Is your business partner right for you?

The following is based on one of The Covenant Group’s clients. All of the names and telling details have been changed.

Joel Stack believed his partnership with another advisor would take his business to the next level. But a year into the partnership his revenue was down and his stress level up.

Shortly after becoming an advisor five years ago at the age of thirty, Joel met Ron Tollman, a 45-year-old advisor who’d been in the business for almost twenty years. The two became fast friends and developed a mentor-mentee relationship. Joel, who attributed his ability to weather the first few tough years as an advisor to Ron’s guidance, once told me, “I sometimes think that if it wasn’t for Ron, I might have left the business.” Over time their relationship evolved into a quasi-business relationship in which they did joint work and split commissions and fees on cases. Last year, Joel and Ron decided to take the next step and bought a condo office together.

“We set ourselves up as Tollman & Stack Financial Planning, and I was really excited about growing a business with Ron,” Joel said.

“So, what went wrong?” We asked.

“We started having serious problems with clients we shared,” Joel said. “For example, last year, Andrea, a longstanding client of mine, came into an inheritance from her aunt and I referred her over to Ron, who’s more experienced on the investment side. I tend to focus on life products. When I went to see Andrea for her annual review, I discovered that Ron had gone in and reworked the financial plan I’d put in place for her. Ron had skewed her plan in favor of his investment approach, which is different than mine. I was really steamed, but I didn’t want to look unprofessional and didn’t say anything to Andrea at the time.”

“What did you do?” We asked.

“I tore a strip off of Ron is what,” Joel said.

“I imagine that didn’t go well.”

“Ron got very defensive and accused me of doing the same with some of his clients.”

“And did you?”

“He’d asked me to look after the insurance needs of some of his clients, and that’s what I did, but he thought I’d gone too far, pushing them into what he called expensive permanent plans that encroached on their ability to continue with his investment strategy. We ended up having a huge argument over insurance and investment strategies.”

“An argument I gather nobody won?” asked our coach.

“It’s true we didn’t see eye to eye, but I wanted Ron to know that when it came to his clients, I was only looking out for what was in the client’s best interest. It had nothing to do with trying to muscle in on his clients. He said the same was true for him.”

“How did you resolve the issue?”

“We’re really good friends, and once we settled down, we both agreed we were trying to do what each of us thought was right for the client. We agreed to communicate with each other about each client situation before recommending any solutions to the client.”

“I’m going to guess this didn’t work,” said our coach.

“No, it didn’t. But not because we didn’t try. The reality is we were both moving too fast and had too much on the go to always be checking in with each other. I was still uncovering stuff that Ron put in place for my clients that I didn’t agree with. The whole situation now has me pretty stressed. I respect Ron. I want our partnership to work and I don’t understand how to fix it. Unfortunately, with all the problems we’ve been having, my revenue is down over last year.”

“Joel, I completely sympathize with your situation, and I appreciate your effort so far to solve things, but I think we need to step back a bit and get a higher-level perspective. Let me ask you what motivated you to partner with Ron.”

“We both liked and respected each other and thought it made good business sense.”

“From a revenue or an expense point of view?”

Joel asked what we meant.

“Were you motivated mostly by the fact that you would be sharing office space and other resources like assistants and technology, fax machines, printers, etc. or by the fact that joining forces would have a positive impact on revenue?” Our coach asked Joel to be honest.

“Certainly the expense sharing was the immediate motivator, but we both believed our businesses would grow.”

“How did you split expenses?” we asked.

“Fifty-fifty.”

“And revenue?”

“We would split whatever accounts or cases we worked on.”

“But otherwise your revenue was yours, and Ron’s was his.”

“Yes.”

“So basically, your businesses are still separate, and the partnership is essentially an expense sharing venture with some joint casework.”

Joel nodded.

“In my mind, that’s not a partnership or more to the point, you and Ron don’t have a business together. A partnership must be a case of two plus two equals five, not two plus two equals three. The fact that you and Ron don’t share revenue is an indication that you and Ron don’t believe you have a business that is greater than the sum of its parts.”

Joel seemed taken aback.

“The starting point for going into business together is a clear vision, one that is widely known, widely shared and widely believed amongst all participants in the business. Your partnership with Ron evolved without much thought and certainly without the two of you sitting down to define the business, to develop a vision, mission and set of values for the business.

“Unfortunately, Joel,” I said, “your attempt to solve your problems by communicating better was doomed to fail. Your issue wasn’t a lack of communication but a lack of business definition. No amount of communication was going to solve your problem; you and Ron would continue to butt heads around fundamental issues.”

“So what do we do?” Joel asked.

“You and Ron need to go back to square one and develop a business plan. And the place you need to start is a vision.”

“But what if we can’t agree on what the vision for the business is?”

“Simple,” I said, “then you don’t have a business.”

Joel looked shocked and said, “I don’t want to give up on the partnership with Ron.”

“You might not have a choice,” I said. “If you can’t develop a vision you both subscribe to, one that motivates you and Ron, you will continue to have problems with your partnership. You’re better off finding that out now rather than later. You also have a friendship that I’m sure you want to preserve, no matter what happens with your partnership.”

Joel agreed.

Over the next few weeks, Joel and Ron worked together on a business plan. Unfortunately, they weren’t able to agree on a vision. It came down to fundamental differences. Joel wanted to develop a business focused on managing client risk through insurance solutions. Ron wanted to focus on asset gathering. Both agreed it didn’t make sense to continue their partnership without agreeing on what the business is. They put a plan in place to transition out of their partnership. They sold the condo office and basically took back what resources each came into the business with. While the dissolution of the partnership was emotionally draining, both felt a huge sense of relief. Though the exercise of defining their partnership never amounted to a joint business, it clarified the separate visions for each of them. Both were energized about their own individual business in a way they had never been before. Half a year after their partnership broke up, both are doing well on their own. Joel has already seen an increase in revenue of 20% over the year before. He’s still on his own but hopes one day to find a partner who shares his vision.

Lessons Learned

Joel learned four valuable lessons about partnerships:

• Advisors who have a partnership that is solely based on sharing expenses and joint casework don’t necessarily have a business together.
• Many of the problems that arise in so-called partnerships stem from a lack of clarity around the vision for the business.
• A true business must be based on a vision that is widely shared, widely known and widely believed. The business definition, from vision through mission, values, business opportunity and strategies etc. must be shared by all parties.
• A business that is built on solid business planning fundamentals will be one that is greater than, rather than less than, the sum of its parts.

________________________________

The Covenant Group is referred to by many as the place entrepreneurs go to become Business Builders. They are considered to be thought leaders and have authored the best-selling books, The 8 Best Practices of High- Performing Salespeople, The Entrepreneurial Journey, and The Business Builder.