a consultant. You can terminate those short-term relationships easily, but you can’t fire a partner.

How do you find the partner who is best suited for you?

First, you need to look for a person who shares your values. His goals and objectives should be similar to yours. He must be as committed to making the business succeed as you are. I think it’s also important that he is a team player. If he is a control freak, it can create a lot of conflict.

What’s the most common mistake entrepreneurs make in partnerships?

Not dealing with all the sensitive issues before setting one up. I’d guess that less than 5% of all small-business owners iron out all the sensitive issues that really need to be addressed in a partnership.

Is there any accurate way to assess a person’s character and disposition?

It’s really tough. I recommend using personality tests like the Personal Profile System and Myers-Briggs Type Indicator. They give a picture of a person’s style of communicating and dealing with people. It’s wise to have a professional help in interpreting the findings.

What kinds of conflicts usually make partnerships fall apart?

Turf battles over control cause the most trouble. Typically, partners quarrel over who is going to be the boss. Even though titles are assigned, the parties have trouble accepting each other’s roles in the business. Sometimes that happens because partners don’t define what titles mean. Other times it occurs simply because partners don’t respect each other’s areas of responsibility. That’s especially true in family partnerships. A classic example is the case where the son is named president and dad is named vice president. Regardless of the titles, dad still expects to have the last say in everything.

When should business owners seek some counseling?

They shouldn’t wait until all trust dissolves between the partners involved. The parties must still want to get things resolved and move on. If too much damage has already been done to each other’s ego, it will be tough to get them to discuss sensitive issues. Sometimes they can’t do it on their own and need to bring in a business mediator and his or her team of experts, who can help them rebuild a spirit of collaboration. Their job is not to say who’s right and who’s wrong. They just assist in finding a solution that works for everybody involved. Working with a business mediator is expensive. It can cost as much as $300 to $500 an hour, and it’s only successful when partners want to save their business and still have good intentions toward each other.

Can a partnership agreement help?

Definitely. Those legal documents spell out intellectual property protections, ownership entitlements, the titles and management responsibilities of the co-founders, their capital contributions, and planned exit strategies. I’d also draw up a partnership charter as an added measure of protection. It’s a good way to create guidelines for dealing with the unexpected. It outlines how partners should communicate and resolve disputes. Consider it a road test: If the potential partners clash and the venture crashes, they can save themselves a lot of pain in the long run.