How To: Break Up with Your Business Partner
Breaking up is never easy. Whether in romance or business, parting ways is nearly always a little messy, even when both parties agree it’s for the best. When your company and livelihood are at stake, how do you keep the process fair, with minimal drama, and preserve the friendship?
The first step is to acknowledge that it’s emotional, says Melinda Emerson, consultant and author of Become Your Own Boss in 12 Months. “Breaking up with your business partner can be harder than breaking up with your man,” Emerson says. “But that doesn’t mean that you let your emotions guide you. You cannot make business decisions based on emotion.”
Instead, be clear about your objective during the process. For some, that might be preserving the friendship. For others, it might be putting the health of the business first. If the goal is to sell the business at a profit, for example, you cannot afford to be mired in anger with your co-founder. “You can partner with your most bitter enemy if you have to,” Emerson says. “You can’t be so angry you throw the baby out with the bathwater.”
Keep talking. Kathi Elster is co-founder of K Squared Enterprises, which helps with workplace conflict, and co-author of Mean Girls at Work and Working for You Isn’t Working for Me. When clients call for help in dealing with business partners, “Almost every single time, there has been a communication breakdown, and no one is speaking to each other,” Elster says. In a typical first session with them, she has each person share his or her concerns while the other listens quietly. Participants are seldom able to accurately repeat what they’ve heard because their anger gets in the way.
To avoid this kind of interpersonal standstill, Elster suggests making it a priority to keep communication going. If things are heated, make an appointment to meet outside the office. The change of scenery will add a new, neutral dynamic to the conversation and limit the possibility of arguing in front of employees. “They will take sides, it will divide the company, and they will leave. You don’t want that,” she says.
Put your guns down. Simply lowering your voice—whether in decibels if you are communicating in person or in tone if using email or text—can make communication more civil. Listen to what the other person is saying, admit fault and be humble. “We’re all human, and this is a human relationship—there will always be conflict,” Elster says.
Call in outside help. Keep the accountant’s number on speed dial so that actual numbers rule in times of emotional upheaval. If things get heated, sit down with an objective third party, whether a business mediator or therapist, business coach, your company’s certified public accountant or the counsel on retainer. Be careful about calling an outside lawyer, however, Emerson says. “Once you call a lawyer, the friendship is over,” she says.
Be reasonable. If you have a business succession plan or other business contract, defer to those agreements. If you don’t, you must be willing to compromise. “The process of ending your partnership will be contentious unless you agree to compromise,” Elster says. Similarly, Emerson urges entrepreneurs to be guided by peace of mind. Even if it means you end up with a little less money than you think you deserve, “the goal is to let go and move on as fast as possible,” Emerson says. “You cannot put monetary value on peace of mind.”
Company: Security Investment Partners, an investment management firm in San Diego
Reason for Breakup: Disagreement over partner’s retirement date
Winning Strategy: The partner eventually left with a clean break and joined another firm, keeping the friendship intact.
I had worked with my partner since the 1980s at a big bank and a small business. He is 25 years older, and he was my mentor early in my career. About 10 years ago, I wanted to start my own firm and asked if he’d like to partner.
I made the mistake of assuming that within the next few years he’d be in his early 70s and ready to retire, which was part of my vision of eventually running the business alone. There were two problems with that scenario. One, we never discussed it, and two, when I brought up this plan three years ago, my partner made it clear he wasn’t ready to retire. I was surprised, but we continued on as effective partners for another year.
By then I was insistent that I wanted to run the business alone, and I rented a conference room for a meeting away from our office. I came with a long agenda, including terminal options for a buyout.
Again he made it clear he was not ready to retire and wouldn’t be until he turned 80, which was five years away. I suggested a buyout plan that would be completed by then. He insisted he didn’t want to change anything, although he did agree that, moving forward, I would draw a higher salary for my administrative duties, and we wouldn’t share the management of our clients as we had in the past; any new clients would be solely under my management.
Finally, about six months ago, I made it clear I wanted a structured exit strategy, and he still insisted that he didn’t want to retire. Then a month later, he came to me and said that he had joined another firm, and his lawyer would send me an agreement that evening. I was dumbfounded. I was nervous because he sought outside counsel while we had an attorney on retainer. However, when I opened the email that evening I found that, just as he promised, the agreement was a two-page, plain-vanilla agreement that gave me 100 percent ownership of the company, although he would take the clients he managed. I was so relieved and grateful I called him right away and thanked him.
In the months that followed, we were very supportive of each other in tying up loose ends and finalizing the deal, including co-writing the letter we sent to clients announcing the end of the partnership. We continue to be very good friends and had a great partnership for 10 years.
Company: Taylor Studios, an exhibit design and manufacturing company in Rantoul, Ill.
Reason for Breakup: After the principals divorced, their business partnership eventually became contentious.
Winning Strategy: She gradually bought out her partner, and they agreed on a valuation and committed to being friends.
I started this company in 1991 with my husband, and we were 50-50 partners at the time. Our marriage ended about five years later, but we were still effective business partners and good friends.
Gradually we started to have conflicts over running the company and how to manage employees, set deadlines and price projects. The business was growing quickly, and our roles and responsibilities changed frequently, with little framework for determining who had final say in various situations. Tensions mounted, and we would find ourselves outside the office—away from employees, so they couldn’t hear—yelling at one another in disagreement, even though we could hang out as friends after work.
We ran the company together for 10 years after our divorce. During that time, I gradually took over ownership by buying out portions of the company, with him ceding his shares. There had been so much contention in running the company together that the decision to end the partnership was relatively easy. By 2006 when we completed the buyout, he had started another company that suited his interests and style, and Taylor Studios had grown into something that suited me more than it did him.
The last piece related to ending the partnership was agreeing on a valuation price. Neither of us wanted to spend the $10,000 it would have cost to have a professional valuation, so we sought out a couple of software tools that used different valuation methods, and we both had figures in mind that we thought were fair. In the end, all those figures were relatively close, and we agreed on a number in the middle.
The key was that we both wanted to end the partnership as well as preserve the friendship. Today I am in almost daily contact with him and his girlfriend, and we sit for each other’s dogs. Every once in a while, I will call him with questions about clients or past jobs, and we still talk business.
Company: Details for the Home, now Details: A Unique Gift Boutique, in Haymarket, Va.
Reason for Breakup: Personal considerations meant each partner needed a different career situation.
Winning Strategy: They kept communication open and put the friendship first.
My best friend and neighbor opened a boutique with me in 2002, and for most of the nine years we owned it, it was fabulous. We were great partners in business and friendship—our kids went to the same schools, and we shared carpools. I spent more time with her than my husband.
But after eight or so years, I was burned out. Once I was with my son’s hockey team in Detroit, and she called because all of our employees had called in sick, and there was no way for me to be there to help. My family life suffered because of the business. Once when my daughter was 8 years old, she asked, “Mom, why have we never baked Christmas cookies?” It was hard to have a retail business and also be a parent, and I was starting to resent the business. I could tell my partner resented that I couldn’t always be there when she needed me.
Around this time, my partner was going through a divorce and needed a full-time income. The store was very successful but really generated only one full-time income, which we split.
One day she was discussing her options for supporting herself after her divorce, and I asked her, “Do you think you could survive if you bought me out?” She had been waiting for me to bring it up, and deep down I had been thinking of getting out. I was so afraid of losing our friendship or having to close the store. Both were so important to me. She said, “I can tell you have been unhappy for a long time.”
It was tense for a while, and talking about money is always hard. But we kept the conversation going and made compromises. We relied on our longtime accountant to work out the details, including the valuation and a buyout agreement. I agreed to a five-year, no-interest buyout paid monthly. I knew the business’s books and how much she could afford. Again, it was about keeping both the store and the friendship alive. The business is still doing great, and we’re still best friends. She recently had a business challenge, and I was the first person she called for advice.
This article appears in the July 2015 issue of SUCCESS magazine.