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Boardroom brawls

Tuesday, 29 March 2011 | By Leon Gettler

Entrepreneur Ash Hunter learned some important lessons from his first business partnership, formed in his early 20s. He was starting out at the time and it was tough.


Like all partnerships, it was created with the best of intentions. The two were going to set the world on fire. But it came unstuck when he and the partner discovered they were coming from different directions, leaving the business to stagnate.


It was a lesson that taught him well. These days, the many businesses affiliated to his media group are partnerships that work to a set framework.


Hunter is the chief executive officer of Hunter 5. His father began producing vehicle based classified magazines in the 1970s, the Just Magazines stable of titles, including Just Bikes and Just Cars.


Ash Hunter was just 22 when his father died and assumed control of the magazines. Over time, the business grew into other areas.


Hunter 5 can be divided into two main lines of business: media and manufacturing. The media side has complementary businesses in publishing, video production, online and web, music and events management.


Its manufacturing operations produce glass out of China, some 85 million units a year. The company also has some property interests.


It specialises in taking new companies that hit a ceiling. It creates partnerships with entrepreneurs and builds the business.


Partnership problems


Hunter says that first partnership around a property business came unstuck when it ran into hard times.


They needed to raise money. His partner wanted to go to the bank and run up some debt, or use credit cards. Hunter was more cautious. There was no way he was going to take on more debt.


“My risk profile looking at a start-up business was different,’’ Hunter says. “I thought that was crazy. I would scrimp and save and put money aside. If I needed to, I would take money out of my salary or sell something. I call it cashflow funding.”


With two different approaches, the business hit a wall. “We almost cracked the shits at each other because we had different ideas,’’ he says.


That, he says, was the worst sort of partnership fallout.


“To me, the worst ones are when you get to a point where everything stops, you can’t agree on anything, you can’t change anything and you are stuck with a business that can’t do anything, it’s absolutely destined for failure.”


Communication breakdown


Looking back on it now, he would concede that the clash was inevitable. Neither party had worked through scenarios and determined where the other one was coming from. As mates, they had never actually sat down to talk it through before they went into business together.


“We both went in all excited and knowing we would have a really good crack at it and everything was going to be hunky dory. Then when we ran into some hard times, we found out we never really had those discussions about ‘what if.’”


“Every tiny little thing we wanted to change became a negotiation, instead of us having a strong set of rules in place.”


After that, Hunter talked to many other people who had experienced the good and bad side of partnerships. He put together a framework that has guided his company ever since.


Under that framework, the first rule is that Hunter has the controlling stake in the partner’s business, at least 51%.


“We have a good reputation in working with people so I let people know that us having a controlling stake means that we can change the direction of the company,” he says.


“We are not going to do that willy nilly, but they need to know. I want to be up front. I will sit down with them and say, ‘Do you realise that by me having a controlling stake I can sack you?’”


“Do you realise that by us having a controlling stake, I can change the course of what this company does without your approval?


“Normally they need to walk away for a few weeks and think about it. But no one has ever come back and said no I don’t like the idea, I don’t trust you. It’s been very liberating for those people that we don’t give them bullshit.”


The other part of the framework is having very clear shareholder agreements and a clear understanding of what people’s intentions are.


Do they intend to build the business or sell it? And if they want to sell, do they want to sell everything, or just part of it. “We go through it, question by question,’’ Hunter says.

There are also very clear rules about roles and responsibilities of owners, directors and shareholders. Hunter says the problem with many start-ups is that those lines of responsibility are not worked out in the beginning. “There needs to be a clear delineation between those three levels,’’ he says. “Often when you get into partnerships when the business is very small, the lines are very blurred.”


Keeping tabs on your partner


Another feature of the framework is that every three months, the company goes off on a strategy session to decide what course of action it should take for the next 12 weeks.


Projects are allocated, roles are determined as to who does what, and the work is then monitored on a weekly basis.


The key here, he says, is that it ensures the lines of communication are always open. That helps keep partnerships healthy.


“By making sure we maintain alignment in the business, we are communicating effectively every three months and thus we avoid those little issues that used to exist,’’ Hunter says.


“One of the problems in that property company was that we would end up not talking for six months, not because we were pissed at each other but because we were all basically doing something else.”


Do you really want a partner?


Business coach Ashley Thomson advises his clients not to go into partnerships. Why? Because most of the time, the would-be partners have not thought it through and as a result, the partnership ends badly.


“With the clients I work with, I find that eight out of 10 partnerships don’t work, one out of 10 work really well and one out of 10 are just okay,’’ Thomson says.


“Everybody is different in their vision, in their targets and what they are trying to achieve in the business and there is always that level of conflict in the partnership where one partner wants to go faster than the other, one partner wants to take it easy, or one partner has a higher appetite for risk than the other.”


“Most say this is a great idea, let’s go and jump in together and a year down the track where one is working a bit harder than the other, or they need to put more money into the business, and one has the money and the other doesn’t, that’s when the issues come out.”


Working on the business marriage


The problem, Thomson says, is that the partners did not talk about these issues before. Any partnership is like a marriage, in fact, it might be even more complicated. And every marriage needs a lot of work to be successful.


Thomson says partnerships work well when there is a clear understanding between the partners as to who is the senior partner who is in control, very much like Hunter’s model.


“Without having that discussion up front, a lot of partnerships go wrong,’’ he says.


He says partners also need a legal partnership agreement that canvasses all the issues. What happens, for example, if someone wants to leave? Or if they die? Who is responsible for what?


“The number of partnerships I have seen where someone has drafted a proper partnership agreement is probably one in 10 or one in 20,’’ he says. “There is all this optimism at the start and no one thinks about the realities down the track.”


He says that partnerships tend to work better when the partners have worked together before. For example, they might have been apprentices working at the same place.


“They know their good points, they know their bad points,” he says. “That for me is a good start. And they need to have the same value system. If one is a shark in business, and the other is not, then it’s not going to work very well.”


Shared goals


Robin Power, the managing director of the Asia-Pacific hub at Affinity Maker, a company that specialises in setting up partnerships, says that the parties need to have common strategic goals and trust.


“Essentially, you have to make sure there is a desire for the partnership on both sides and that there are real concrete things which both sides are aiming for and which are shared,’’ Power says.


“You might have individual objectives but you need to have objectives that are mutually beneficial for both of you to make it work.”


And most importantly, he says, the parties need to keep the lines of communication open, they need to keep talking.


“If you don’t do that, you may get a situation where one organisation goes off on a tangent and the other organisation doesn’t understand why they are not working together in the way they had worked previously.”


Successful partnerships need more than just shared goals. They need clear lines of responsibility and control as well as constant communication.


And that can only come about when everything is worked out before hand. Like any marriage, that takes some work.