May 14, 2008 - Co-presidents and other strange partnership models

The difficult words came at a recent lunch with an old business friend: "Mike, I'm never
doing another partnership. With my next company, I'm going to maintain full control."
A couple of years earlier, my friend had sold his share of his company to his ex-partner
through a process known as a 'shotgun.'

I always thought shotguns were used by parents in certain American states to make sure
their kids got married quickly. But in the business world it's a high-stakes, last-resort
method of breaking up a partnership. Many years ago, my first company was a
partnership too, and it wasn't a pretty ending. But I've been able to rebuild a healthy
relationship with one of my ex-partners in recent years. And I've spent some extra-long
sessions at coffee shops with other friends whose partnerships didn't work out.

So, are partnerships even worth considering when you start a business? I've changed my
mind on this subject over the past few years.

Partnership: Legality versus reality
The first thing to consider is that Canada has a legal definition for a partnership. It's not
much different than a sole proprietorship, except that two or more people share the
proceeds.

There are plenty of details related to a legal partnership, but in reality they're rarely the
structure of choice for us - even if you and a partner want to share the ownership equally,
sooner or later you'll have to consider giving some ownership to key employees. Many
employees like to own a piece of the company they work for and they'll let you know this
sooner or later. So the reality is that if you're a techie starting a company, it will more
than likely be a corporation. But if two or three people control most of it, then it is
effectively a partnership.

Mega partnerships
The next thing to consider is that there have been some outrageously successful
partnerships in the technology world. In 2007, RIM, run by two people, became Canada's
most valuable company. Another startup you may recognize, Google, is run jointly by
two people, with a not-too-shabby CEO thrown in by the investors to make a threesome.
So it looks like partnerships may be worth the bother in some cases. It's wise to note that
both these examples are corporations, but the founders continue jointly running the
company while all other shareholders are simply along for the ride.

Partnerships, it turns out, have some pretty compelling advantages. The first is twice the
amount of 'founder-energy.' It's kind of like the antenna diversity employed by many
WiFi access points - when one antenna is in a terribly deep fade (low on energy), the
other antenna is enjoying great signal strength (lots of energy). Starting and running a
business is very challenging; that's one of the reasons many don't make it. Partners can
help each other when one of the two gets stuck.

Here's something to think about: many of the partnerships ending in 'divorce' may not
have even gotten off the ground, had the partners started the business on their own. They
simply wouldn't have had the energy to pull it off.

Aside from energy, partners also have different skills and the sum of these skill sets may
be crucial to the founding and ongoing success of the business.

Founders can even develop an almost creepy telepathic ability. In David A. Vise's The
Google Story, you can read about Google's GPS meetings, where Google employees get
to present their product ideas to the founders. "Larry and Sergey sat side-by-side in these
tightly-run sessions. After years of working together, the two could quickly communicate
on multiple levels through gestures and expressions."

Partnership models
I've observed some distinct partnership models, with each model having successful and
unfortunate examples. The RIM and Google cases are examples of partners as comanagers
of the enterprise, with equal ownership stakes. This is the identical situation as
in the case of my friend's company - both partners ran the company together.
Another interesting model is where one partner actively manages the company and the
other only provides financing (sometimes called a silent partner).

In my company, for example, my partner owns a smaller share than I do, doesn't actively
participate in running the company, yet regularly makes suggestions about how to
improve the company. It would be pretty crazy not to listen to such suggestions because
silent partners often have a wealth of business experience, and they are often friends (as
in my case).

Partnerships can also be 'distributed partnerships,' where two or more people form a
company but each one lives in a different city, covering a seperate territory. They benefit
from the collective strength of being part of the same company.

And a very novel model I've been studying is the 'time-share partnership' where two
partners take turns running the company. It's kind of like a relay race, where each runner
gets a break while the other runs flat out.

I've even heard of cases where one partner runs a completely different business within the
same organization. In one case the main company repaired business equipment, and a
junior partner ran a company within that collected, refurbished, and resold the equipment,
often to the same client base.

The secret
Getting back to my friend's comment about never doing another partnership, I think the
secret, as in any relationship, is partnering with the right person. If you've been burned
once, you might feel like partnerships can never work - but don't close the door for good.
You might even bump into someone with telepathic abilities that's looking for a partner.
Your new partner's telepathy could become your secret weapon.

Michael Wakim is the founder and CEO of Fidus Systems, an Ottawa-based electronic
product development company. Fidus develops electronic products for a wide range of
industries including aerospace, defence, consumer, medical, industrial, semiconductors
and telecommunications. If Michael's articles interest you, consider learning more at
www.fidus.com or careers@fidus.com.