Q & A Table of Contents
How Can I Split From My Friend & Partner?
From: Susan, Seattle
Question: I currently have a "Verbal" contract with a business partner. Developing a product and starting my own business from scratch as a mother of three, I quickly came to realize that I needed help. Well, I blew the first rule of business...not to hire friends. But my friend Sally was a fairly new acquaintance so I thought I could keep it up front and professional. She had so many wonderful ideas and did so much for me WITHOUT being asked but simply because she was excited for me and my product, that I thought it simply logical to think that if I made her a partner that she would do a whole lot more and help me get this company off the ground. She was thrilled but concerned that she didn't know what she could do. That didn't bother me either me as I didn't know what I was doing and simply going by instinct, common sense and lots and lots of research. I have never developed a product or taken it to market, but I was doing it. And thoroughly enjoying the learning process along the way.
Well, the dilemma now is that I have learned that she cannot handle "uncomfortable" situations. i.e.: dealing her best friend's printing business that she introduced me to thinking we could get a great deal and ended up getting far less. She now thinks I should clean up the mess, because of "their" friendship. She is like this in many other cases. I find I spend more time teaching her to do things than it would take me to do it. She is a very strong woman who has recently gone through an ugly divorce. Another reason I invited her to come on board. I wanted to get her mind focused on other things (she was very depressed) she wanted to keep her home (I thought she'd be very determined) and it seems I was just plain wrong.
Although we have not finalized with an attorney, keeping my word is very important. Although she has done much work (in exchange for a percentage of the company) her efforts have been fruitless. Also part of the agreement was in exchange for free storage for my product. She has since had to get a roommate. I like her very much, our boys are very good friends, they are in class and soccer together. HELP!<
I think offering her $1500 for the little she has done would be very generous and concede that this isn't working out.
Do you have any suggestions?
Response: Now at least you can pat yourself on the back for having warned yourself about doing business with a friend.
The first thing you have to do is inoculate yourself. Find some 'alone time' and deal with the issues so you can be fully prepared for the consequences of what you do, indeed, have to do.
First: think about your own interests -- your son's friendship with Sally's son, any impact on your own emotions and/or your business if Sally goes ballistic, what kind of work you need to have done by Sally's replacement, etc. In addition, while your current partnership may be based on a handshake, you're going to be better off if Sally signs a legal document making it clear the business relationship is terminated.
Second: What do you think Sally's interests may be? Could it be that she feels unsettled by the current situation and wishes she could get out of it without making you angry? Is her ego so at risk that a financial settlement won't cut it? I recognize that you can't "make her an offer she cannot refuse".
Once you've inoculated yourself, come up with a list of questions to ask Sally to see if she gives you any information that will help you devise a proposal that makes sense. She may be interested in a long-term 'royalty' agreement that buys out her partnership over time. Perhaps she would feel better if she could announce the 'divorce' as being of her choice rather than yours. Of course you need to examine whether that could be better or worse for you.
When you and she talk about ending the business relationship it might make sense for you to let her know that you value the personal relationship more and feel the business relationship is interfering with it. That is often true when friends do business together -- because friendship is more important in the long term.
In your conversations, you need to have her suggest whether a financial settlement is desired and, if so, how much. She may ask for a million dollars -- or virtually nothing. You should not try to tell her how much value she should place on the transaction.
There should be a deadline established for terminating the business relationship -- both the day to day and over the long term (if she is being bought out over time). You should also set a deadline for decision-making.
If she won't quit the partnership, can you quit and start a new business under another (similar) name? If you haven't got a written partnership agreement, then neither of you is held to a so-called 'non-compete' agreement.
You should assume that whatever you do is going to be painful in one or more ways: emotional, financial, harm to reputations, etc. But you have to be careful not to say "You're doing a great job, we just aren't on the same page." That can open a door to reconciliation attempts that merely prolong the agony.
Think of each of the steps in the process. Consider how at each step something unexpected might crop up and bite you. Inoculate yourself against negative impacts on your self-image, on your social reputation, on your son, and on your business by considering ahead of time how you'll deal with those issues. It will not make those things go away, but will help you have strength to carry out the process successfully.
Good luck,
Steve
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