Avoiding Drama: Essential Strategies for Business Partners
Are you setting your business partnership up for success or failure? In this episode, learn why a documented agreement, such as a "Family Constitution" or "Business Charter," is essential for setting expectations and minimizing emotional turmoil. Andrea and Michelle break down the crucial steps to prevent major conflict among business partners.
Discover how to navigate the complexities of shared ownership, from defining roles and responsibilities to establishing clear financial agreements and succession plans. This episode will equip you with the tools to foster a healthy partnership, avoid costly disagreements, and build a sustainable business.
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Avoiding Drama: Essential Strategies for Business Partnerships
The landscape of small business partners is diverse, encompassing spouses, long-time friends, and even individuals who were once strangers united by a common goal. While the initial stages of a business partnership are often marked by enthusiasm and shared purpose, the journey can be fraught with potential pitfalls. Disagreements over strategy, financial decisions, and the complexities of human interaction can lead to conflict, jeopardizing the very foundation of the venture.
At Revela, we’re committed to fostering leadership, improving culture, and driving positive outcomes through personalized and practical strategies for individuals and organizations. In a recent episode of our podcast, The Leadership Hustle, we discussed the topic of business partnerships and how effective conflict resolution helps bring out the best in partner agreements.
The Risk of Business Partnerships
While working with a business partner might seem like a sensible venture, particularly if the parties bring different strengths and skills to the table, there is an inherent risk to business partnerships. In worst-case scenarios, the relationships can turn ugly and even end up in litigation.
Andrea Fredrickson shared, "Often I hear people [say] you should never have a partner. Business partner. And yet, there's a lot of us that have business partners, whether we're related or not, right?"
Partnerships can begin strong, but the reality of business can shake things up later, making the partners feel less secure about the arrangement. As Michelle Hill pointed out: “When things get started, that passion and everything's there, but, you know, as things occur, we grow and dynamics change. There's sometimes unexpected things [that] come up… When emotions are not high, how do we work through those things?"
This risk highlights the crucial need for proactive measures to prevent conflict and establish a framework for navigating disagreements when they inevitably arise.
Why Early Planning is Crucial
Drawing on experience working with numerous businesses, including family businesses, Fredrickson emphasized the importance of early planning: "Hopefully, many of them have had good legal counsel, and when they put their articles of incorporation together—or whatever those documents are that they want upfront—that there is as much of an exit strategy as there is."
This foundational step of clearly defining roles, responsibilities, and expectations is paramount in laying the groundwork for a harmonious business partnership.
Consider a Business Charter or Similar Document
However, the legal documents are just the starting point. The intricacies of human relationships, especially within the high-stakes environment of a business, require a more nuanced approach to conflict prevention. This is where the concept of a "business charter" or "family constitution" comes into play.
As Fredrickson explained:
"One of the things that we recommend when you go into business, even if it's for yourself, is you start crafting a document that lays out some of these decisions. Now this document can be called lots of different things. I've seen it or heard it called Code of Conduct, the Family Constitution. It is the family charter or the business charter."
This document serves as a proactive tool to address potential areas of tension before they escalate into full-blown conflicts. It's about having those crucial, sometimes uncomfortable, conversations before emotions run high, allowing for a more logical and objective decision-making process.
Laying the Foundation: The Power of Partner Agreements
At the heart of preventing conflict in business partnerships lies the establishment of clear and comprehensive partner agreements. These agreements go beyond the legal formalities of incorporation and delve into the operational and interpersonal dynamics of the partnership. Key elements to consider include:
Financial Contributions and Responsibilities: Establishing clear initial and future financial obligations for each business partner is essential for avoiding subsequent misunderstandings and resentment.
Decision-Making Processes: Defining clear decision-making protocols, especially for scenarios with differing partner opinions or varying ownership stakes, is vital for avoiding future impasses.
Conflict Resolution Strategies: A pre-defined, step-by-step process for resolving disagreements, potentially involving negotiation, mediation, or arbitration, is essential for addressing conflict constructively before it escalates.
Exit Strategies: Defining potential partner exit strategies, including buyout terms, early in the agreement process is crucial for preventing future costly and emotional disputes.
Roles and Responsibilities: Clearly defined roles and responsibilities for each partner minimize overlap, confusion, and potential power struggles, fostering efficiency and reducing conflict.
Navigating the Unique Dynamics of Family Business Partnerships
The intersection of family and business introduces a unique layer of complexity to partnerships. While shared history and trust can be significant advantages, the blurring of personal and professional boundaries can also create fertile ground for conflict.
One common challenge in family business partnerships that Fredrickson highlights revolves around the involvement of family members in the business, such as when a child needs temporary employment during school breaks. These seemingly innocuous situations can quickly escalate if expectations and guidelines are not clearly established.
The "family constitution" or "business charter" becomes particularly valuable in this context. It provides a framework for addressing sensitive issues such as:
Entry of Family Members: Establishing clear criteria for family members entering the business, such as education, experience, and performance standards, helps prevent perceptions of favoritism and ensures meaningful contributions.
Compensation and Benefits: Clear and transparent compensation for family members, aligned with their roles and comparable to non-family employees while avoiding hidden perks, is crucial for maintaining fairness and morale.
Succession Planning: Openly discussing potential succession plans in family businesses early on, without premature commitments, can help manage expectations and prevent future conflict arising from the intertwining of business and family.
As Hill aptly summarized, the goal is to have "very good logical conversations and then we agree that we're following it."
The Ongoing Commitment: Maintaining Harmony in Partnership
Establishing clear agreements and guidelines is not a one-time event. Business dynamics evolve, personal circumstances change, and unforeseen challenges arise. Maintaining a healthy and productive business partnership requires an ongoing commitment to open communication, regular review, and a willingness to adapt.
As Fredrickson advised, "If you have spouses, they need to know what those expectations are up front. You can't surprise them." Regular communication ensures that all partners are aligned on the current state of the business, any emerging challenges, and potential shifts in priorities.
The "business charter" or "family constitution" should be a living document, subject to periodic review and revision. As Fredrickson suggested, "We need to review the constitution at least every year as a council and say, do we agree with this or do we not agree with this? Or has there been some change?" This proactive approach allows partners to address potential areas of future conflict before they become entrenched.
Seeking Outside Help
When disagreements persist despite these preventative measures, having a pre-agreed conflict resolution process is crucial. This might involve bringing in a neutral third party, such as a business coach or mediator, to facilitate constructive dialogue.
Fredrickson says some key questions business partners should ask are, "Do we need to bring in a business coach [who] can talk through and be a referee? Do we need to bring in arbitration?" The key is to have a mechanism to address conflict fairly and efficiently, minimizing the potential for long-term damage to the partnership and the business.
Partnership in Leadership: A Shared Vision for Success
Establishing clear partner agreements, addressing the unique dynamics of family businesses, and committing to ongoing communication and conflict resolution are not merely about avoiding disagreements in business partnerships. They are about fostering an environment where partners can leverage their strengths, support each other's growth, and collectively drive the business towards success.
At Revela, our philosophy centers on revealing and developing the untapped potential within individuals and organizations. By embracing the proactive and collaborative approaches we’ve shared, business partners can transform potential conflict into opportunities for stronger relationships and a more resilient and thriving enterprise.
For more insights and advice from our discussion about business partnerships, listen to the full episode on The Leadership Hustle podcast.
About the Hosts
Andrea Fredrickson
Andrea Fredrickson is a thought leader and consultant at Revela, an organization based in Omaha, Nebraska specializing in the development of leaders, culture alignment, and business strategy for private and family businesses of all sizes. Revela is one of the region's most experienced thought challengers, helping individuals and companies find their greatness. Andrea has built an amazing team by believing that fundamentally people want to be successful and become better versions of themselves.
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Andrea has degrees in education, management, and business. She is the author of Insight Unseen; How to lead with 20/20 business vision. She helps people see things differently, self-reflect, and never stop looking for ways to improve themselves on a personal and professional level. Andrea has spent more than 30 years researching and developing methods to help people communicate and lead more effectively.
When Andrea isn’t working with clients, you’ll find her spending time with her family & friends and making memories by exploring new cities.
Michelle Hill
Michelle Hill is a master facilitator and coach at Revela, an organization specializing in the development of leaders and aligning the culture of privately held and family businesses of all sizes. Revela is one of the region's most experienced thought challengers, helping individuals and companies find their greatness.
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An ambitious leader, Michelle has the natural ability to create forward momentum to build teams and get results. She inspires others to look within themselves and to challenge the status quo. She helps create high-performing environments. Michelle brings a diverse background: operations, employee development, and sales in the steel, hospitality, and consulting industries.
Outside of work, you will see her competitive side engaged in her daughter’s sports and ISU athletics. She loves life, her four-legged companions, and captures all the moments through her camera’s lens.
TRANSCRIPT
Andrea Fredrickson: On this episode of The Leadership Hustle, we're going to talk about ways that you can prevent some major conflict when you have partners. Hello, and welcome to The Leadership Hustle. For executives whose companies are growing fast and need leaders who are ready. Welcome back to this episode of The Leadership Hustle. I'm Andrea Frederickson.
Michelle Hill: I'm Michelle Hill.
Andrea Fredrickson: And today's topic is about partnerships.