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Last Update: Thursday July 29, 2021

Key Idea: Merge To Grow

The best selling product from Brookstone Technologies is the
result of two small companies joining forces.

Key Question:

A: 

Find a business that has what you need and merge with it.  However, think hard about the ramifications of not being the only boss.

There are some advantages of a partner versus an employee.

  • Owners are generally more committed to a business.
  • An owner normally commits her personal money to get the business started, or, "buys in" as Linda did. If an owner quits, she walks away from cash and "sweat equity." An employee merely walks away from a job.
  • Owners share profits; employees expect their salary whether or not the business is profitable.

There are some disadvantages, too.

  • If the business is successful, your partner will likely take more of the profits than would a salaried employee.
  • Partners must determine how decisions will be made, whereas an employee will follow the owner's direction.
  • Dissolving a troubled partnership is more complicated than terminating an employee.


We learned from the founders of TiresPlus that partnerships should never be 50-50 . 33-33-33 is OK, but 50-50 is an accident waiting to happen. No matter how well you and your business partner complement each other, no matter how clearly you are able to define each other's roles and responsibilities, there will come a point when you fundamentally disagree on an issue. How is that resolved if you are equal owners?

Q:
If you are in business with one other person, how do you decide on stock ownership if 50-50 is not a good idea? How can you be fair to the owner with less than 50%?

A: The purpose of avoiding 50-50 ownership, even if it is 51-49 instead, is to have a clear and frank understanding at the outset of forming the business. Two individuals commit to work hard together to grow a business and decide that if they ever disagree, which one of the two of them will have the final say. This may seem heartless, but there really is no practical alternative. Without this agreement, the business would be frozen and not able to react to changing circumstances. And for obvious reasons, this is not something you want to discuss with your business partner when the disagreement arises. Ownership and profit distribution are not synonymous. The decision between partners of who should have the final say is independent of salary levels, dividend distributions or proceeds from the sale of the company. These can still be 50-50, protecting the minority shareholder.

Bud Konheim and Nicole Miller started their fashion house on the right foot. They had clearly defined roles. Nicole would design the new and Bud would get it made and sell it. Now they say they could switch roles but they don't. There's a big clue to the answer to this question in what Bud said. When trying to describe why their partnership has made it through thick and thin, he said, "a partnership is not meeting somebody 50-50. A partnership is meeting somebody 90-10."

We've heard others say, "When you don't care who gets the credit, you can make plenty of money." Deferring to the other person, respecting them and putting their thoughts and feelings ahead of your own has worked for these two because they both do it.

Bud and Nicole are both very strong, independent people who do not give up any part of themselves in negotiations with each other. While both of them could probably make it alone, they don't want to. Today they are in this partnership by choice not by necessity so no one feels trapped. This feeling of "I want to be in this together" is essential for creative juices to flow and for the entire team to enjoy a corporate atmosphere of genuine collegiality.

John Stockbridge had pulled himself up out of debt while Errol was struggling to find the right team to take the idea from his head to the marketplace. When they met, they had a good feeling that they could help each other and that has proven to be the case.

Think about it

If you and your partner are 50% owners of your business, do you have a formal or a tacit understanding of who makes the final decision when the two of you disagree? If not, consider having that discussion now and dispassionately. The ostrich approach won't work here!

Clip from: Brookstone Technologies of Australia

Run Your Office From Your Pocket.  Be anywhere!  Be everywhere!

Perth and Sydney:  Meet the folks of Brookstone Technologies. They created virtual office software so they could be anywhere and still have their entire office with them.  

Perth is the most remote, largest "big city" on earth (three hours by airplane to another city over 1M), yet it is in a time zone that is home to half the earth's population!  It is known as GMT+8 (Greenwich Mean Time plus 8 hours). This time zone includes Hong Kong, Shanghai, Beijing, Singapore, Kuala Lumpur, Taipei, and more.

John Stockbridge and Errol Pollnow merged two struggling information technology companies to form what is now a strong, creative enterprise with customers all over the world.

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Brookstone Technologies (EP)

Errol Pollnow, Founder

20/443 Albany Highway

+61 (0)8 6467 7788

Visit our web site: http://www.brookstone.com.au/

Office: +61 (0)8 6467 7788

Business Classification:
Information Services

Year Founded: 1987

Merge To Grow

JOHN: This is the Virtual Office.

Unidentified Man #1: OK. John: And this is the...

HATTIE: Selected from thousands of international competitors in both 2002 and 2003, this tiny global company won the prestigious Beacon Award because it pushed the equations of Wi-Fi by integrating it with knowledge technologies. Here in Orlando, the team proudly exhibits their work. But winning is never easy. In this case, it took a near bankruptcy and then a merge.


ERROL: I think what I was lacking was the very happy, talented core skills that came with the merger with John, and that was something that added to the whole rather than took something away.

HATTIE: You were stuck. You were stuck after five years of working on something and it wasn't the way you wanted it to be. The picture hadn't come true yet.

ERROL: Correct.

HATTIE: And so you found a partner and within a few days, you made a sale.

ERROL: Yes, very quickly, yes. In fact, John and I have a very constructive, complementary set of skills each. (Voiceover) He and I are totally different people, and each of our respective contributions add up to a very valuable whole.

HATTIE: You owned your own business...

JOHN: Yes.

HATTIE: ...until 18 months ago for like 15 years.

JOHN: Yes.

HATTIE: OK. Can you speak to the ups and downs of partnerships?

JOHN: There's always going to be problems in a partnership, in any partnership, and what you have to do is that you have to be sure in your own mind that when you start off in a partnership that, A, you're going to have those problems and, B, that what you're trying to achieve is worthwhile enough to put effort into overcoming the problems as they come up. And they will come up. You have disagreements with your partners. You have disagreements about the way the product should be marketed. You have disagreements about what you should be developing. But in the end, you know, if you work together as a team and it's as much--there's give and take in all things--you really need to arrive at some conclusion. And the rule is that once you've arrived and agreed at a method of doing something or a decision you've made, then you stick by that decision.

ERROL: He and I each had worked as our own bosses for a long, long time. And the hardest thing that we would have to achieve is the ability to work together. And that proved to be the case in the beginning. It was like one of us was squeezing the toothpaste tube from the end and the other one from the middle. But we sorted out those little differences and everything moved forward very happily, yeah.

 

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