Can Two Captains Sail One Boat?

June 5, 2016

 

Q.  A friend and I are starting a new business together. We’re going to be 50/50 owners and co-CEOs. This seems like a good idea. Do you have any concerns or advice?

A.  When two friends start a company, in many cases, deciding who should be in charge is challenging. Neither friend feels empowered to take the lead. After all, they are doing this together. They are equals. It just makes sense. In our experience, co-CEO arrangements or 50/50 partnerships can work, but they are fraught with danger. 

One obvious problem is that if the joint leaders cannot agree on a way forward, the business can grind to a halt. This happened with Premier Pet Products a pet supply manufacturer. Sharon Madere, a visionary entrepreneur, started the business in her guest bedroom. Sharon developed a product called the Gentle Leader--a bridle for dogs that allowed the owner to control the animal without hurting it. On the strength of this product, the business grew into the tens of millions in revenue.


Then, Sharon decided to acquire a related business that made coats for dogs which was owned by Chuck Mann. In merging their businesses, Sharron and Chuck became equal partners. Things went along fine for a while. Eventually, differences began to surface. The partners had different visions for the company. The impasse on vision led to conflict on smaller issues. Unfortunately, as 50/50 partners, there was no way to break the deadlock. Premier Pet Products literally ground to a halt. In the end, Sharron and Chuck concluded that the best course of action was to sell the business.

On the other hand, we have seen businesses flourish with co-leaders. When Capital One was spun off from Signet Bank in February of 1995, Rich Fairbank and Nigel Morris headed it. Rich and Nigel divided the titles. Rich was the Chair of the Board and CEO. Nigel was President and COO, but when underlings presented, the pair was most often seated side by side at the head of the table. They ran Capital One together and it thrived.

Clearly, some co-CEO arrangements and 50/50 partnerships work well. Others fail. If you enter into such a relationship, the three tips below will help ensure that your business will be among those that flourish.

Establish a clear division of responsibilities – Our own management consulting business, Whitestone Partners, is a 50/50 partnership. We both use the title Principal. We are co-equals. For us, dividing the responsibilities has been a key to success. We play to our strengths. For example, when working with clients, Doug handles the strategy, operations, finance and analytics. Polly focuses on human resources and people management. We divide administrative duties as well. Doug does the accounting. Polly manages the employees. However, as a married couple, if we can’t make a decision for our business, we have bigger problems.

Each employee should report to only one person – We’ve seen businesses try to have employees report to both co-CEOs. Invariably, employees get caught between a rock and a hard place. When the leaders give different directions, what does the employee do? When the co-CEOs want the same scarce resource, to which does the employee give it? Don’t put employees in this untenable situation.

Have a tie breaker – Premier Pet Products was deadlocked, in large part, because there was no mechanism to adjudicate disputes between the co-owners. Conversely, when Rich Fairbank and Nigel Morris reached an impasse regarding the strategic direction of the company, the Board of Directors made the call. Nigel retired from Capital One in 2004. Alternatively, a small business might divide ownership between partners on a 49/49 basis, awarding the remaining 2% to a trusted advisor who would cast the tiebreaking vote when necessary. However you do it, make sure that there is a clear mechanism for resolving disputes.

Co-CEO arrangements and 50/50 partnerships can work, but there are dangers. The tips above will help you navigate safely around the potholes and bumps in the road.

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