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Last Update: Saturday December 16, 2017

Key Idea: Avoid 50-50 Partnerships

Don Gullet, Tom's partner at Tires Plus, says great partnerships are a constant balancing act of one person's skills complementing the other's.

Key Question:

A: 

The right partner or group of partners can help but be careful.  Avoid 50-50 Partnerships. 33-33-33 is OK, but Tom and Don concurred that a 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?  Consider having that discussion now and dispassionately.

The ostrich approach won't work here.

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.


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?
 

Clip from: Tires Plus with Tom Gegax and Don Gullet

Minneapolis: In 1978, Tom Gegax and his partner Don Gullet, bought a few gas stations and opened for business. By 1998, they had 150 tire stores with 2,000 employees generating $200 million in annual sales.

That's a good story unto itself, however, in this episode of the show, we learn from a master entrepreneur about the meaning and value of life. Tom Gegax is pulling and pushing us up the ladder. When they sold this business, he became an author. His third book, The Big Book About Small Business  builds on his first two,  By the Seat of Your Pants: The No-Nonsense Business Survival Guide, and Winning in the Game of Life.

The first editorial title for Tom's book was The Enlightened Executive. And with all these self-help books and continuous improvement cycles within our lives, enlightenment is actually breaking out all over.

Tom Gegax was a founder, the Head Coach, as well as Chairman and CEO.  In 1999 they were being courted for acquisition.  In 2000 Bridgestone/Firestone sealed the deal to buy 100% of the company.

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Gegax Management & Tires Plus

Tom Gegax, founder

Gegax Management Systems
PO Box 16323
Minneapolis, MN 55416
612-920-5114

Visit our web site: http://www.gegax.com

Office: 612-920-5114

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Avoid 50-50 Partnerships

HATTIE: (asking Tom's partner, Don Gullett) Do you think you'd be where you are today with Tires Plus if Tom wasn't around?

DON GULLETT: Oh, absolutely not. And I think he'd respond the same, too. It's just like a marriage. It's a relationship that two people have to have a good understanding of their strengths and weaknesses. And it's the understanding how they compliment each other and so, building together on that. One partner can take some tasks that might be difficult for the other partner, and they compliment each other in their -- their search for success.
 

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