Key Idea: Enjoy Your Partner
Partnerships are as hard as a marriage and require the same kind of attention. Arnold and George love, respect, admire and enjoy each other which is why this relationship has lasted since they met in high school. More...
Arrogance is dangerous because it can ruin any relationship you might try to form with smart, talented people. People who just want to come to work and be told what to do might stay on your payroll while the creative person with strong self-esteem won't put up with an arrogant boss.
Arnold and George are able to to lead and grow a business because neither one of them thinks they can do it alone.
Q: What are the ups and downs of having a partner? What are the legal ways to consider forming partnership? Should there be an exit-the-partnership clause in the agreement?
A: Deciding if and when to take on a partner is among the most challenging questions we small business owners ever face. As long as you and your employees can continue to grow the business, there’s really no reason to think about sharing the ownership and executive decision-making authority of your company. The time to consider taking on a partner is when your resources fall short of those necessary to take advantage of your opportunities. These resources might be human, you lack the time or skill set to expand your business further, or they might be financial, you need additional equity capital to fund additional growth. When the issue is capital, you can consider a “silent partner”. Silent partners own an equity percentage that entitles them to a certain percentage of the profits but have no say, ergo are silent, in the management of the company.
Operating partners participate in the management of the company. The extent of that participation, and of their profit percentage, is clearly spelled out in the partnership agreement. Often, one partner is the General Partner, and has rights and authorities that are vested only in him or her or it, if the General Partners is another business entity. Limited Partners have limited rights, again, as specified in the partnership agreement.
There are lots of advantages to having a partner. You have someone to share the load, adding real substance to the management of the company. You have more time for family and friends, maybe even that vacation you haven’t taken in a long time. But there is a downside, too. A bad partnership is like a bad marriage, and often expensive to end.
You can limit the risk of a bad partnership in several ways:
Know your Partner before Entering into a Partnership
Really know your partner. Some of the best partners started out as employees. The owner recognized the talent of the individual, hire him or her, shared more and more responsibility, and finally offered the employee the opportunity to buy into the company. This does not necessarily require cash. The new partner can take his share of profits in ownership percentage, basically as a form of legacy planning, often a challenge for small businesses.
Have a Clear Understanding of the Roles, Responsibilities, and Profit Sharing Percentage of Each Partner
Start with a napkin; get it all down on paper. Play “what if” games with your prospective partner and cover every conceivable situation. In how many areas are you in agreement? How are you able to compromise when you are not in agreement? Do you come to a consensus easily or only after long and exhausting discussion? These are issues that must be addressed before the partnership is formed.
Select your Partnership Form Carefully
There’s partnerships, limited partnerships, limited liability partnerships, all governed by different laws and regulations at both the Federal and State level. And the laws vary from state to state. Consult an attorney and make sure your partnership agreement is legal, clearly states what you have agreed to, and limits your tax liability.
Provide the Dissolution of the Partnership in the Partnership Agreement
No matter how carefully you have covered your bases or how warm and fuzzy you felt at the beginning of the partnership, some arrangements just don’t work out. Allow for that possibility at the beginning of the partnership and include both the circumstances under which the partnership can be dissolved and the terms of the dissolution in the formal partnership agreement.
Finding a partner could be the best thing that ever happened to you and your business, just be sure that you proceed carefully and provide prudently for any contingency.
George and Arnold knew each other; they liked each other; they were friends and activists in their high school days. So, when Arnold planted a seed of an idea, "Let's do something," though initially rejected, it quickly found fertile soil when George discovered an SBA-initiated program about chemical contracting. Businesses often start because somebody plants the seed of an idea and another willingly follows up what many would say was an off-hand comment.
Life can be 8-to-5 working for somebody else, or it can be an adventure with a friend. These two have aligned their inner compasses and profoundly trust each other. The enjoy each other. They speak to each other every morning before they arrive at the office! They love each other's families.
If you don't fully and wholly enjoy your partner, you are being drained of valuable energy just to get along. Too bad. Find a way to get out of the partnership!
Q: How did the two fund their startup?
A: They got an SBA loan to start and they had to personally guarantee it. It is not free money, but it can be "cheaper" money. The SBA guarantees up to 80% of loan values up to $100,000 and 75% over $100,000, but not greater than $750,000. Your local bank makes the loan. There are fees; money costs money. So why the SBA?
Interest rates can be more favorable, as opposed to prime plus several points.For more information, call the SBA Answer Desk at 1-800-U ASK SBA.
In addition to starting a business, these two have worked to revive land, buildings, people, emotions, and history. They are profoundly aware of the tragic history of their old neighborhood. And they want to do something about it.
We think this is a match made and sustained by heaven.
Think about it
If you have a partner, what can you do to enrich the friendship or dissolve the partnership?
Clip from: Diversified Chemical Technologies
Arnold Joseff and George Hill
Detroit, Michigan: There is no alchemy within the deep success of Diversified Chemical and her founders, Arnold Joseff and George Hill (pictured above). Rather, it is the right mix of ingredients -- attention to details, adherence to rules and procedures and exacting standards, fiscal responsibility, personal accountability, and an investment in their people and community -- that produce results that consistently meet their customer's expectations and exceed their customer's requirements.
Arnold and George opened Diversified Chemical Technologies, Inc. in 1971 and today it is the holding company for four subsidiaries: Adhesive Systems, Coat-it; Diversified Chemical Technologies, and Paperworks. Together the companies employ over 200 people -- 50 are chemists -- and they generate over $150 million in annual sales.
In the '80s they decided to stop being sales-driven and to become innovation-driven. They reinvented the entire business. They took their lab off the back burner and turned up the heat by putting it at the very core of the company. It meant putting technology ahead of personality as a way of defining their competence within their industry. These two broke the mold then reinvented it.
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Diversified Chemical Technologies (GH)
George Hill, CEO
15477 Woodrow Wilson
Detroit, MI 48238
Visit our web site: http://www.diversifiedchemicalinc.com/
Year Founded: 1971
Enjoy Your Partner
Hi, I'm Hattie Bryant. This is the place to learn about the chemistry of Business. Every week, we take you inside a company to show you how people turn their dreams into reality. At Diversified Chemicals in Detroit, everybody is excited about chemistry and the possibility of positively impacting the world through innovation. Right now you'll meet the founders of a growing company who are dedicated to the future, to creating good work, to discovering and developing human potential, to solving problems, and to making the world a better place.
Let's go to Detroit.
Arnold Joseff and George Hill opened Diversified Chemical Technologies, Inc. in 1971 and today it is the holding company for four subsidiaries: Adhesive Systems, Coat-it; Diversified Chemical Technologies, and Paperworks. Together the companies employee 200 people, 40 are chemists, and they generate $70 million in annual sales. This is George Hill.
GEORGE HILL: I was working for a major corporation, one of the Fortune 500, and Arnold -- who has been my friend forever said “George, Let's do something – Let's do something.” I said, “ No, I've got a wife, I've got a kid, I've got a mortgage; I can't do anything.”
One day I noticed a little session on how the SBA operates. It happened to be a session on chemicals. So I said, “Oh, Arnold said we should go into chemicals; I'll see what this is like.” So I sat down and I filled out a form. They sent a bid in the mail; I showed it to my friend Arnold; because I put down my name and address as being interested or involved, I said, “Hey, we can sit down and we can make this happen.”
HATTIE: This is Arnold Joseff.
ARNOLD JOSEFF: We put in a total of $4,000 to begin with, this goes back to 1971. We leveraged out with a SBA loan, I think it was $70,000. A loan that we ended up repaying.
HATTIE: Well, the SBA doesn't give out any money, they only back loans.
ARNOLD: Absolutely, it was made by a bank, a local bank. And, we convinced them to make the loan to us. And I think we made a profit right from the first year. And what we did -- yes – and what we did is we paid our taxes, took our retained earnings -- and plowed it back into the business.
HATTIE: And your wives didn't say, “Where's the money, honey?”
ARNOLD: No they didn't. No they didn't – because they knew that we had a dream and we worked to make it happen. And that is the way we have always grown. Today, we have very substantial lines of credit. But, we have very little exposure. It works, it makes it comfortable for us and for our employees to know that our backs are never against the wall.
HATTIE: Early on, the two committed themselves to revitalizing the urban neighborhood of their childhood. The race riots of the 60's had scarred the city and thousands moved to the suburbs. George and Arnold purchased and brought life back to abandoned buildings.