COACHES CORNER
Coaches Corner
The Curse Of Small Business: Partnerships!
I
once worked for a company, now public and very successful, where the owner sold 40 percent of his ownership interest so he could access the financial resources required to grow that very capital-intensive business. The new partner brought access to capital, board-level advice, and the desire to have a disciplined approach to running the business, while we brought the domain expertise, winning moves, and hustle that grew the business dramatically. Although not without some confrontation, especially in the early years, this became a successful partnership where both sides made each other better in addition to making each other a lot of money. The partner learned a lot about the realities of running a growing business and used this experience to make other successful acquisitions. We learned the intricacies of how to scale our business from founder centric to professionally managed and globally focused.
However, I’ ve found that type of successful partnership is rare.
I have been coaching for more than a dozen years and have come to view partnership issues as a major impediment to scaling a business. When I facilitated CEO peer groups, it was the most common issue we dealt with in our monthly forums, and it’ s often an issue in my current coaching engagements where I work with entire leadership teams. Sometimes the partnership issue is so subtle that people have accepted it as“ how things work around here.” Other times there is obvious dysfunctionality, even outright conflict. Neither is acceptable and both need to be corrected if the business is to grow.
I’ m referring to two different types of partnership situations, each with its own potential challenges. The first, like the personal experience I described above, is where there is an external partner— typically financial— who is not active in the day-to-day operations of the business. The second and more common source of partnership issue is where there is more than one owner and these partners also work in the business in management or leadership roles.
In the first scenario, the issues tend to stem from different expectations. The financial investor has done his or her due diligence and made an investment in the company. The investor wants profit growth or at least no negative surprises. Generally, the investor lacks strong operating experience; however, he or she expects to add value by providing sound financial management and strategic advice. The investor is often surprised by the other partner’ s lack of operating discipline including timely and accurate financial reporting. Sometimes margins erode and some hard conversations inevitably follow.
The operating partner, on the other hand, has welcomed the investment, yet naively expects to be left alone to run the business as usual, often resisting the financial partner’ s well-intentioned efforts to help the business improve. Nowhere are all the adages about resistance to change more prevalent than when an outsider tries to get the operating company to improve or change things! The solution to this mismatch is finding the alignment in the goals of both parties. Generally, both sides want to grow so that’ s a good starting point. With some patience from the financial investor and some openness to new ideas from the operating company, a successful, executable, growth plan can be created. As a coach, I’ ve been able to help facilitate both sides of these partnerships to find this common ground and move them forward.
I find the second partnership scenario, where partners( minority owners) are working in the business, leads to more problems and the solutions are trickier. This type of company structure is common not only amongst formal partnerships like engineering companies or other professional services type firms, but also in contracting businesses, software companies, in fact, in virtually any type of company. The following are some of the issues I’ ve encountered and some suggestions on how to work through them:
ISSUE: EQUAL OWNERSHIP AND EQUAL PAY BUT UNEQUAL EFFORT AND ACHIEVEMENT. It’ s a common mistake for owners with
8 | SPRING 2017