Partnerships have an alarming tendency to break down over time. It is not just hard times cause partners to fall out, good times, too, can create a rift. The reason is that, over time, we all tend to overvalue our own contributions, and undervalue our partners contributions.
I once acted as a mediator in a lawsuit between two business partners. They were breaking up the partnership, and it was acrimonious. The partnership had not failed – in fact it had done better than expected – and now they each wanted the other one out. Their agreement set terms for a buyout, but it wasn’t clear and they were both stuck on why the other should get the money the buy-out called for.
This partnership, like many, consisted of an operations guy and a money guy. One partner had put up all the cash, the other partner had run the company for years. Their agreements had called for 50%/50% ownership, but neither could agree to that anymore. I asked why?
The operator said:
“I could have gotten that money anywhere. Even a hard-money lender would only have charged me 25-30%. But he only ever put up the initial $100,000 in starting capital, and now he thinks he should get a million dollars? That is ridiculous”.
He had a point. The business had been very successful, and had become worth the two million dollars very quickly. If the operator bought the money guy out for one million, the money guy was getting an annual interest rate of 180% and a total return of 1,000%!
So I asked the money guy why that wasn’t fair. The money guy said:
I put up 100% of the cash, and I took 100% of the risk. If the company had tanked, he would have walked away fine and I would have lost all my investment. I had the capital – I could have found any competent person to run by business, but he couldn’t get a loan or an investment from anyone when we met”.
He also had a point. He placed his capital at risk, and was entitled to the reward he bargained for. But the operations guy had placed his labor at risk, and the fact is that, when they started, they needed each other. The operator had a dream but no means to execute that dream. If he could have found better terms for the money, he would have taken it. And the money guy has cash, but no dream or time or ability to make the company happen. Without the operator, he may have backed a different, less successful venture, or gotten about 2% on his money in a CD somewhere.
The point is, they should have appreciated each other’s contribution and celebrating, not spending their time and money fighting one another. They had both overvalued their own contribution and undervalued their partner’s contribution. They had allowed that false valuing to fester, and turn into resentment.
The good news is, you can avoid this. Here are three tips to keep your partnership on track:
- Remember what brought you together in the first place. Do this from the beginning. Forewarned with the prediction that this will, if you do not take care, happen to you, forearm yourself and make a list of the reasons you are entering into this partnership and what your partner brings to the table and why you needed that. If you are already in a partnership, do this now, before the memory fades even more.
- Actively Look for Ways your Partner Adds Value. This is something to do before things go bad. Call it preventive medicine. Your subconscious mind will discount and fail to see the things your partner does, and will take great note of your every contribution. Your active mind must make up the difference. Intentionality makes all the difference here. You can also seek ways to help your partner be more successful in adding value. You know your partner’s strengths and weaknesses pretty well, if you have been partners for a while. Find ways to allow your partner to contribute his strengths, and notice the value added, and you keep resentment at bay.
- Consider that your viewpoint is biased. This overvalue/undervalue happens so often, I am not sure it isn’t practically inevitable. Whenever your mind is telling you that you do more than your partner, that your partner has it easy, that you are what gives the company value: STOP. Rest assured that you are, most likely, wrong and that you judgment on this issue is severely biased by your subconscious mind. Go through the lists you made of what brought you together in the first place and ways your partner adds value. Here’s a tip: if your resentment is about the past, and not what is going on now, you are almost certainly falling prey to overvaluing/undervaluing.
The break up of a company is expensive, and in the end no one wins. Even before the break up, a partnership that is poisoned with resentment does not function well. Do not enter into a partnership with a “this will not happen to us” mentality. Plan for success from the beginning, and you will succeed.