First published in the Financial Times on 1st May 2012.
Learning the lessons from partnership splits
Every business partnership comes to a close eventually – even the successful ones. Sometimes the end can be predicted from the start; more often the sundering happens unpredictably, occasionally with savage consequences.
But such break-ups can present opportunities: perhaps for the departing player, or the remaining partner – or possibly even an external investor like me.
The most conclusive reason for a partnership to cease is when one of the participants dies. While death can be sudden, achieving resolution of probate and issues over inheritance mean such situations tend to be drawn out – and often both tragic and contentious. I have never relished negotiating with a grieving widow, though I know a chancer who has exploited such circumstances profitably on more than one occasion.
Illness is a common explanation for partners to go separate ways. Both Steve Jobs at Apple and Bill Gates at Microsoft ended up taking full control of their companies while their co-founders were sick. At least three times in my career an operating partner has fallen ill – with alcoholism, heart disease and depression, respectively. On the first occasion, I bought them out; on the second, the business went bust; and on the third, we had to sell the company. All such splits tend to be unhappy, and usually destroy value for all concerned.
Partners can fall out because they simply drift apart over time. In his autobiography, Sir Richard Branson claims he parted company with long-term collaborator Nik Powell because the latter no longer went on company ski trips. I wonder if that’s the entire story.
I have known partners lose interest in their business and stop working so furiously. The fire in their belly cools, and they decide to spend more time enjoying the fruits of their labours. And why not? But sadly a relaxed approach rarely drives a dynamic enterprise.
Envy, greed and vanity corrupt many partnerships. One half wants more of the glory or the gold, and so they shaft their partner to get it. Usually there is some spurious rationale to cover up such mercenary behaviour. As with any divorce, there is likely to be blame on both sides; but at least the two factions only fight over commercial assets, not children.
Frequently partners separate because one undergoes a midlife crisis. This might involve a new marriage, discovering religion or a mental breakdown. I became involved with PizzaExpress because a key franchisee became a disciple of an Indian guru, ultimately triggering our purchase of the business. Such disruptive events can undermine the most solid bonds. Replacing a long-term partner is typically very difficult – usually employees step into the breach, but they never have the founder’s spirit or money at risk.
Many partnership bust-ups have been years in the making, resentments festering but subdued for the common good. John Lennon and Paul McCartney’s time in The Beatles falls into that category. Together they were the most formidable rock’n’roll combination ever but apart never so brilliant.
Cheating partners are disturbingly common – I’ve lost count of the number of tales I’ve heard of rip-offs committed by long-term allies. I suffered from one recently, who looted a modest restaurant operation I backed. Dishonesty is intolerable in any business arrangement and if any fraud is uncovered then the relationship must always be severed. You try not to become cynical in the face of such criminality. Sadly, experience teaches one that naively trusting everyone when it comes to financial affairs is likely to prove misguided and expensive.
Certain partnerships are doomed from the get-go by poor decisions early on over equity, titles, control and roles. Unfortunately most first-time entrepreneurs don’t realise that fairness and being nice matter less than relative, tangible contributions. Frequently, start-ups would do better to delay dividing responsibilities and shareholdings until the team has learnt who really has the stamina, talent and connections. In my first venture we apportioned the spoils three ways – but I felt two of us actually did all the work.
If you forge a solid working partnership, and avoid the agonies of a rupture, then you will do better – and enjoy the journey more. Many firms fail because founders fight: so try to get the arrangements right.