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Business Lesson 1: Piss Poor Partnerships

Hindsight’s a bitch.

I struggled writing this post.  It’s much easier to look back and recognize some of the mistakes I’ve made than it is to actually go through the process of writing about them, which is exactly why I think these posts are so important to share.  Some of the best blog posts and podcast episodes we’ve put out were somewhat uncomfortable for us to publish…because they were real.

It’s much easier to talk tactics, SEO strategies, and keyword research than it is to open up about deeply personal or hurtful business situations, but that’s exactly what I want to do here.  I originally wanted to put a bunch of these lessons into one post, but I thought it might be more impactful to go into detail and instead share them through a series of posts.

If you’re looking for more regularly scheduled content, don’t worry…we’ll be back to continuing our regularly scheduled posts in no time!

Whenever I discuss this particular learning experience with other entrepreneurs (especially those with partners) I invariably see a puzzled, confused look.  I think it’s hard for them to understand the mindset that allowed this situation to develop.  That’s understandable…at face value it might not seem like it would happen to you but, well…here’s what happened.

Backstory: Starting Our Mortgage Business

If you’ve listened to our podcast episode describing our previous businesses, you’ll know that Joe and I started working together through our mortgage company.  Joe, myself, and a member of my family (let’s call him Mike) had been selling mortgages over the phone for a couple of years through different companies and realized we wanted to setup our own business doing the same.
Joe had been living in Brazil and we all decided to fly to and meet up in Bangkok, Thailand to hash out the details on how we’d get up and running.  Somewhere in-between Singha’s and crazy nights out, we laid what was to be the foundation of our first business venture together and we were all really excited to get started.

Implementation: Getting Our Business Off The Ground

It wasn’t a concerted effort to start.  We decided to continue to close our loans/deals on our own and take 70% of whatever we earned individually and leave 30% to build some runway and stock away some savings for the business.  We all lived together in a large house in Southern California, which was great for staying focused and growing our new business.

We continued with this for several months and it worked out fine, but we knew that this was simply working for ourselves and not actually building a business we could scale.  As we mentioned in our post, Building Human Machines, we decided to turn our efforts towards building a team of Loan Officers that could close loans through our company.

At first, we saw a significant increase to our revenue without the profits, but over the course of a few months, this proved to be an effective strategy…our scaled approached grew beyond what we were doing personally and things were going well.

Problem: Unequal Distribution Of Work And Resentment

We began to have problems when we noticed our in-house business had all but dried up.  This would have been alright, but our third partner, Mike, was responsible for this revenue stream and had no answers as to why this was the case.  We let it slide as we were still growing the other side of the house, but trouble was brewing.

Eventually, Mike didn’t even bother making excuses for the lack of productivity any more.  We noticed he was spending an outrageous amount of time playing video games and sleeping.  (We all lived together at the time and this was extremely apparent)  He was spending upwards of 60+ hours per week playing games and less than 10 hours per week doing anything that resembled work.

This led to a ton of resentment built up….so much so that Joe no longer felt it fair that he keep up his side of the work to support someone who was splitting the profit equally.  I quickly fell into the same camp and found myself spending less and less time on the business as well.  It didn’t help that the mortgage industry was falling apart around this time, but our lack of focus on business basically assured that we wouldn’t weather the storm.

Aftermath: Shutting Down Our Business

The worst part is that we didn’t discuss this at all early on.  The negative feelings and lack of productivity festered for months.  Finally, it came to a head in a meeting that ended with Mike leaving the business, moving out, and having nothing to do with us again.  this caused some division in the family and shook some relationships that were never truly repaired to this day.

Our confidence shaken and our business in ruin, Joe and I had to make some tough decisions.  I was mortified with the thought of having to shut down the business and wanted to continue on with what we were doing.  Joe was disillusioned with our business and didn’t see a viable future.  As it turns out…we were both right/wrong.

We half-heartedly attempted to salvage what was left of the business, but neither of us were very committed at this point and, a few months later, we were forced to shut it down.  We decided to keep the corporation intact, but shut down our operation, the corporation went dormant and we proceeded to look for jobs.

Lessons Learned

It was a pretty horrible situation for all of us towards the end.  We couldn’t pay our bills, weren’t speaking to each other, and ended with a horrible taste in our mouths that we now refer to as the downward spiral of the “who can work less” game.  This is something that comes up and we consider even in our business today.  Here are a few of the lessons we learned from this:

There’s a Downside to Partnerships

Many will tell you that having partnerships are great for covering different skillsets, accountability, etc.  This can be true, of course, but there’s a darker side to partnerships that’s not often talked about – How they can be emotionally and psychologically draining, hurting your chances to succeed.

This is especially true for lifestyle businesses where, unlike some of the tech incubators that are out there, you don’t HAVE to have a co-founder to get accepted or started.  In fact, with just a little bit of hustle you can almost always hire employees, contractors, or find “accountability partners” that will cover the reasons you were looking for a partner in the first place.  If adding a partner doesn’t add 2X or more to the size of the pie, you’re going to be better off on your own, most likely.

 Play Longball with Early Hires

Your first few hires are critical, so don’t waste them picking up someone who fills a short-term need.  Look for hires that understand the vision and can wear many different hats, especially considering it’s likely the company you’re looking to grow may look significantly different a few months or years down the road.

Be Brutally Honest Early

I’m not so sure that we could have done anything different with Mike, but Joe and I avoided discussing our frustrations and downward spiral early on.  We joke about it now, but having an honest, straight-up conversation about it as it was happening likely could have saved our business…or at least allowed us to pivot to something salvageable.

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