Partnerships: Managing Apples and Oranges

We might be apples and oranges, but we make a pretty good pear 

One of the strengths of partnerships is that each partner brings a particular set of skills to the venture. By complementing one another’s skill sets, you each make the partnership stronger. This source of strength, however, contains within it a hidden source of weakness.

The differences that make the partnership stronger also reinforce the inevitable tendency of partners to overvalue their own contributions and undervalue their partners’ contributions over time.

This tendency cannot be denied. Over time, you will overvalue your contributions and undervalue your partners’ contributions. You may only misvalue the respective contributions by a little, or you may misvalue them by a lot, but misvalue them you will. The only antidote to this tendency is to be aware that it is happening and to substitute objective analysis for subjective observation wherever possible.

I once mediated a business divorce in which one partner had put up all the initial seed money for the venture and the other partner, who had put in no capital, had operated the company for its entire life. The partnership had been very successful, and in the partners exited by selling the company to a third party for a lot of money. The sale should have been a cause for celebration. Instead, it was cause for litigation.

The money partner believed that he had taken all the risk, and the work partner had been paid a salary all along to run the business. “Why should he get a windfall on my investment. I could have hired anyone to run that business. I took all the risk and should get most of the reward.”

The work partner had a different view. “I had the original idea and operated the business the whole time. I grew this company into what it is. He has already gotten all his original money back and then some. Why should he get a 10x windfall off my hard work – I could have borrowed the money from a loan shark on better terms than that.”

Both of these partners overvalued their own contributions and undervalued their partner’s contributions. The fact is that the money partner did not have the idea for the business in the first place and could not have hired someone to operate the business. And the work partner could not get the funds to start anywhere else: that’s why he entered into the partnership in the first place. The point is that even in success, the tendency to misvalue contributions can cause dire problems.

A common cause of partnership stress is over compensation and work levels during business operations. Consider a partnership for a retail store where one partner operates the store, hiring, training and firing employees and greeting customers (the “Front Partner”). The other partner operates the back office, paying taxes and making payroll and getting licenses and ordering inventory (the “Back Partner”).

Over time, the Front Partner resents that he is always at the store and hardly ever sees the Back Partner. He doesn’t understand what could possibly be taking so much time and thinks that he is developing all the relationship and running the business and is entitled to a larger share, or at least a higher salary.

Meanwhile, the back partner comes to think that the front partner is just working a minimum wage job running the cash register and dealing with customers. Meanwhile, the back partner’s job requires real business skill you can’t buy cheap. Why should the front partner get more money? If anything, the back partner should make more.

This misvaluing of contributions over time will begin to lead to friction and dissent if not carefully managed. How, then, to manage this tendency? The solution is to focus on the needs of the business, and together to set goals for each other that will satisfy those needs. At a minimum, the partners should set these goals annually. Tom Mendoza of NetApp famously likes 90-day goals. You can even set monthly goals if you want. One does not preclude the others – you can set monthly, quarterly and annual goals, so long as you devote the time to measure and report them.

These goals must be specific and measurable. The goals cannot be subjective, like “run the best front of the house operation in the business.” For these partners, some goals might be:

Front Partner:

Goal 1: Maintain a full staffing level of 2 full time and 4 part-time employees. Replace any employee losses within 15 days.

Goal 2: Conduct new employee training within 5 days of hiring. Provide the partners with a new employee training outline for approval before the end of Q1. Conduct Quarterly ‘all-hands’ sales training. Hold a once-monthly all employee bonding night, paid, where the employees are fed, learn more about our products, and peer-teach one another to sell.

Goal 3: Ensure the weekly work schedule is published to employees no later than the Friday prior to the Monday week start, by 3:00 PM. Implement a new online scheduling system to replace the current paper scheduling system this year.

Goal 4: Be present at the store no fewer than 35 hours each week, working in the front of the house and interacting with customers. Ensure that at least 15 of those hours are during our busiest times when we make the most money. Provide an analysis from the point of sale system of the busiest volume times of the week by the end of Q1.

Back Partner:

Goal 1: All employee paychecks to be deposited or available for employees no later than 12:00 noon every other Friday (payday).

Goal 2: Ensure that the income, payroll, property, and sales taxes are paid on time and all reports are filed on time and accurately.

Goal 3: Review and reconcile all back and credit card statements monthly and provide the reconciled reports to our accountant for review.

Goal 4: Ensure all inventory levels remain at or below $XXXX, while also ensuring that our 15 best-selling items are never out of stock. Implement an automatic ordering system for high volume items in our point of sale system by the end of Q1. Each quarter, review pricing on our inventory items from the ‘big 5’ distributors and seek discounts and best terms – report the results at the partnership meeting.

These sample goals are specific, and each one can be measured: we know whether the partner succeeded or failed in each task. In setting the goals for one another, the partners should focus on what it will take for the business to be successful. Likely, each partner will need more goals than in this short example, but the result should be: “if you accomplish all these things, partner, I will be satisfied.” The goal setting time should be the result of some back and forth negotiation but conducted in mind of each partner’s clear commitment to the vision they have agreed on. Like all other items in this book, the goal is to reach a consensus up front, and not leave everything unsaid and festering. Perhaps, in this example, the Back Partner will agree to a goal of a certain number of hours working in the store, and the Front Partner will take on some tasks of helping manage inventory. What matters is to listen to your partners and craft goals that not only meet the needs of the business but also meet their particular concerns.

It is not enough, of course, merely to set these goals. The partners must also set up systems to monitor and measure performance. The front partner may have to clock in like the hourly employees to measure compliance with Goal 1. The back partner may have to create a spreadsheet of deadlines and update the spreadsheet regularly when reports are filed or taxes are paid to measure compliance with Goal 2. The point is that all partners should have consistent and easy visibility into the measurement of one another’s goal achievement. When a partner is falling behind or failing, the partners should meet to discuss why, and what changes need to be made or resources need to be available to help that partner succeed.

Avoiding conflict where each partners’ work is apples and oranges takes active planning and consistent communication. If the partners’ allow disgruntlement to fester, they are in for a rocky time.