The Benefits and Challenges of a Business Partnership - Franchise Secrets

The Benefits and Challenges of a Business Partnership

From the beginning of my franchise journey I’ve had the opportunity to be involved with many types of partnerships. Each partnership has been unique and brought new lessons and chances to grow and learn. I’ve experienced partnerships in real estate, area development, and as a franchisee across multiple states and seven different brands in the last 20 years. If you want to expand your business through partnerships or if you are looking for insight, direction and connections to speed up success in the businesses, I think my story will help you out.

(To listen to my podcast episode on business partnerships instead, click here.)

On the front end I just want to say that if there is something that’s really important to me in a partner, it’s trust. It’s that ability for all the partners to be very open and honest with each other. I want to be really open with my partners. If there’s not that type of open, authentic, genuine relationship, then we’re probably not going to be very good partners. If they can’t be open because they think I’m going to react a certain way, then that’s a lack of trust. If I can’t share with them because they’re going to judge me or think something negative, that isn’t going to be a fruitful partnership.

So, trusting that “what you see is what you get” is really important to me because there will be discussions that come up that are not easy discussions. In those discussions it’s about combining your brain power to come up with really good solutions. If people are holding back because of lack of trust or fear because of how someone is going to react, you can’t move forward. I’ve seen that trust provides a really big benefit for me and my partnerships.

My first partnership had a lot of that trust already because it was with my parents. Many of you already know my story, but I’ll share it again for those who haven’t heard it. My first business was lawn care and I was my own boss. One day one of my clients was talking to me about a real estate opportunity that they had. It was a rental condo near the beach and I knew right away it was a great chance to make some money. Of course, at that time I didn’t have any savings or capital for the closing costs. I needed $5,000. I knew I could talk to my parents about it, but I also knew I would need to do some things to get them to want to be in a partnership with me. I made an offer that I felt would be irresistible for them. Basically, my offer to them was this: you pay for the closing costs when we sell the property, I will pay you back half of what we make. You see, I offered them instant equity, a lot of equity into the property. That sale is how I made my first large chunk of money to buy my first franchise.

Of course, the other thing I offered them in a sense was something much less tangible, but it was important because of that value of trust. They did not want to see me fail and wanted an opportunity to be in business together. What that also did is that allowed them to see me and my tenacity and how I wanted to go after something and get it. That initial partnership convinced them to partner with me in my first franchise.

So, they came into it wanting to help and if they could make money at it, I think that was a bonus because the trust level was very high, and they wanted to show me that they supported me and believed in me.

In the beginning it was hard. It was not the easiest franchise. It wasn’t something that I really enjoyed in terms of a product or a service. But it was where I started to learn business and it was a really good partnership and we eventually bought more. I think the key thing in all my partnerships, is asking: “What can I offer them?” I don’t look at it to see what I can get out of this. How can I make this an equitable relationship for everybody?

I wanted to become an area developer in my next brand. I found the brand and my parents and one of my friends partnered with me. The business did great, but the franchise began asking the area developers to do more hands-on day to day in the business. Since this was not what we originally were thinking of in terms of a time commitment, we needed a solution. That’s when we decided to add another partner.

There was a franchisee that could fit that need really well. We approached the franchisee and said, “Hey, we’d love to have you a part of our partnership.” They couldn’t partner with us in terms of providing capital, but they had a lot of the skillset that we needed. They were local and had relationships. We basically offered them equity that they could earn into the business without having to bend their money to get into it.

During this same time, I got into my third brand. I met the founders of this brand and I wanted to get back into the franchisee side of things. Being a franchisee means that my choices, intelligence and work have a direct impact on the outcome of that business. That direct impact really appealed to me at this stage in my journey.

I recruited three buddies of mine and I said, “Hey guys, do you want to do this with me?” These were all franchisees in the first franchise I had so, again, there was a foundation of trust. We knew the work that the others had done in the past. So, we joined our resources and were able to buy the entire Orange County market that was still available.

We did have a valuable lesson we learned during this phase of our business. The business model for this franchise had very few employees. The person running the business would be on a conference call once a week with the four of us. They would be getting feedback from four different personalities, four different ways of doing business and getting four different opinions. We burned through a couple of people who felt like they couldn’t find clear direction. Looking back, we realized we were not hiring the right caliber of person for the position. We needed a decision maker who could take calculated risks and who was willing to make mistakes and get feedback.

We needed someone who would think like an owner, act like an owner, and respond as an owner. That was something that we as a partnership decided that we needed and something that we spent a lot of time on. We needed to find that right person and when we found them; that’s when we really got to grow that business pretty rapidly.

That was a real fun time. It was just a great time because as owners we were able to step back. That person was able to do all of this stuff he had the skills and ability to do. It left me and the other partners free to explore other business opportunities.

So, here’s the thing, you want to get people on your team that are better than you. I’m good at some things and a lot of times my partners are better at a lot of things than I am. I’m okay with that. When I look at a partner, I want somebody that has a skill set that I don’t necessarily have. And today that’s super clear to me. I don’t need a visionary. I don’t need someone that just has deep pockets. I don’t need somebody that wants to be the board of advisors. That’s what I am. That’s my role in companies these days.

My role is really an advisor. I want to help my partners and my key management avoid mistakes because either I’ve made them, or I’ve seen people make them. My goal is to help avoid mistakes so we can have success quicker. Now, I might not be the right partner for most people because I’m not the right partner for myself. I wouldn’t want another me in the partnership. That would not be helpful.

One of the things I learned in that partnership was how to get an operating agreement dialed in. We spent a lot of time, a lot of effort, a lot of money getting this operating agreement right. That way the decisions that we ended up making five or six years later, we could just refer to the operating agreement before emotions were involved and before dollars were involved. You want to have that operating agreement in order because one partner can stop a sale from happening. You don’t want to be in a position to negotiate a hold out.

During this time, I also learned a lot by watching the way my partners handled things. You know, they were better at managing employees, they were better at managing at the store level. I learned a lot from them on how they would relate and how, they would work on things and communicate them. And they were really good in terms of how to compensate employees. They knew how to help them get ownership into the business and how to provide bonuses.

We exited that business with a lot of success, and I decided to get back into area development. This business got challenging really fast and I learned some things in the process.

I decided I wanted to try out buying a franchise. I realized quickly that though it was nice to have all the rewards to myself it was also nice to have someone managing it because; there is a point you reach where it is not about the money but it’s about making life easier. It’s about how you can help more people. The money is a byproduct of success and “success” means something completely different. At some point you just reach that level where you’re making decisions based on things other than just financial profit. That should really be a factor in determining the types of decisions you make and who you partner with. You have to ask yourself, “Will a partnership improve my quality of life and improve the partners’ quality of life?” There is definitely a place to ask that question.

So most recently I was buying those franchises last year and I ended up partnering with three very different partnership groups. It was a mixture of new people and some people I had known very well. In the midst of that we actually ended up bringing in a fourth partner because they were local to our target market. We felt they had a lot to offer. We did run into a challenge with this partnership though.

We realized quickly that there was one partner that just was not the right fit for the group. I remember early on some of the other partners would say, “You know, are you feeling the same thing?” So, we had a choice. This is where it gets really difficult, but if you don’t make the right decision at this point, what was difficult in the beginning will become a nightmare in the end.

Moving forward with all four of us was clearly not going to work so three of us bought out the fourth partner. They just weren’t the right fit.

Don’t get into partnerships that are going to be difficult. If it’s difficult in the beginning it will only get worse. I did not want that. That’s why we made that decision to buy that person out. None of us wanted to do a whole lot of work because we all had other things going on and that’s not why we got into the business to begin with. So, we began looking for someone local who would actually be a better fit. We found someone who had the right mindset. We needed someone who was entrepreneurial and who could think like the owner instead of trying to manage the business. Bringing in the right person really made the difference and it was good that we could recognize that need early and buy out the previous partner.

Currently I’m working with my seventh brand and am in partnership with three people. Two of them are people I’ve worked with before and they are involved in other current businesses; but one of them is new and I’ve never met him face to face. Like I was saying, trust is the key and this new partner is someone that my other two partners have known since college. Because I trust their judgment, I was super comfortable bringing him in to that partnership.

I hope hearing about my journey and experiences with all these different partnerships can give you insight into what partnership should look like for you in your business. It really is simple, choosing the right people, being open and honest with each other and making sure that it is a good fit and both partners are finding value. The lessons I’ve learned can provide some chances for you to avoid some the pitfalls of partnerships and find the right people who will help you grow your business.