Event Detail

Shared Leadership: Working with Business Partners
Program Recap

Tuesday, June 15, 2004

Sponsored by Posternak Blankstein & Lund LLP and Sovereign Bank

Executive Summary

There are many different types of partnerships and business alliances. Depending on whom you choose for a partner and how the partnership is structured, the relationship could be positive or negative. It's important to recognize the differences between the types of partnership relationships, what each type offers and determine which best meets your needs and the needs of your business. Additionally, plan ahead for unexpected circumstances when establishing a partnership.

Overall Themes

• Partnerships offer many benefits, including an opportunity to draw upon different strengths and interests and the ability to grow your business faster. Many of the problems that occur in partnerships stem from a lack of clarity regarding the roles, infrequent or ineffectual communications, or an inability to anticipate or plan for changing work circumstances.
• Strong working partnerships have the following elements in common: shared business goals, delineation of roles, open and regular communications, and a respect for each other's area of expertise.
• Decision-making is an important area to determine in advance, particularly in a partnership of two. How will you handle decisions that are deadlocked? Aim for decisions based on consensus to build solid partner relations.
• Plan for an unanticipated change in circumstances and develop an exit strategy. What will happen when an illness or family crisis pulls one of you away from the business for an extended period of time? What will happen if one of you is unable to work and chooses to sell out her share? If issues such as these have not been determined in advance, they can cause strife.
• Before you bring on a partner, determine what you need – is it an equity partner, an advisor, a successor, an employee, etc.? Consider carefully before you share ownership of your company.
• Turn to outside consultants to help mediate sticky aspects of your partnership relationship.
• Consider bringing in more senior-level people earlier into the business to promote growth.

Panelist Summary

The panel was moderated by Martha Sloan Felch, Senior Vice President, Business Banking for Sovereign Bank.

• Sandra LeDuc, is the Managing Partner of LeDuc and Sikowitz, which handles accounting, management consulting, tax planning and business valuation. Sandra views a partnership in part as a vehicle for sharing administrative duties. She describes herself as a serial partner who prefers partnerships to sole proprietorships. She shares partnership of the firm with one other person, an equity partner, and they have a third income partner, who does not have equity in the firm. (Note: Lauren Jennings defines this relationship as an employee who has profit sharing). Sandra noted that she always wants to be in charge, but enjoys sharing administrative responsibilities with someone else, as well as the risks and decision-making. Her business is structured as an association of professionals who have autonomous clients. She would prefer, however, that there would be less autonomy and more unified work. While the “income partner” can weigh in on decisions, Sandra and her partner have all the decision-making power. When the two of them are deadlocked in a decision, the partner with the most billing typically makes the decision.
  
• Rose Saia was a founder and partner of Trilogy, an outsource software development partner for major network and security vendors and an OEM provider. Rose's partnership worked well for her because there was good synergy between technical and non-technical areas of the business. She found the partnership not only personally gratifying but also very successful from a business perspective. Rose outlined what makes a partnership work: partners acknowledge the expertise that each brings to the business, respect the boundaries of each partner's area of responsibility, share the same business goals, and participate in honest and regular communications. Rose suggests businesses write their business goals down, as well as the ways these goals will be measured, so the company can work towards its plan. The partners need to be vigilant and accountable to these goals. Typical partnership problems include a reluctance to approach business problems, the impact of personal problems in the business (e.g., extended illness).
  

• Lauren Jennings is Managing Partner of Posternak Blankstein & Lund and a member of the Corporate Practice Group. She discussed the reasons people are interested in partnering and the different types of partner relationships:

  • For money. You need an equity partner;

  • To share ownership. Someone may have worked her way up in the business and you want her to share in running the business.

  • To have an advisor who provides sage advice

  • To incent an outstanding employee. You are incenting this employee by allowing her to eventually benefit from the sale value of the business. However, you could make this person a shareholder instead of making her an owner

  • To establish a business relationship. These business partners or strategic partners are in a complementary business and share some of your goals in moving the business forward but they do not join your business.

  • To have a successor. If your business model doesn't lend itself to selling the company, you may want to plan for a successor. This is also useful in case of a disability.

  The actual definition of a partner is someone who shares fiduciary responsibility and shares liability. A partnership has unique tax requirements.
  

• Maggie Campbell Jackson is Principal at Howard/Stein-Hudson and Associates, a transportation consulting firm. Maggie made the transition from director to partner. She said that the company benefited from having a strategic plan in place and noted that not all businesses have that in place. The problem her business faced was how to develop leadership for the next level – the partnership level.

Q&As and Comments

• Is a partnership of three better than two? Rose believes that three is a good number for a partnership because it avoids a deadlock; however, she emphasized that a company's goal should be to achieve consensus on all decisions. She said that companies need to establish a structure to handle a potential impasse in the decision-making process.

• Some partnerships thrive and some don't. What is the profile of an effective partnership? Following are characteristics of an effective partnership:

• The partners complement each other, have different strengths and enjoy doing different tasks. This helps avoid a power struggle.

• Their values are in alignment.

• They share a common perspective on what they want to create through the business.

• They respect each other's talents and strengths.

• They are able to delegate and share responsibilities. Typically, business owners want to be in charge, but strong partnerships value the benefit of collaboration. It was noted that it is sometimes challenging working with a person who had previously been a sole proprietor.  

• What was an example of coming to a consensus in the decision-making within your partnership? One issue was regarding an employee who was not working to his potential and they had to decide how to handle that. Another issue that Sandra related was when a partner in the firm had early onset Parkinson's disease and was unable to continue working. At the time, Sandra was an income partner (employee) with no power. However, she pushed for him to exit because she felt it would be best for him to exit with a pension. Looking back, she wishes she had hired a consultant to help with that situation.
  

• Lauren related another problem she had seen in a partnership. One person who had built a firm said he wanted someone to be his “partner.” However he had a different view of what a partner meant. He was really looking for an employee. She suggests in situations in which new partners are coming on board, that companies bring on consultants to help the new shareholders figure out their roles as well as help owners realize how they can share power and responsibilities.  

• How can you attract outside leadership and how can you grow internal people? If you recognize a talent with someone inside the firm, have a discussion with them about their aspirations. Don't change their functional responsibilities yet, but instead provide an opportunity for them to take more initiative and be accountable for it. Coach them and provide feedback. You can also provide external training through seminars, etc. Good to Great is a book that was highly recommended on leadership development.
  
  Additionally, the best way to have internal talent that can be developed is to start with the hiring process. Hire smart people who are agile thinkers. Look for people who can think outside of the box and can step outside their comfort zones when needed. Also look for people whose experience demonstrates a pattern of natural leadership. Finally, you need to have clarity. You need to articulate your plan and find people who buy into it.
  
  Sandra mentioned that one way to find outside leadership is by merging with another firm. Make sure that they have strong leadership in place.

• What do you recommend when joining an existing partnership? First you have to make the decision as to establish your own partnership or join an already existing one. If you join an existing partnership, you can help it grow in new ways. Build upon the parts of the business that are already working well. You can expand into different markets – e.g., geographic or age range. Be sensitive regarding what has already been created. Try to understand how the relationships work and who does what. If you offer to take things off the original partners' plates, they may be more amenable to giving away aspects of their job that they don't like.
  
  Several people mentioned that if they could do things over again they would bring in more people earlier into their business. If they hired senior-level people in the early stages, they would have grown faster and perhaps, bigger. It was noted that consulting firms, which have cash flow limitations, often don't want to invest in higher-level employees early on, but they would be better off if they did. In addition to bringing on senior talent, bring on partners or business partners in the early stages to grow your business.  
  

• How can you get out of a business partnership that is not working? This can be a costly and painful proposition. There are many personal circumstances that can change the nature of your business – illness, divorce, personal bankruptcy. To avoid disagreements and problems, at the very outset of your partnership relationship be very clear about your relationship and develop an agreement that prepares for change. You need to have an exit strategy from the beginning. Hire outside consultants to help you with this. Prepare a buy-sell agreement, and make sure it is funded so it can be implemented if needed. Also, make sure you really want a partnership, and not a glorified employee, before you enter into a partnership arrangement. Don't offer a partnership lightly because it brings other issues along with it.
  
  

• How do you deal with a partner that has short-term needs that stop her from contributing the same amount of time to the business as other partners? One panelist suggested that if a business partner contributes more than another, she should be compensated for it. Perhaps you could use billable hours to determine compensation. It was also noted that it's the responsibility of the partner whose short-term needs are impacting the business to find an appropriate solution. You may need to bring in someone for the short term to pick up the slack. If a partner wants to exit, she should look for someone to be a replacement. If there are feelings of guilt about not contributing as much as other partners, this should be discussed.
  
  

• What are the pros and cons of business alliances vs. merely referring business to a colleague? How do these alliances work? There are many ways you can establish alliances. One way is to loosely refer business back and forth. A more formal approach is to provide some fee sharing for referring business. It was recommended that if people do this, they should disclose this information to their clients. If you partner together at a higher level you need to determine how you will handle the branding of both businesses and whether you will link them. At an even higher level, you can develop exclusive relationships, and at the highest level you can merge with the other business. One panelist cautioned that you must be careful about the quality of the other business if you engage in a relationship beyond an informal referral. Your business becomes linked to the other person's business and their work becomes a reflection on your own.

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