Creating Value

Are you getting the most out of your business?

I’ve worked with both sole-owner companies and partnerships. There are a lot of obvious advantages to having one person in charge, one person who makes the big decisions. And of course there are many advantages to sharing the burdens of ownership with a partner. But partnership is a lot like marriage: It can go very wrong.

I recently had a conversation with long-time partners Roger Hajjar and Amit Jain from Prysm, a company based in San Jose, Calif., that makes large, flat-screen video displays that compete with LCD projectors. Mr. Hajjar, who invented the product, is chief technology officer. Mr. Jain is the chief executive. They believe partners should have an overlapping of abilities. When Mr. Jain is out of town and not available for sales calls, Mr. Hajjar can step in. When technical decisions have to be made and Mr. Hajjar is not available, Mr. Jain can pinch hit. But learning how to work together has not always been easy.

Luckily for Mr. Jain and Mr. Hajjar, they’ve had help from their equity partners, and they’ve been able to get advice along the way on best practices for working together. They’ve also had a board that they report to and their board keeps business needs front and center.

Many owners are not so lucky. They have to develop strategies for working together. The earlier they develop their rules of partnership, the more likely they are to succeed. Partners will have different skill sets, but it helps if, as in the case of Prysm, they can step in for each other. This makes for a stronger organization, and it also makes it easier for the company to attract venture capital and private equity, because investors prefer not to bet on one person. While Prysm’s goal is to go public, even companies with no such intention can benefit from a strong partnership that allows them to attract capital – whether it comes from local bankers, angel investors or friends and family.

The Prysm partners emphasize that, while it’s important to have a great business relationship, they don’t expect to be best friends. Mr. Jain and Hajjar have been in several partnerships over more than 20 years, but they don’t necessarily socialize with each other. And they have a hard and fast rule that they don’t get involved in each other’s personal decisions. Of course, even if you don’t want to get involved in your partner’s personal decisions, you do want to make sure your partner is not going to pursue personal behavior that could ruin the business. This is why a well-crafted shareholders’ agreement is an important part of building a partnership. In many respects, a shareholders’ agreement is the business equivalent of a pre-nuptial agreement.

As it happens, Mr. Hajjar and Mr. Jain do not have such an agreement. But they do have an agreement with their venture and private equity investors. If their relationship and partnership were to start to cause problems, their backers would have the right to replace them as managers of the company. Of course, no matter how strong the shareholders’ agreement, the key for a successful partnership is a high level of trust. This kind of trust can take years to build but can be destroyed in days if not hours. (A great book on building trust is “The Trusted Advisor,” published in 2001 by Touchstone.)

The Prysm partners meet face to face for an hour at least weekly. At this meeting they review the issues they have been discussing in passing or through e-mail. This is where they talk about ownership issues that they may not want to share with others in the company. It also is time for them to hash out any disagreements.

They recently had to review the resources they want to invest in their next-generation product. Mr. Hajjar wanted to go all-in, and Mr. Jain wasn’t ready. They ended up meeting in the middle. Because they have the same belief systems about what makes a business successful, their disagreements are rare. It’s what has allowed them to stay together in three separate partnerships over more than 20 years.

My time in business has convinced me that it’s harder to make a partnership work than to run a single-owner company. But if they are able to build and maintain trust, partners can create a business with more staying power. What do you think? Do you think the benefits of partnership outweigh the benefits of having one person in charge?

Article source: http://boss.blogs.nytimes.com/2013/06/20/the-dangers-and-benefits-of-taking-a-partner/?partner=rss&emc=rss