Larry and Sergey. Jobs and Woz. Hewlett and Packard. Procter and Gamble. Ben and Jerry. Some of the world’s most successful businesses were built by partners. But what does it take to make it work?
Although he and his late business partner built what is now the world’s biggest salad retail chain, SumoSalad founder Luke Baylis would never recommend that aspiring entrepreneurs follow his lead.
The partnership and friendship he shared with SumoSalad co-founder James Miller, who died at age 38 in January last year, was an extremely close one based on trust and respect, so the two never felt a need to put any legal or other agreements in place.
“Our roles and responsibilities a lot of the time were based on each other’s workloads,” Baylis says.
“We had similar capabilities so we simply did what was best for the business. When we launched our first shop in 2003, for instance, we found that James was incredibly good with the customers, so he took care of front of house and I developed the food programs and the back-of-house systems.
“As the company grew, James allowed me to head the business and focus on managing franchising, growth and finance, while he looked after the retail side and the development of stores. But the whole time we looked out for each other as much as we looked out for ourselves.”
That’s not to say the best friends always saw eye to eye. But when disagreements cropped up, Baylis says, the two knew to put their egos aside so their judgement remained unclouded.
Friends Luke Baylis and James Miller opened their first
SumoSalad store in 2003
“We agreed to focus on what was best for the business,” he says.
Baylis and Miller’s friendship led to a fruitful partnership which only came to an end because Miller wanted to extract himself from SumoSalad to move to a new challenge, an award-winning pub venture.
Miller’s separation from SumoSalad was smooth and uneventful thanks to its gradual nature and, once again, thanks to the strength of the friendship. But things could easily have gone a different way.
“In a business partnership there should always be clear and strict agreements in place,” Baylis says.
“The agreements should cover expectations, directions, business strategies, structural outlines and exit strategies. It should outline broad goals and should eliminate all chances of conflict down the track. My new partner [the Tulla Group, headed by Mark Maloney] and I have spent a lot of energy putting such agreements in place and that makes me feel confident about the future.”
The strength of the friendship between Baylis and Miller was probably a key to their success in business, says behavioural strategist and executive coach Warren Kennaugh. A good relationship between owners often determines their tolerance for each other’s mistakes, the building of trust and the ability to be open and honest with each other, he says.
“Quite often I see people get together based on the money to be made or based on the fact they have complementary skills,” Kennaugh explains.
“This is what starts the business relationship. What ends it is a difference in personal values. In good relationships the differences are valued and appreciated, if not necessarily understood. In bad ones they are taken personally and seen as a sticking point. And in most of those cases, when that happens they end up ‘cutting up the dog’.”
One business owner who was glad he had agreements in place with his co-partners is Ian Raspin FCPA, a director of accounting firm BNR Partners in Mulgrave, Victoria, who also chairs CPA Australia’s Public Practice Advisory Committee.
Raspin and his two partners gradually bought out the now 22-year-old business seven years ago. But more recently, when he and partner Jason Bertalli CPA separated from the third partner, the partnership agreement came very much in handy.
“We had in our agreement something called the ‘Mexican stand-off clause’,” Raspin says.
“It outlined the process that would come into play if one partner wanted to leave, if the partnership was not working.”
The Mexican stand-off clause said that if one partner felt the partnership was not working, they could offer to buy out the other partners for a certain price. The other partners could either accept the amount, or offer the exact same amount to buy out the partner who triggered the separation clause.
“Such a clause is very valuable as it allows a partner to start a process, and it makes that process very clear and straightforward,” Raspin explains.
“There was no animosity. We simply wanted the business to go in different directions. We took our part of the practice and he took his.”
But of course it wasn’t that simple. A partnership split is not dissimilar to a divorce – but instead of children you need to worry about clients and staff; instead of the family home you need to negotiate office space and equipment, and instead of the household furniture you have to figure out how to separate and split the database and IT systems.
Raspin admits that they made a few lawyers very wealthy along the way. But as the process remained professional and planned, he and his partner and their staff were able to pack on a Friday, move on the Saturday, and be up and running again in their new office by 10am on the Monday.
Jason Bertalli (left) and Ian Raspin of BNR Partners
“Having three people in charge of the business was both a benefit and a pain,” Raspin says.
“Obviously there were a lot of issues, but the third partner also made us stop and think when he challenged our beliefs. We miss that influence to think differently, and we have since sought out other types of organisations that we can work with in order to continually seek new and unexpected points of view.”
Having learnt a lesson when the business split in two, Raspin is now more determined than ever to work on the relationship with his remaining partner. Like Baylis, he says it’s vital to keep ego out of any business discussion. Constant communication is also crucial.
“It’s very easy for perceptions to be distorted if you are very busy and always looking sideways at each other,” Raspin says.
“Yes, you absolutely have to trust the person you’re partnering with to do their job. But you also need to put time aside regularly to sit down and discuss the business itself.”
Kennaugh agrees that communication between business partners is an important ingredient in the recipe for success. But many business partners fail to regularly connect when so many other urgent matters often take priority.
“Most SME [small-to-medium enterprise] partners tend to overlook the regular, open and honest conversation about how everything is going,” Kennaugh says.
“Having a regular communication process, one that allows you to stop, start and continue, is very valuable in terms of ensuring each partner is still engaged, still supporting each other and not turning on, or undermining, the other.”
If you really want to trust your partner, it may be good to begin by considering family members. Lisa Liew FCPA, managing partner of Philip Liew & Co in Singapore, looks after the accounting firm with her father, Philip. She says the absolute bond of family trust means there needs to be no formal agreement.
Lisa says the relationship of respect means she is always learning from her father, especially in areas of staff retention, leadership and empowerment. It also means that when one of the two has to be away from the business, perhaps overseas for meetings, the other is able to jump in and replace them. This means less disruption to the business and greater confidence for clients.
“It’s quite natural in any business or family situation to have different views from time to time,” Lisa says.
“In our family practice, at times we do not agree on issues. But we always fall back on our family values to work things through.
“If there is a disagreement, consultation and robust discussion on the pros and cons of the issue and trusting that we will make decisions in the best interest of the business are things that help the whole partnership work. With the strong foundation of family values as a starting point, I believe family ties in our practice have made resolving conflicts a smoother process.”
Outside of family, harmonious business partners are often people with shared experiences that have somehow influenced and unified the pair’s thought processes. Apple’s Steve Jobs and Steve Wozniak, for instance, were both high school students when they met. They shared a fascination for everything electronic and both had worked summers at Hewlett-Packard (HP).
Speaking of HP, Bill Hewlett and Dave Packard were engineering classmates at Stanford University and both shared a love of camping, which is how they became best friends. And Ben Cohen and Jerry Greenfield, of Ben & Jerry’s ice-cream fame, were best friends since childhood who also happened to share a love of food.
The founders of not-for-profit cancer charity Dry July, Brett Macdonald and Phil Grove, had worked together in the same office as a web designer (Macdonald) and a web developer (Grove).
When they had shared experiences of cancer, one losing a close family member and the other coming through a cancer scare, they realised they both wanted to help hospitals care for adult cancer patients.
“In 2008, in its first proper year, we raised A$257,000 through Dry July. But by the end of July in 2014 we will have raised more than A$15 million and had 65,000 people give up alcohol for a month, in the name of Dry July,” Macdonald says.
“Phil and I are different people and we manage stress differently. But we keep our egos out of the business and we always consider where it is that the entity of Dry July should go, not where we personally wish it would go.
“A partnership is fantastic because we get to share the challenges and share the rewards, and we always have somebody to bounce ideas off. We have a strong friendship and a professional relationship and in the end we know that everything we do, everything that we achieve, will really make a difference to people’s lives.”
Put it in writing
In a firm not all partners are necessarily equal. There may be senior and junior partners, for instance. But assuming equality, all partners should share profits and cover losses equally.
If a partnership agreement is in place, it should cover the amount of money each partner brings into the business, as well as guidelines around dispute management, profit sharing, roles, responsibilities, reporting, exit options and processes, dissolving of the partnership, salaries and banking rights, and whether departing partners can launch similar businesses.
Much more can and should be covered. Please seek professional advice.
Behavioural strategist and executive coach Warren Kennaugh says that when your partner in business is also your spouse, then you need to draw some very clear lines.
“You need some solid rules around how to switch off when at home,” Kennaugh says.
“This involves clarity on your roles both at work and at home, discussion about what conversations don’t enter the front door and, when they do, how best to manage them.”
Lock times in the diary to connect as a couple. During these times, make it a rule that there will be no business talk. Couples working together need a date night much more than other couples do, he says.
“If there are differences of opinion, try to get someone else to mediate. Don’t get caught in a fight with your spouse,” Kennaugh says.
“At the same time, agree on an approach on how to manage your life events to make sure they are not brought into the office.
“Consistent reminders about why you are working together and what you’re trying to achieve in the business are important. But far more vital are reminders about why you’re in a relationship. It takes work, and the relationships that I’ve seen fail are the ones that haven’t put the work in.”
Access the following CPA Library items online at cpaaustralia.com.au/partnerguide
- “Partners Building Success on Trust”, by Ross Greenwood, The Daily Telegraph, 2014
- “Partners in Life and Work”, by Sophie Foster, The Courier-Mail, Aug 30, 2013
- “Surviving the Relationship Game”, by Mike Jay, SuperVision 2009
- “Time to Get Cracking on an Exit Plan”, by George Cochrane, The Canberra Times, 2013
Contact CPA Library on 1300 737 373 or email email@example.com
This article is from the September 2014 issue of INTHEBLACK magazine.