The Partnership Charter
DAVID GAGE
Reviewed by Todd
Researchers at Marquette University studied over two thousand companies and found that 94 percent of “hypergrowth” companies were started by two or more people. Individual owners made up only 6 percent of the hypergrowth segment and almost one-half of the slow-growth companies.
Despite this evidence that a partnership can lead to success, the thought of taking on a partner makes most budding entrepreneurs cringe. Inc. magazine polled its readers on this very subject and two out of every three respondents felt partnerships were a bad idea. When asked why, the majority said “inevitable conflicts” and “unmet expectations” would lead to problems.
Since the data show that partnerships are either necessary or unavoidable, there is an opportunity for educators to address the unique relationships between partners, but instead business schools spend vast amounts of classroom time discussing the intricacies of manager/employee relationships. Medical professionals and lawyers, for example, after years in school, commonly join practices despite never being educated on the form of business in which most will spend their entire careers. There is also a void in the business-book canon regarding the management of partnerships, and The Partnership Charter is an excellent resource to bridge this oversight.
When running a business with one or two partners, any of the following scenarios may present themselves:
- One partner insists on hiring a key employee whom another partner dislikes.
- A partner is sued for sexual harassment.
- The company receives an unsolicited buyout offer from a competitor.
- The company runs out of money.
- An ongoing personal or family crisis interferes with the ability of one partner to perform.
- One partner suddenly loses interest in the business.
- A partner is caught stealing from the company.
(Full list here for The Partnership Charter.)
David Gage lays out these possible trials and tribulations in The Partnership Charter, examining the unique relationship between partners. Business relationships generally lack the emotional ties found in personal relationships, and boundaries are drawn based on ownership stakes, salaries, and titles. But changes in the external lives of the partners or the health of the business inevitably impact the partnership. While some conditions may be governed by the legal documents that established the company, Gage suggests a written charter that addresses a broader set of needs partners have over time.
“A charter is a necessary tool because few people have been taught how to be partners.”
The chartering process establishes the ground rules for how the partnership will operate. A common vision for the company is created and agreed upon. The ownership stakes are determined based on factors ranging from the amount of capital invested to the amount of control each partner assumes. Assigning roles and titles are a natural subsequent step as partners decide how active they want to be in the new firm and how decision making will take place. Most important, a plan is drawn up to allocate how money will be distributed. This process compares and contrasts the partners’ values systems and expectations for how the partnership will operate. Making all of this apparent at the start, says Gage, reduces the potential for disconnects later in the life of the partnership.
Entrepreneurs are not wary of partnerships for the wrong reasons; business partnerships are complex, dynamic relationships. But it is those nuances and synergies that bring a greater chance of success to any entrepreneurial adventure. TS
The Partnership Charter: How to Start Out Right with Your New Business Partnership (or Fix the One You’re In), Basic Books, Paperback 2004, ISBN 9780738208985
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