Building Solid Partnerships

The 30-year business partnership of Terry Streich and Gary Welton at Silver Bullet Design & Build has outlasted many marriages. It's experienced as many ups and downs as well, from the highs of the extended canoeing trips the two enjoyed before family and other obligations took over, to the lows of the early 1990s, when “business tanked so badly that we went off and hung dry-wall to keep things going,” says Streich, president of the Minneapolis company.

Silver Bullet Design & Build co-owners Terry Streich (left) and Gary Welton, shown in Welton's painting studio, met as art students and still support each other's artistic pursuits.

Photo Credit: Photo: John Noltner

“I'm more married to John than to my wife,” says Darius Baker, only half-jokingly, of his 25-year partnership with John Scofield. As co-owners of D&J Kitchens & Baths in Sacramento, Calif., the two have seen each other through divorce and parenthood, the dissolution of one business and the launch of another, hobbies and midlife and illness, and all the trials and tribulations of running a company, including long hours and difficult decisions.

“Partnerships are incredibly like marriage,” says Linda Case, founder of Remodelers Advantage, Laurel, Md. “They often start up very rosy” but are fraught with potential difficulties and are “painful to break up.”

Yet when partnerships thrive, they can be richly rewarding.

How to make yours succeed? By consciously embodying many of the same behaviors that reinforce strong marriages. That is, all parties agree on a shared vision of what you want to accomplish. You respect one another's contributions and opinions. You communicate often and honestly. And you make it work, in good times and in bad.

Remodeling partners don't have to be the good friends that Streich and Welton, Baker and Scofield, and most others quoted in this article are. But you do need to have a compatible “vision” for your company, says Theresa Gale, a business coach with Transform Inc., in Laurel, Md. “It's important to know that all partners are on the same page regarding what they want to accomplish,” she says.

Gale says her “model” clients are Craig Durosko and Bob Gallagher, president and vice president/chief operating officer, respectively, of Sun Design Remodeling, a $7 million company in Burke, Va. Durosko was just 18 when he launched Sun in 1988 and “wore all the hats” until 1993, when Gallagher came aboard to steer the company's finances. “Bob and I have really different styles of management,” Durosko says. Since 1995 the two have bridged these differences and mapped out future growth through annual strategic planning meetings, culminating in 2000 with the development of “Sun Design's Shared Vision”:

“We will strive to be the most respected and accomplished remodeling firm in the country. Our work, our service, and our attitude will clearly communicate this conviction to each other, our clients, and our peers.”

John Wolfe and Jim Scovell are partners in Scovell Wolfe & Associates, a $4.1 million company in Kansas City, Mo. Their shared vision focuses on delighting clients in the close-knit, affluent neighborhoods where they both work and live. As excerpted from their mission statement, “Our objective is to earn the customers' complete trust, confidence, and respect by providing the highest degree of service possible.”

This plays out in examples such as the company's recent complete rebuilding of a mud-set shower whose pan sprung a leak 10 years after they installed it. “John and I are on the same page when it comes to client satisfaction,” Scovell says. “That's really the most important ideal we live by.”

A key vision of Mark Olson and Brian Shaurette, two of the five partners in Legacy Custom Building & Remodeling, Scottsdale, Ariz., is to grow revenues to $20 million, from $8.6 million in 2005. Both are strong adherents of metrics and accountability, thanks to their previous executive positions in multifamily development and new-home sales, respectively. “We come from backgrounds of running and gunning very hard,” says Shaurette, senior vice president and general manager. “We want a strong, stellar organization — but we also want balance.” He says that his and Olson's shared “spiritual base” helps them achieve that balance.

Neither he nor Scofield is “the slightest bit religious,” Baker says. But both men “absolutely believe in the statement, ‘Do unto others.'” And that is how they have always worked with everyone, including employees, clients, suppliers, and trade contractors of the $1.7 million company.

A similarly informal vision guides Silver Bullet, which has revenues of around $2 million most years. “So many partnerships break up because of philosophical differences,” Streich says. “Gary and I are just very compatible that way. We have a similar vision of where the company should be now and where we want it to go.”

The “ground rules,” Gale says, delineate how you'll work together and tackle the various issues that will inevitably arise. Different from a partnership agreement (see “The Partnership Agreement,” page 126), your rules might cover:

• How and when you'll communicate with one another, and what you'll communicate about.
• What should be confidential between the partners, what should be shared with managers, and what should be communicated to all employees.
• How you'll address problems with employee performance, including one another's.
• How you will make decisions; which decisions you'll make jointly and which independently.
• How you will measure and track business results.

Put your rules in writing, but don't be daunted by the idea of a dense agreement, Gale says. “They can be as simple as a one-page summary of what you've agreed to,” or even a letter you write to one another.

Also, because partnerships are fluid and change course as new opportunities and challenges arise, “Don't set your rules in stone,” Gale advises. “Come back and revisit them over time.”

The principals of many successful partnerships have complementary skill sets, and divide their responsibilities accordingly. (See “The Common Cause” on page 120 about Construct Associates' unusual exception.) This approach is fine but is not essential, Gale says, pointing out that what really matters is that all partners have an awareness of the skills they possess individually and collectively, and what they need to go out and get.

In the early days of Silver Bullet, whoever took the phone call got the project, Streich says. By the time he discovered that he was allergic to dust and could no longer do carpentry, he knew he had an affinity for sales and project development. Welton, who took a lot of math in college, oversaw finances and production. The two still oversee these general areas of the business today.

“I think you need an owner for each major function of the company,” says Olson, Legacy's president. Though he had been a corporate CFO, Olson had not worked in remodeling when he joined Legacy in 2001 and bought it the next year. “I felt that if I had the key salesperson and head of production as owners as well, I would be a little more comfortable assuming the risks [of ownership].” He offered partnerships to those two employees and hired Shaurette to manage sales and day-to-day operations, freeing himself to oversee broader financial and legal affairs.

Olson also sees advantages to having owners of different ages. Shaurette is 44, and Olson is 56 and spends half the year telecommuting from his Colorado ranch. The two and their other partners, whose roles are more limited, “all have different goals, and we allow each other the freedom to pursue life as it's most important to us.”

When Scovell and Wolfe joined forces in 1989, their emphasis was spec remodels, and basic logic dictated who would do what. Scovell, who had been a loan officer at a bank, handled finances and sales. Wolfe, who had been an appraiser and had done spec remodels before, found the homes and spearheaded their design and construction. Their roles later reversed as the company matured, with Scovell overseeing sales and production, and Wolfe managing finances and administration.

Until earlier this year, Durosko oversaw production at Sun Design and Gallagher managed sales and design. Then the two implemented some organizational shifts and effectively traded places. Gale says that this flip was courageous as well as smart. “They said, ‘you know, we both have to learn the other part of the business.' They recognized that they would both bring a whole different perspective” to their new responsibilities.

It's especially critical that all partners understand their company's finances, Case says.

Successful partners talk about the business on a regular basis, but that's only half of what's needed, Gale says. “There should be frequent communication on two levels. The first happens all the time, when you talk about how the business is doing and make sure that you have the tracking and measurements necessary.”

Less common but equally critical, she says, are “how are we doing?” discussions of the partnership itself — issues that don't always appear on the bottom line. “Make this a check-in at the start of the partner meetings,” she suggests. “Ask, ‘Are the ground rules still working for us? Are there any things that I've done that might have upset you? Is the partnership healthy?'”

Durosko and Gallagher meet every other week for a two-hour owners' meeting, where they discuss all areas of the company and establish their respective goals and deadlines. Among other points of check-in, they also discuss issues that they might not completely agree on. “It's important to make sure we get on the same page,” Gallagher says, rather than send conflicting messages to their staff.

Communication ties everyone together at Legacy Construction, Olson says. Not only are there regular meetings, but meeting agendas are maintained on the corporate server, where all employees have access to them. On the rare occasions when he and Shaurette disagree, Olson usually backs off. “I decided that since I've placed my trust in him to oversee day-to-day operations, it's in my best interest to defer to his judgment,” Olson says. “There's something to be gained in his making the decision. And he's going to have to live with it sooner than I am.”

Wolfe and Scovell also pick their battles. “If one person feels extremely passionate about something, you defer,” Wolfe says. “It's like a marriage; you know what the hot buttons are, and what not to press.” (But sometimes, he notes, “you press anyway.”)

Silver Bullet's culture of communicating goes back to its partners' days as art students at the University of Minnesota. “We would put our art on the wall and everybody would critique it,” Welton says. “That's kind of how we do things here. We all have respect for someone else's point of view.” Streich agrees. “Critiques are a long-standing part of a fine arts education, and I guess we absorbed the tradition pretty deeply.”

When they disagree, they “hash it out” in private, Streich says. “Facts are very, very important to us,” he adds. “If Gary says, ‘I think we should do this and these are the facts as I see them,' he can sway me. The way I see it, this is not life or death. My ego isn't tied to this.”

Should conflicts persist, successful partners agree there's an issue and ask for help. As with marriage, Case says, “if you're stuck, bringing in a third party to mediate might keep the partnership from going down the tube.” Sources of help can include independent peers, business mediators, and local universities. “But,” Case adds, “you both have to be in the room.”

Successful partners “can't be looking over each others' shoulder all the time,” Case says. Establish your respective areas of oversight, be accountable to one another, then get out of the other's way. “Trust is a big element of our partnership,” Streich says. “I may be questioned, but I know I'm not going to be second-guessed. It's the same for Gary: I may question him, but I'll never second-guess him.”

At Sun Design, Gallagher notes that he, Durosko, and their key managers “run with their responsibilities” and are authorized to make decisions independently.

“If you don't have that level of trust and respect, you shouldn't be partners,” Olson says. “In order for each person to make the strongest impact, they have to know they have the support of their partners.”

The Common Cause

Stephen Ross, Bob Reckman, Bob Walker, and Hobie Iselin are the four “sole proprietors” of Construct Associates. “We share a common vision in the quality and style of work we do,” Walker says.

Photo Credit: Photo: Daily Hampshire Gazette, Charles Abel, Photo Editor

Structured more like a law firm than a typical remodeling company, the partnership of Construct Associates consists of four independent businesses sharing an office, a labor force, and equipment. “We're all sole proprietors,” says Bob Reckman, who launched the Northampton, Mass., design/build company with Hobie Iselin and Bob Walker in 1985. “We each have our own set of books; we each sell and budget and manage our own jobs.”

The original thinking, Reckman explains, was that “we wanted to share our work experience, but we had seen many other partnerships founder on the shoals of financial messes.” He says that this structure makes it relatively easy for people to come and go over time, and insulates the corporation somewhat from the economic vagaries of the businesses of the individual owners.

Each original partner invested about $5,000 in the company. On an ongoing basis each pays the following to cover Construct's overhead:

• A monthly “desk charge” of $1,000.
• 5% of his business' gross annual revenues.
• Marked-up rates on the labor used for his jobs.

When Construct produces a profit for the year, the partners receive “rebates” based on their individual contributions.

Name recognition is a key advantage of the arrangement. “We have a much larger job base and can perform more projects under the Construct name than any of us can do individually,” Iselin notes. Collectively, they can offer outstanding benefits and delegate work if one of the partners takes an extended hiatus. And they can expand or contract their practice as desired; Iselin, for instance, does more large commercial projects.

Seven other people have been partners at various points since 1985. With Reckman planning to retire at the end of this year, new partner Stephen Ross, a longtime lead carpenter for Construct, will help bring in enough volume to maintain Construct at its current size. “They basically made it a turnkey operation for me,” he says.

50-50, Not Always Nifty?

Not all partnerships evenly divide owner compensation and profits. Jim Scovell owns 57.5% of Scovell Wolfe because an unsuccessful previous partnership convinced him “that I would never be a minority owner again,” he says. John Wolfe, his partner, says that he supports this “the buck stops here” attitude because Scovell doesn't abuse it.

Mark Olson owns 51% of Legacy Custom Building & Remodeling, Brian Shaurette owns 21.5%, a third partner owns 15.5%, and two others own 6%. Some bought their ownership share; others were issued it in company stock.

Craig Durosko founded Sun Design Remodeling and owns 75% of the company. Bob Gallagher owns 25%.

Terry Streich and Gary Welton each own 50% of Silver Bullet Design & Build, but “we set it up to prevent conflicts over time spent participating in the business,” Streich explains. On a regular basis, each man receives an hourly wage for the time he actually worked in that pay period, plus a fixed payout for being a shareholder in the company. In profitable years, each partner also receives half the company's profits.

The Partnership Agreement

Partnerships are the only business entities that can be formed by oral agreement, and many remodeling partnerships do, in fact, begin with a handshake (see Reader Panel). But at some point, all should be formalized in a clearly written partnership agreement that leaves little room for ambiguity and can prevent minor disputes from erupting into full-blown battles.

Attorneys' fees for drafting partnership agreements typically range from $500 to $2,000.

Some issues to address:

Initial contributions. How much cash, property, and services will (or did) each of you contribute to the partnership?

Management duties. How much time will each of you spend running the business? Who will do what?

Profits, losses, and draws. How will the money be divided and distributed? Will draws be issued on a regular basis or at the end of the year?

Decision-making authority. Establish voting rights for major decisions. Will they require a unanimous vote or a majority? If all partners have equal authority, consider giving a small ownership share to a neutral tie-breaker.

Disputes. If you become deadlocked in a dispute, will you go to court or bring in a mediator or arbitrator?

Buy-sell. How will you handle the departure or death of one partner, or the sale or dissolution of the business?