4 Ways to Settle Nasty Partnership Disputes

Strategies for maintaining peace and productivity among small business partners

Q.  I can't take it anymore!  Two years ago I started a sideline business with a boyfriend.  I created the concept and did the entire Web site design work and he supplied the startup cash.   Now all we do is argue about who's in charge and how to spend the advertising income.   To save money, we incorporated the company with an online service and don't have any formal agreements between us.  Are there investors who will buy out my former boyfriend's 50% stake at a reasonable profit?

A.   Ideally, the primary threat to a new company's viability should come from its competitors.  In the real world, however, emotionally-charged partnership squabbles can decimate even the most promising businesses.

I always encourage entrepreneurs to take command of troubling situations by not allowing little problems to fester into bigger problems.  But taking good command of problems doesn't always mean taking swift actions that you are likely to regret later.  In this case, restraint is needed. 

Here are some business-saving suggestions.

1.   Chill out.  Yes, it's time to call a truce.  This means promising each other not to raid the company checking account, not to incur debt and not altering your business operations in any material way.   The key is to preserve company assets long enough to get your business relationship back to a more productive position. 

2.   Acknowledge your partner as a partner.  Like it or not, you are in a 50% -50% partnership.  Good partners take the time to understand each other's business motivations.  While it is often assumed that "the money people" are happy to be silent investors, some individuals invest to participate in the challenge of active business building. If your partner did not specifically ask you to find a replacement investor, then you are increasing tensions by pursuing this solution.  You have to find out if your partner is more concerned about who is calling the shots or the wisdom of the called shots.  Stated another way, are the conflicts more personal or legitimately strategic in nature?

3.   Add respected, independent voices to the conversation.  To avoid costly litigation, many companies resolve partnership disputes with the assistance of professional mediators.   Another way to bring productivity back to young companies is to develop a board of directors that is not directly aligned to either partner's interests.   

4.   Evaluate the upside. Now is a good time to take stock of your company's operations and update your business plan.  Even if each partner emerges with a very different strategic plan, the exercise will help each of you reach a better understanding of company value and what might be lost by continuing the feud.  A board of directors can then help decide which course of action is in the best long term interests of the company.  This evaluation process may also lead to new conclusions about the amount of capital and managerial expertise that will be required for the business to reach its most lucrative potential.  Of course, well-conceived business plans and the appearance of a steady, collaborative work environment are the prerequisites for seeking new capital or replacement capital.

I can't end this column without a pitch to all startup entrepreneurs to develop partnership agreements and stock buy-sell agreements at the start of any business venture.  A good corporate lawyer should be the first call when entrepreneurs are organizing a new business.  Yes, it costs money but it will be far less than the legal bills and lost business productivity associated with partner or shareholder conflicts.

Write to Susan Schreter at susan@takecommand.org for great funding tips for startup entrepreneurs and small business owners of any age and business building interest.

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