Business PreNuptials
Many people go into business with their life partners, friends or family members. Businesses can be inherited by children graciously or reluctantly. There can be guilt, loyalty or expectation tied up with inherent corporate knowledge or laziness.
Not all of these partnerships work and can become complicated as the business grows, changes focus or suffers losses. At the beginning of any business partnership, the partners usually envision a long-term relationship so the ‘what if’s’ are not discussed.
Over time, the goals and expectations of people are bound to change. For example – priorities might change when one partner has children and what happens if someone gets sick and unable to work?
Ideally you go into business partnerships with your eyes wide open. As with many things in business – when they are good – they are good and when they are bad they are dreadful. Carving up a business with a family member or your best friend has been compared with a messy divorce. When money and pride is at stake you can find out things about your business partner you never knew before. You only have to search for partnership agreements to get a handle on all the things that could go wrong – and often have. Separating a partnership can be emotionally and financially draining.
Even if your business is not set-up legally as a partnership (e.g. its a company) and the business can be deconstructed simply, there are always complications around assigning value (dollars) and sweat equity (human capital). One of the easiest ways to avoid heartache is to have conversations up front and to develop an exit strategy based on a whole series what-if’s. All businesses and relationships are unique and therefore your agreement is not unlike a prenuptial agreement – it should consider best and worst case scenarios and is best done when everyone is happy!
Some tips before designing a partnership agreement for your business:
- Discuss and agree on the business values
- Assign job descriptions and KPI’s
- Be honest about the time and resources the partners have to contribute
- Make sure everything is in writing
- Ensure you have an exit clause
- Trust is not an option – make sure you have a handle on all aspects of the business, especially the finances
- If in doubt – seek legal advice
There are many free or affordable templates for partnership agreements for small business. Here are a couple Australian based ones:
https://legalvision.com.au/documents/partnership-agreement/
Not all break-ups end in tragedy though. I love the story of the two brothers who started Adidas (then called Dassler) in 1924.
Brother Adi, a cobbler by trade, started a shoe company with his brother Rudolf, a competent salesman. Adi had a simple method of product development. He would observe athletes, talk with them about their needs and create shoes that were designed to solve their problems. He was consultative and experimental. He kept going until he got their shoes right.
As a result Adi submitted multiple patents for his sport shoes including his running shoes with hand forged studs – the world’s first ‘spikes’.
In 1928, Lina Radke, wearing shoes made by the Dassler brothers, won Olympic gold in the women’s 800m. In 1936, Jesse Owens won four gold medals in Dassler shoes. By 1938, the company was producing 1,000 pairs of athletic shoes a day.
However, after World War II, the brothers fell out and split the existing business. Rudolf set up Puma, and Adi launched Adidas. The two companies reflected the brothers’ interests and strengths: Puma adopted a more sales-oriented business model, and Adidas was more product focused. Until the arrival of Nike in the 1960s, these two companies dominated the global sports shoe market.
