Partners and Pitfalls

 July 1, 2010ArchivesOff

Partnerships and Pitfalls

Picking the wrong business partner can make your workday seem twice as long, but the right partner can halve your load.

By Christine Van Dusen

The defining moment for Sara Harris and Cynthia Morgan came when Morgan experienced a difficult personal situation a few years ago. “Sara was on vacation in Mexico, and I think she came back with a $700 phone bill, because she spent all her vacation on the phone with me,” she says. “At that point, anything she’d done on a personal level or business level that annoyed me didn’t matter anymore. It evolved to another level, an unconditional level.”

This level of acceptance has contributed to their successful 25-year partnership in Quadras Integrated, an Atlanta-based “creative factory” that produces print, Web, video and direct-mail materials for corporations and high-end gift, fashion and food companies.

The two are quite a pair. In business, Harris is analytical and deliberate in her thinking; Morgan is spontaneous and loud, and barrels ahead on gut intuition. On the personal side, Harris feels at ease in a ballgown at a benefit; Morgan would rather putter around her garden in sweatpants. Harris is married with a 15-year-old son; Morgan is nearly an empty-nester with daughters ages 18 and 20. Each woman brings different strengths and weaknesses to the partnership. During disagreements, they listen to each other’s arguments and don’t let pride get in the way of finding the right solution. And after all this time they not only remain 50/50 partners – they’re also best friends.

“I think there comes a point in any partnership where you just find a comfort level,” Morgan says, then begins to choke up. “You find a respect level and recognize the other’s opinions and strengths.” Harris adds,”We give in to each other when the time is appropriate and we know the other one is correct.”

Trust and respect are also important to Beth Schoenfeldt who met her business partner Victoria Colligan online while trying to figure out how to create an Internet presence for Ladies Who Launch, a networking and incubating organization for women entrepreneurs.

Schoenfeldt got to know her by e-mail first, then – once a connection was forged and trust built – she set up meetings at a coffee shop, usually the French Roast on the Upper West Side of New York City. (Incidentally, she used this same strategy when she met her husband through an online dating service.)

“I felt very, very lucky,” says Schoenfeldt, whose company now has programs in 50 regions across the U.S. and Canada. “I’d found the perfect person – in both of them.”

But at press time, it became clear her business relationship was not a match made in online heaven. While mum on details, Schoenfeldt recently gave up day to day operations at Ladies Who Launch. 

Sustaining a great partnership isn’t easy. It requires communication, trust and diplomacy. The right business partner can share challenges and help alleviate the burdens of workload, personal cost and growth. The wrong partner can tear a good business apart – and create emotional, financial and professional chaos.

About 25 percent of the 10.4 million U.S. businesses owned by women (50 percent or more) are partnerships, according to the Center for Women’s Business Research. Though no detailed study has yet measured their rise or effectiveness, partnerships are understood to be a growing part of the women’s small-business landscape – for better and for worse.

“Like a romantic relationship, getting involved simply because you don’t want to be alone is not the best of reasons to choose a partner,” says Nina Kaufman, a New York City–based attorney and expert on business partnerships. “I’ve seen more fail than succeed.”

Of the 400 women recently surveyed by networking company Ladies Who Launch, about 33 percent reported having a partner. Half of those entrepreneurs feel they couldn’t have launched the business on their own. Of the partnerships that failed, most fell victim to incompatible levels of dedication. The other top reasons: money and conflicting ideas.

And, as with many a marriage, the dissolution that followed was often complicated, painful and poorly planned. Or, as Kaufman puts it: “Emotions are high, intelligence is low, and you’re thinking about getting your hands on what you can, including your partner’s neck.”

The crucial ingredients, successful entrepreneurs say, are fairly simple: Find a partner whose strengths cover your weaknesses and whose work ethic matches your own; split the business fairly but unevenly, not 50/50; get every last detail of the partnership down in writing; and plan properly for the partnership’s eventual demise.
And then, just keep your fingers crossed. 

“We have different styles and personalities, but we probably already know how the other one will think about something before it happens,” Harris says. “I won’t say we are of one mind, but we function as one mind. There’s great trust, and that makes it work.”

The 50/50 Mistake

Karen Hough saw nothing wrong with getting into business with her brother-in-law’s wife in 2002. The two got along famously, and Hough believed she needed help running an Ohio company called ImprovEdge, which offers improvisation workshops to help executives and entrepreneurs improve workplace communication.

The partnership “was great for me because it gave me more confidence, and she brought new ideas to the company,” Hough says. “It was a situation where I really believed that I could keep my business and family life separate.”

That was mistake No. 1. Hough’s partner’s marriage fell apart, and suddenly Hough felt torn between two sides: that of her brother-in-law and that of her business partner. “We were married to brothers in the family, and her divorce was hanging like a cloud and affecting my relationship with the family,” Hough recalls. “There were hurt feelings everywhere.”

The second mistake, as Hough sees it, was that they had split the business down the middle, 50/50. That meant that if ever there were a disagreement, there would be a stalemate with no one to break the tie. And finally, she and her business partner had not put together a written partnership agreement that planned ahead for the possibility of dissolution.

“We never really understood how to move forward,” Hough says. “But you have to remember that every partnership dies. Even if you have a marriage that will never dissolve, it will end when a spouse dies. We never saw it coming.”

After discussing with a lawyer how best to split from her partner, Hough called her co-founders, who serve as part-time consultants with ImprovEdge. “I decided to take 100 percent ownership under my name in 2005. I did it immediately, and that’s how things stand now.”

The negative experience hasn’t discouraged Hough from partnering in the future, though. “I’ve seen partnerships work very successfully,” she says. Next time, her ideal partner will share her passion for the business, she adds, and have skills in the areas where Hough is weakest, like operations, development and finance.

A Different Work Ethic

Finding that right combination can take a lot of attempts.  Just ask Dawn Fotopulos, an assistant professor of business at The King’s College in New York City and a serial entrepreneur-and serial partner.Her first partnership, with a woman, involved a business in the mid-1980s that created specialty T-shirts. Fotopulos and her partner each put in $15,000 of their own money and then obtained a $70,000 loan guaranteed by the U.S. Small Business Administration.  

Fotopulos assumed that because they’d put in the same amount of capital, they would share the ownership equally and put in the same amount of time and energy. But that wasn’t the case. Her partner, she says, was the creative force but had fewer business skills and little interest in management. When the company won a Lands’ End subsidiary as a client, thousands of shirts had to be shipped out the door on deadline or the order would expire and be canceled. It was a make-or-break deal. Fotopulos was frantic; her partner was not. “That was disillusioning for me,” she says. “Here’s this person who owns half the company who is not demonstrating the same commitment I do.”

In her next partnership, in the late 1990s, Fotopulos paired up with a man to create a radio program that helped middle managers make career transitions. He had excellent technical skills and served as the producer. She was the on-air talent. The ownership split was 70/30, in her favor. Maybe, she thought beforehand, there would be a difference when partnering with a different gender. Perhaps two women would always put friendship first – and as partners shy away from conflict, hold grudges and fail to communicate properly.

But with this new partnership, gender differences seemed to work against her. Fotopulos got the impression that her male partner believed certain detail-oriented tasks, like administration, were beneath him. “He was always asking, ‘What’s in it for me?'” she says. “When you’re building a business and not sure where it’s going, that’s the wrong question. The right question is, ‘How can I contribute?'”

Within six months the business was kaput. But that didn’t stop Fotopulos from trying again. In 2006 she embarked on a third partnership attempt, a real estate venture, this time with another man. He proved to be a different kind of partner, though: He felt at home with strong women and was comfortable deferring to Fotopulos for the final word. And, unlike previous partnership attempts, this one included a one-page legal agreement that spelled out who was in charge, who would take on what tasks and what would happen when the business ended – which it did when the property sold, bringing in a profit in the low seven figures.

“There were times in the partnership when I saved us a ton of money and times when he saved us a ton of money,” she says. “And nobody said, ‘What’s in it for me?'”

10 Issues You Need to Address in a Partnership Agreement

Details in a clearly written partnership agreement can help any business partnership run more smoothly – and take the pain out of an eventual separation. Experts recommend a consultation with an experienced attorney, as well as these tips for what to include in your agreement (so it doesn’t cause animosity later):

1. The amount of equity to be invested by each partner.

2. The type of business and each partner’s roles.

3. How profits and losses will be shared.

4. Partners’ pay and other compensation.

5. Distribution of assets upon dissolution.

6. Provisions for changing or dissolving the partnership.

7. A dispute-settlement clause.

8. Settlement in case of death or incapacitation.

9. Restrictions of authority and expenditures.

10. Length of the partnership.

Source: U.S. Small Business Administration
This article originally appeared in the September.October 2008 issue of PINK Magazine.

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