FREE TRAINING: 3 Keys to Sell Your Business with Confidence

The Thin Line Between Warm & Fuzzy and Hot & Messy

My partner and I have grown apart. He isn’t the same guy today that he was when I offered him a full partnership in 2007. His arrogance has created a toxic environment. He plays favorites with the employees, and he comes and goes as he pleases. I’m afraid it’s going to affect the company’s survival. Can you help?”

Archie (not his real name) asked me to meet he and his wife at their home to assure full confidence in the conversation. A rather prominent figure in the community, he didn’t want to have a personal business conversation in a place where he might be recognized. I had not met Archie before this meeting, so I didn’t have a good sense of how to read the situation. It is not unusual for one partner to complain about his/her partner, yet I often realize it’s the one doing the complaining who needs to look in the mirror. But after two hours with Archie and his wife, a disturbing picture was beginning to emerge. Archie was on the brink of losing his company if key employees threatening to leave make good on their frustration. 

Archie told me his partner was not open to buying out his interest in the company. The guy liked the income and prestige afforded from being a partner in this prominent company. I asked Archie if he was willing to sell his share to the difficult partner. Archie said the partner didn’t have any money given his extravagant lifestyle. “Hey, I know how much money we both make, and unless his wife has an inheritance I don’t know about, there’s no way he’s saved enough to buy me out.” 

Business owners usually call me when they are ready to sell to a third party, but even that isn’t an option in this case given the fractious gestalt within the company. Bottom line, Archie is in a mess; he can’t buy and he can’t sell, yet doing nothing will likely lead to the whole shebang coming unwound.

There is a detail I left out of this story which further complicates the situation. Archie is 69 years old and ready to retire. I asked him how the value of the business might impact his decision to retire. “Fortunately, my wife and I have led a reasonably modest lifestyle, so what happens to this business doesn’t really affect our retirement lifestyle. I can walk away now and be fine, I just don’t want my name still on the company.”This comment led me to understand the real problem. Archie is ready to walk away, and indeed can walk away, but he wants to take his name off the company when he leaves. But since he owns the company 50/50 with his partner, he can’t leave and expect his partner to willingly give up use of the name for which they are so well known. 

I don’t have a silver bullet solution for Archie, short of him walking out the door and letting his partner run the company, and pray he runs it in a way that doesn’t sully Archie’s name around town. Though I am short on solutions for helping Archie out of this mess, I am long on recommendations for what not to do to avoid a mess like this in the future. First, avoid like the plague a 50/50 business relationship. Even with good legal documentation, 50/50 relationships often come unwound and cause existential threat to the business. Second, don’t use your name to brand your company.  Life has a way of taking a business relationship that seems warm and fuzzy and making it hot and messy, making an eventual exit more complicated or maybe even impossible.

The following two tabs change content below.

Tennessee Valley Group

Jim is an attorney (non-resident status with the Missouri Bar) and though he no longer practices law, he has read and negotiated enough legal documents to fill a cargo tanker. He has an MBA from Harvard Business School and knows how Wall Street and private equity operates. Jim is a Tennessee Supreme Court Rule 31 listed general civil mediator with tons of experience helping business owners (large and small) work through sensitive problems to achieve winning results. He is the author of "Home Run, A Pro's Guide to Selling Your Business, Seven Principles to Make Your Company Irresistible."

Latest posts by Tennessee Valley Group (see all)