Got Family Quick Bits: Why Partnerships Fail, Part 2

Hello, this is Got Family, and I am Carey Berger. Today we’re here to talk about another reason why partnerships sometimes fail, and how you get around it. The problem is, in this case, in any relationship you’re going to have many, many roles. You are, perhaps, a brother or sister, or you’re a mother or a father, you’re a son or daughter, you’re a friend, a cousin, you’re any number of things. Same thing goes in the business world if you are an “owner,” you may also be the CFO, you may also be the bottle washer, as they say, you may be the banker, you may be a bunch of different things. When you have partners, oftentimes a reason why you have the partner is because they brought money in, right? They said, “I’ll give you money if you make me an owner.” Okay, the challenge is that, what is ownership and what is involved? So, one person brings in X number of dollars, great. Another person brings in X amount of work. Maybe you both bring in the same amount of money and then you’re both expected to work. But is the work ever going to be identical? Is it ever to be of equal value and equal time? Even if it were magically in reality, would you all perceive it to be of equal value and equal time? If you’re like any other human being, chances are the answer is no. So, what you do? It is pretty simple; Identify the different roles that you’re doing in your business and pay for them according to the task, don’t combine them, really simple answer. Let’s go through it one more time. I loaned money to the company, I will be treated as if I were the bank, I will get that money back seeking to receive compensation earlier than the owners, at a set interest rate, and I do not participate in risk on that loan. That is one aspect of my life and my relationship to the business. I also invested money in the business as an owner knowing that I have it at risk, and I may not get it back, but that I will have an opportunity for greater return than I would if I were just a banker. I also happen to work at the business; I am the head cook, and as such I get paid so many dollars an hour, and I literally pay attention to those hours. Then you treat each of those according to their status. When it comes time to pay bills, the first ones to get paid are those who were doing the daily labor. They get their salary. You may have to, in the case of an owner/employee, if you can’t afford him or her, you may go ahead and give him or her an IOU, which puts them in the second category. The person that gets paid right after the employees, as soon as you can afford it, is the bank. The bank is paid according to the terms that are agreed to, and with interest, as appropriate. If something goes wrong, they get to drink at the trough until they’re filled before any owner ever gets a sip. Finally, the owner, and the owner gets paid under the terms as agreed to in the business plan. Inevitably, if there’s anything going wrong they will drink last behind everybody else. That’s the order of compensation. Also, you can go to the other questions of control. Again, don’t mix those metaphors. What winds up happening is, “well I loaned money, so I get an extra say.” Nope. Two different discussions. If you loan money, and you’re on time with the loan payments, then you’re taking care of it; that status is set aside. If you loan money, and you’re not on top of those payments, then they’re in default, and we get to talk about what happens in the event of default, you get to treat yourself differently. When it comes down to it, the leadership discussion comes into play every single day based upon the specific status you are in. I’m the head cook, again, I get to run the kitchen as an employee would get to run it. I am the owner, great. What percentage? What time? What questions are ownership questions versus other questions? All sorts of good stuff, and what it really comes down to is clarity of communication, clarity of roles, and keeping people treated properly for each of their separate roles instead of trying to lump them together. That’s one of the tricks to be able to preserve, and not have your partnership fail. I am Carey Berger and this is Got Family.