Leadership

Happily Ever After

Partnerships are like marriages: you have to work at them. Here's how the co-owners of fast-growing firms manage the challenge

Written by Camilla Cornell

It was like a ping-pong match — only words were zinging back and forth. Eighteen months ago, Linda Hipp, president of women’s golfwear manufacturer LIJA, and her business partner James Redknapp* were loudly debating the merits of a particular marketing approach. In the meantime, the firm’s marketing manager, Nali Yiu, sat on the sidelines, completely ignored. “It’s like we almost forgot she was in the room,” recalls Hipp. “I remember looking over at her and thinking, ‘Oh, my God! We’re sitting here with Nali and we’re just going off.'”

*Not his real name

Hipp and Redknapp thrived on the synergy and dynamics of their partnership and enjoyed bouncing ideas off each other. The trouble was, each was involved in every aspect of the business. They tended to debate their opinions — often in front of staff — and there were no clear lines of demarcation between what she did and what he did. Says Hipp: “It became confusing for the staff to know who to report to.”

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The two-boss syndrome is just one of a host of problems that can plague partnerships, says Doug Robbins, president of Robbinex Inc., a Hamilton, Ont.-based business broker that specializes in helping entrepreneurs sell their businesses. “In my experience, 70% to 80% of all partnerships don’t get much past three-and-a-half years.” And when a partnership goes bad, adds Robbins, it can prompt a sale or a buy out or even the death of a once-thriving business.

But when it goes well? The results can be phenomenal. Working with one or more partners usually means you have access to additional capital, contacts and skills. But more than anything, you gain another individual who cares just as much as you do about the company’s success — someone to brainstorm and share the load. A well-run partnership can allow a firm to do things beyond what a solo CEO can achieve. Consider Canada’s Fastest-Growing Companies. Some 38% of the 2007 PROFIT 100 got their start as team efforts. Their average five-year growth rate: 2,705%, versus 1,520% for companies founded by a single entrepreneur. (Take out our No. 1 firm, and partner-run firms still grew 1,867% over five years.) Proof positive there is strength in numbers.

Still, as Hipp and Redknapp discovered, managing a business relationship is never easy, and partners must work hard to make their partnership function smoothly and efficiently.

Indeed, for LIJA’s two partners, the great debate was a wake-up call for the pair to adopt a more rigorous approach to their partnership. They devised clearly stated roles and responsibilities for each and started regular strategy meetings to keep each other updated and to ensure they presented a united front to employees. Today, such teamwork provides the twin rails that keeps the LIJA train rolling forward, says Hipp, and played a key role in securing LIJA 83rd spot on the 2007 PROFIT 100.

The keys to a productive relationship? Shared goals, clearly stated expectations, open communication and positive ways of resolving conflicts. If these sound like a marriage counsellor’s recipe for a strong relationship, it’s no coincidence. In many ways, a business partnership is like a marriage. The only difference, says Robbins: “You have to work at a partnership even more diligently.”

Here’s how PROFIT 100 firms overcame the challenges to make their partnerships work.

Put everything in writing

In the first flush of love, partners may rush into business together without first discussing important issues. But, like a quickie Vegas wedding, such a stunt can spell difficulty in the future.

Just ask Trent Dyrsmid and Ed Anderson. In 2001, the two launched Dyrand Systems Inc. (No. 79), an IT infrastructure management provider in Burnaby, B.C. “Ed had some technical skills and experience that I needed,” says Dyrsmid. “And there was an existing relationship in place, so there was a level of trust.”

The pair worked well together. “Over the years, we developed a clear understanding of who handles what,” says Dyrsmid. “Ed is the one in charge of day-to-day operations and makes decisions with respect to that. And I’m the one in charge of which forest we’re going to cut down trees in.” By 2006, revenue reached $1.3 million, up from just $146,530 in 2001.

While the two had a partnership agreement that spelled out the sharing of profits, the issue of compensation was never addressed. They never discussed their expectations and, initially, at least, they took equal salaries. As for ownership, Dyrsmid took a 77.5% stake to reflect that he’d provided all the startup capital and took on the bank loans, while Anderson’s 22.5% was recompense for the employment opportunities he passed up to become a partner.

But conflict arose some five years in, when the company began earning more substantial profits and Dyrsmid wanted to change the compensation plan to reflect both his investment and the additional risk he had taken. Anderson resisted. “Why?” he asked. “How is that fair?”

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Anderson had assumed things would go on as they always had, and Dyrsmid thought it was obvious that, as the majority shareholder, he would be able to adjust the compensation plan. The conflict might have torn the partnership apart, if not for the input of a third party who helped the two resolve their differences.

Dyrsmid admits that he and Anderson could have avoided the headaches with a thorough discussion of such things as what the business was going to look like in five years. Who would get paid what? Who was taking what risk? And who was entitled to what?

Certainly Kevin Higgins and Tim Magwood of Fusion Learning Inc. (No. 74), a sales-performance training and consulting company in Toronto, left nothing unsaid when they took on a third partner, Scott Gilmore, in January 2006. “The negotiations took quite a long time,” says Higgins. They involved valuating the business, and then establishing the amount and timing of two separate equity payments to buy in. “There’s a third payment,” adds Higgins, “but it’s forgivable if we reach a certain size. So, we’d put an incentive in place.”

Lawyers wrote a new partnership agreement to accommodate the third partner and the different ownership levels, and to spell out what happens if one partner wants to bow out, fails to perform or becomes disabled. The partnership agreement also refers to employment agreements that are rewritten annually and spell out the partners’ roles and goals, giving each the authority to do his job.

For better and for worse

You wouldn’t marry a stranger. Yet a business partnership can be more intense than a marriage. Not only are co-owners financially entangled, they frequently spend more than eight hours a day together. That’s why ensuring partners’ personalities are compatible makes sense.

At Fusion Learning, for example, Higgins and Magwood required Gilmore to complete an online behavioural assessment to ensure he would mesh with their personalties and approaches to doing business. Then the three future partners met with a consultant to discuss the results. Wise move, believes Robbins, whose firm now uses an industrial psychologist to assess the compatibility of potential clients before they sign on the dotted line: “I would suggest all developing partnerships participate in psychological assessments.”

Still, that doesn’t mean you have to be alike. Anwar Sukkarie and Cameron Fraser, partners at WebTech Wireless Inc. (No. 27) a Burnaby, B.C.-based fleet telematics firm, admit they are very different from one another. “Cameron is a conservative. A very relaxed, calm person. You’d never hear him scream,” says Sukkarie. “You meet me, and I’m jumping off the walls all the time.” But they suit each other perfectly. “He was, and still is, instrumental in keeping us on an even keel,” says Sukkarie of Fraser. “I was, and still am, instrumental in growing us bigger and bigger.”

The two have built their business on a strong foundation of trust, respect and commitment. “We were buddies, which is always a good start,” says Sukkarie. The two had met while both were working for Motorola and had taken a few road trips together. In fact, Sukkarie recommends that all potential partners do something similar to get to know each other before signing on the dotted line. “Go skiing or sailing together for a few days,” he advises. “It’s a well-known fact in human relations that many people are friends until they go on a trip together.”

The two agreed up front that they would hang in there as partners — and Sukkarie knew Fraser was committed to doing so. “If the value system of the partners is focused primarily on money,” says Sukkarie, “it is in more jeopardy if things go wrong-and also when things go right, because then greed comes into play.”

Such faith carried the two through the launch of WebTech in 1999. The entrepreneurs made plans to go out on their own in the midst of the dot-com mania. They figured they just had to write a business plan and investors would be falling all over themselves to hand over millions. Wrong. Then the dot-bomb hit.

Both men had to remortgage their houses to fund WebTech. That proved to be hard for unmarried Sukkarie, but it was even worse for Fraser, who was married with children. To top it off, Fraser, a seasoned engineer who was widely respected in his field, was constantly fielding offers of more stable job positions. It was Fraser, says Sukkarie, who kept saying, “‘I think we can pull through. I think we can do this thing.’ It was always open talk. It was always that openness and that mutual respect and that notion that you trust this guy.”

Clear roles and goals

Trust and respect also proved invaluable to Hipp and Redknapp when the two discovered first-hand the chaos that can result when partners fail to outline each other’s responsibilities and areas of authority. Besides the constant debating between partners, says Hipp, “It can be unclear who employees are reporting to and things become repetitive-in our case, a staff member would tell [James] something, then they’d have to tell me.”

The partners carved out their respective roles, which departments each manages and the lines of reporting to each. They structured their roles to take advantage of each other’s strengths: Hipp is the creative force behind the product and the brand, while Redknapp excels on the sales side, as well as at broad thinking-and looking ahead for the business.

Hipp admits it was difficult to let go. As the founder and majority shareholder, she says, “I was so involved with every single department in the business, and I liked being on top of it.” But she trusted Redknapp, and her confidence only grew as she relinquished authority. To prevent larger projects from slipping while they were focused on the day-to-day, says Hipp, “we make everything time-bound. You at least have a critical path of things to get done, and you’re not holding up others.”

Higgins, Magwood and Gilmore take that idea a step further. “We set quarterly goals and try to keep it to three per partner,” says Higgins. One of Gilmore’s recent goals, for example, simply read “marketing plan execution.” To make it more specific, he outlined his intention to launch a newsletter and direct-mail program, to document two client case studies and introduce executive breakfast sessions.

At the end of the quarter, each partner completes a self-assessment, essentially rating how well they’ve performed against their goals and assigning red flags to trouble spots. The advantage of a self-assessment: no one gets offended, but each partner is aware that the others are watching. “Based on that self-assessment,” says Higgins, “we take any bonus money that we have for the partners and we decide between us how that money is split up.”

Keep the lines of communication open

If there’s one hallmark of a healthy partnership, it’s ongoing communication. Apart from keeping everyone updated on the day-to-day activities of the business, says Robbins, “it gives each partner a release valve so things don’t tend to fester.”

Husband-and-wife team Cameron Baty and Karina Birch say they’ve gone through three communication phases with their Canmore, Alta.-based producer and retailer of all-natural soap and bath products, Rocky Mountain Soap Co. Inc. (No. 86). In the first phase, the company was small enough that they were able to handle all decision-making jointly, debating each choice as it came up. In the second, they divided responsibilities to save time, essentially allocating decision-making to whoever was best suited. “We’d be around each other when decisions were being made, so we would be cognizant of each other’s decisions,” says Baty. In the third and current phase, “Our duties are so divided that we have to constantly focus on updating each other.” Managers often deal directly with areas of responsibility and then report to one or the other partner, points out Baty. “So, now we e-mail copies of important information and decisions that have been made, and we have a weekly meeting to discuss any major deals.”

Hipp and Redknapp apprise each other of business dealings during twice-weekly breakfast meetings. The pair also get away from the office together for a full day each month. The off-site meetings allow them to do business-development planning and strategizing.

Fight fair

Even in fairy-tale marriages, disagreements arise between spouses. Conflict is a reality. How you resolve those disagreements will determine your ability to get ahead. Regular communication helps, as does delineating areas of authority. And sometimes, says WebTech’s Sukkarie, it pays to walk away from an argument, mull things over and come back when you’ve cooled down.

He recalls one disagreement with Fraser about whether WebTech should sell hardware. Sukkarie wanted to nix the sale of hardware altogether, but Fraser believed it was crucial for the firm to provide an end-to-end solution. “I’m the president of the company and, yes, we’re partners, but I’m right about this one,” Sukkarie told Fraser, who continued to make his own point calmly and logically. Although admittedly bruised, Sukkarie says he had too much respect for his partner’s expertise to ignore his opinions. So, Sukkarie simply walked away. “I stewed over it,” he says. “About a week later, I came to the realization he was right.”

Baty and Birch try to keep things civilized, too. “We always respect the other’s right to disagree,” says Baty. “We don’t take it personally.” If the couple don’t see eye to eye on something major, they talk until they work it out. And if they make no progress, they might seek an opinion from a staff member.

In fact, a neutral third party can often break a stalemate and help partners see reason. That’s what helped Dyrand’s Anderson and Dyrsmid get back on track after their compensation spat.

The dispute began when Dyrsmid introduced proposed changes to their compensation packages at a meeting with a third silent partner-who had bought shares in the company about 18 months after the firm started. Anderson had been given no warning and felt he’d been blindsided. Complicating matters, the silent partner was in the process of selling, and the lawyers who were reworking the shareholders’ agreement to reflect that got involved. “I was getting advice from my lawyer, who was looking out for my interests, and [Dyrsmid] was getting advice from his,” says Anderson. “The lawyers were not on the same page.” The situation went on for months, with the two men barely speaking with one another.

Fortunately, a business coach whom Dyrsmid brought in to help with other matters provided the spark that enabled the two to work through some of their differences. Sitting down with the partners, he laid it on the line and told them to get over their spat. He backed up Dyrsmid’s contention that, in business, whoever took the biggest risk got the biggest reward. “He pointed out that we were doing well,” says Anderson, “but there wasn’t going to be anything to fight over if we continued as we had been.” Anderson respected his opinion. “He has been in business for many years and he was unbiased.”

Because of the intervention, says Anderson, “We actually started talking and got stuff out on the table.” That was followed by a series of meetings to finalize their shareholders’ agreement and agree on what was okay and what was not.

Since then, harmony has reigned. Although Dyrsmid and Anderson have different personalities, work styles and even goals and objectives, both have realized that their skill sets are ideally suited to their roles in the company.

“I like working on the business, not in the business,” says Dyrsmid. “Ed enjoys the day-to-day operations — just rolling up his sleeves and getting it done.” And best of all, they each have the peace of mind from knowing that there’s another passionate shareholder watching the shop.

Partner perks

Last summer, Tim Magwood, founding partner of Fusion Learning Inc., took two months off to write music, play with his three young kids and take an extended vacation in Prince Edward Island. Far from complaining, his two partners in the management training company, cheered him on.

That’s because the two will get the same opportunity. This summer, Kevin Higgins has planned a long session at the cottage with his wife, followed by a much anticipated trip to Turkey. The following year, it will be Scott Gilmore’s turn.

The three partners implemented the sabbatical program when Gilmore joined the company in January 2006. “Part of the reason we were bringing in a partner was that we realized we needed more people to help drive this business,” says Higgins. “We were getting burnt out trying to do too many things. We were tired and over-worked. We thought: ‘Wouldn’t it be great if we could each take some time out of the business at some point?'”

They explored the idea as part of the partnership negotiations and settled on the order in which the partners would take their extended breaks, as well as the conditions. Each of the owners must be achieving his goals, explains Higgins, so there is an earned element to it. That said, the sabbatical doesn’t displace the usual five weeks’ vacation, and it comes with pay, including bonuses.

Apart from the personal benefits, Higgins says the sabbaticals are good for business. It forces others to learn your role, so that if illness or any other kind of emergency hits, the business can survive without you. Plus, “We found Tim came back refreshed and refocused, and it has been very effective, in terms of his productivity,” says Higgins. “People say they’re married to the business and can’t leave, yet it’s quite the opposite. If you are married to the business, you do need to leave.”

Originally appeared on PROFITguide.com