Unwinding Business Partnerships
The Amplified Impact Podcast
January 15th, 2023
Checked out a Twitter thread by my buddy Sieva on a topic close to my entrepreneur heart: unwinding a partnership.
Partnerships rock, but things change, right? It’s like a business marriage.
So, I spill some thoughts on what to do when it’s time to part ways.
From business going south to different visions for the future, we gotta be prepared.
Remember, never go in until you know how you’re getting out.
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– Anthony Vicino
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Episode Transcript:
Yo, what’s up, all you hyperfold entrepreneurs? So I was cruising around Twitter the other day, and a buddy, Sieva, had a, had a thread on a topic that I think is super important that’s not discussed nearly enough in entrepreneurship circles. And I know for myself if it had been discussed more, it would have saved me a whole lot of headache and heartache. And so I just want to talk about it here real quick, which is what, what to do when you need to unwind a partnership. I think partnerships are a great way to get into entrepreneurship, and honestly, I owe all of my success in businesses to my partners. Truly, I am more of a visionary than I am a pure operator. My ability is to come up with ideas and set the trajectory and create the systems, but then executing those things, that is not where my ADHD brain excels. So without a partner, I would find myself largely up a creek without a paddle. Also, having partners is nice because it gives you a little bit of emotional support, and entrepreneurship is hard.
Riding that bicycle all by yourself is very, very difficult. So if you can get a tandem bicycle and you can get a buddy on there, somebody who complements your skills, and you guys are in alignment about where you want to go and how you want to get there, I think that’s the best way to build a business. Personally, I’m not a big fan of solopreneurs, solopreneurship, rather, because I think that is just another way of having a full time, single person job, which can be very, very difficult. Now, the problem is, when you’re relying on somebody else as a partner, people change, people grow, and all sorts of things can get in the way of that partnership moving in the direction that you want it to. And this is the same in romantic relationships and also in business relationships, which is fundamentally no different. Getting into a partnership in business is like getting married. Getting out of them is just as complicated. And so it’s worthwhile to spend some time at the front end when you’re still giddy with excitement about what could be to sit down with your partner and figure out very clearly, what are we going to do if things don’t go to plan, if we need to get out of this for whatever reason.
And there’s so many scenarios that you need to think through, such as, what if the business goes under and we’re both just out of this thing? That’s one scenario. Another scenario would be, what happens if one of us wants to leave, if one of us is done? What if the other one wants to stay? What happens in that scenario, another scenario is, what if both of us want to stay, but we’re just not able to work together anymore? So it’s clear somebody’s got to go, how do we make that decision? Right. You need to have these conversations before they come up, before it’s necessary to solve for them, because by the time you get to the place where you need to solve them in real time, you’re going to be emotional. Everybody’s going to be. Things are going to be much more elevated than when you’re at the very beginning and you can think things through from a more logical frame. And I’ve known this, but one of the difficulties is it’s one thing to tell you this, hey, you need to think through these things, but when you’re new, you don’t know all the things that can go wrong, and you don’t quite yet understand all the complexity that might come with unwinding a relationship. And it’s only with the benefit of hindsight from years of being in the business and experience and understanding, oh, this is a complicating factor. It’s not just as simple as me getting up and walking away, because x, y, and z, and there’s no way that you can always foresee those things from the beginning.
And this is why having advisors and mentors, a board of directors, people who have been in the game longer, and they can offer feedback on how to structure things at the beginning, that’s where that really comes in handy, because there’s just things that you can’t see from where you’re standing at the bottom of the mountain, but as you get higher and higher on the mountain, you’ll have better perspective and you’ll see things like, oh, if I could go back, I would have done this differently. Now, one thing I’ll share with you for unwinding a relationship, that maybe it’s not so clear what the way forward is, and say, both of you want to stay in the business, but you just have different visions for where you want the business to go. It’s clear that one of you’ve got to get out of the way. Somebody’s got to be able to take the driver’s seat and run the bus. So what do you do in that situation, especially if you fundamentally disagree about the direction your partner wants to take the business? Well, one of you has probably got to get out, right? So what do you do in that scenario? And there’s a lot of ways to structure buyouts and say, like, okay, you’re going to buy out my shares at this. It’s one thing to write it down on piece of paper at the beginning of the deal. It’s a whole other to actually sit down and enforce it later because things might change in the meantime. You’re like, oh, that valuation process we decided at the beginning of this no longer makes sense for X, Y, and Z.
So one technique is this simple buy sell agreement, which is one person will write down a number, and then the other person gets to decide, am I a buyer at that number, or am I a seller at that number? For instance, say we have a business that we roughly believe is worth around $5 million. Let’s say I get to write down the number and I would prefer to own the business. And so I might be willing to pay a little bit more than the business is worth. So I write down five and a half million, and I give it to you. Now, if you decide, you know what, I really want the business, too, and I am also willing to pay a little bit of a premium for it, well, then you can say, I will buy this business from you for five and a half million. So I need to be okay with that. Now, if I really want a hedge, I might go 6 million, thinking, well, you’re probably not going to go up that high, right? The reverse is if I try to lowball you and to say, okay, I’ll pay you 3 million for this business. And you come back and you’re like, okay, I will buy you out at 3 million because at that number, it’s a good deal for you.
So this is a really interesting structure that kind of leaves both people getting a satisfactory outcome. Nobody is over the moon excited about what’s happening, but if you’re having to get to this point in your working relationship, nobody’s happy about things anyway. That’s already happiness has gone out the window, right? So now we need to solve for other things. And that’s just one of the structures. But I encourage you, don’t poo poo the idea of business partnerships. I think it’s a very powerful tool and I’m a big fan of it. But just recognize that relationships will inevitably go astray on occasion. And it’s better to have a well thought out, well considered exit contingency beforehand than it is to try and figure it out in the moment as the problems arise.
I think the Navy SeaL, I don’t know which branch of the government or the army says this, but never go in until you know how you’re getting out, applies to going into a building where there might be bombs. And it applies in going into a business with a partnership and also probably with getting married. So take that for what it’s worth, but that’s going to do it for me, guys. Hope brings you some value. We’ll catch you in the next episode, but until then, stay hyper focused, my friends.
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