Chapter 4 : When Partners Disagree: Turning Partnership Challenges into Powerhouse Businesses for Enhanced Exits
Introduction
All business, at its core, is about relationships—between you and your customers, you and your suppliers, and in many cases, you and your business partners. While we can find partnerships in every aspect of enterprise, this chapter focuses on the internal relationships where two or more parties share ownership of a company. Partnerships can be a huge asset, offering combined expertise and shared risk, yet they also carry potential pitfalls. When personal and professional lives overlap, disagreements can quickly escalate, impacting not only day-to-day operations but also the long-term value of the business.
In this chapter, we’ll discuss why partnerships matter, especially when it comes to positioning your company for sale or a significant equity raise. We’ll explore the most common conflicts that arise, highlight warning signs, and examine why these issues become magnified during an exit. Through two case studies—one high-profile example and one smaller, more typical scenario—we’ll show how partnership disagreements can derail a company’s prospects. Finally, we’ll outline practical strategies and action steps to resolve conflicts and enhance overall business value.
Section 1: The Dynamics of Business Partnerships
Common Causes of Conflict
Even the most promising partnerships can run into rough waters. Here are some frequent triggers:
Vision Misalignment: Partners may have differing ideas about the company’s purpose, target markets, or growth trajectory.
Trust Issues: Lack of transparency, dishonesty about responsibilities, or hidden agendas can corrode the foundational trust needed for a productive partnership.
Unequal Workloads or Perceived Inequities: Conflicts often arise when one partner feels they’re bearing more of the burden while receiving the same share of the company.
Signs of Trouble
Partnership strains rarely appear out of nowhere; they build up over time. Look out for:
Communication Breakdowns: Partners stop sharing information openly or avoid difficult conversations.
Hidden Resentments: Subtle sarcasm, passive-aggressive remarks, or “forgetting” to inform each other about crucial decisions.
Unilateral Decision-Making: One partner making major strategic moves without consulting the other(s).
Eroding Trust: A decline in daily cooperation, missed deadlines, or suspicion about how resources are allocated.
Why Conflicts Are Magnified During an Exit
If you’re looking to sell your business or bring in external investors, prospective buyers will scrutinize the stability of your partnership. They’ll want to know if your leadership team is unified or if a hidden power struggle could erupt post-acquisition or post-investment.
Investor Concerns: A fractured partnership suggests potential operational chaos, undermining confidence in the company’s future.
Valuation Impact: Buyers may lower their offers (or walk away altogether) if they sense unresolved tension could threaten profitability.
Time Pressure: Preparing for a sale or equity raise is already intense. Existing partnership conflicts can get worse under looming deadlines.
Section 2: High-Profile Case Study — Two Sigma
Brief Background
Two Sigma is a well-known technology-driven hedge fund, famous for its quantitative approach. Founded by partners with deep expertise in mathematics, software engineering, and finance, the firm rapidly grew into a powerhouse in the hedge fund world. Their pioneering use of data and algorithms set them apart in the competitive finance sector.
The Personal Rift and Its Business Implications
Over the years, rumors have circulated about disagreements between Two Sigma’s founding partners—ranging from strategic direction and compensation structures to leadership style. While much of the specific detail remains private, any tension at the top of a large hedge fund can become a lightning rod for investor speculation.
Internal Disagreements: Clashes over allocation of resources or the next phase of the company’s evolution can spook existing investors who expect a clear, cohesive strategy.
Impact on Reputation: Media reports suggesting rifts at the leadership level often create buzz that can erode trust, especially if high-profile clients question the firm’s stability or see leaders at odds.
Valuation Effects: Private companies like Two Sigma aren’t as publicly traded as standard corporations, but investor sentiment still matters. Any perceived instability in management could diminish the appetite for additional capital infusion or strategic partnerships. In March 2023, the firm disclosed in a filing with the Securities and Exchange Commission (SEC) that the founders' feud was a "material risk" that could hurt the company's prospects. Eventually, in August 2024, both John Overdeck and David Siegel stepped down as Co-CEO’s of the firm they founded. While the direct financial impact on Two Sigma of this ownership war is unknown, estimates are in the Billions.
Outcome and Lessons Learned
While the exact resolutions of Two Sigma’s internal discussions aren’t publicly documented in detail, the reported frictions highlight key points:
Partner Alignment is Ongoing: Even at firms with stellar track records, success can obscure growing tensions.
Clarity of Roles and Communication: Large hedge funds often require strict definitions of who leads what part of the business to avoid overlap.
No One’s Immune: A high valuation doesn’t protect a company from the damaging effects of unresolved partnership conflicts.
Takeaways for All Partnerships
Two Sigma’s rumored internal struggles underline that success does not shield a company from leadership tensions. Buyers, investors, and staff pay attention to leadership unity, and cracks in the foundation can quickly reduce trust and perceived value—even if the business appears to be thriving externally.
Section 3: Typical Case Study — Charlotte & Ivan’s Software Venture
Scenario Overview
Charlotte and Ivan co-founded a software startup specializing in solutions for the insurance broker industry. They held a 50/50 ownership split, with Charlotte acting as CEO and Ivan as CTO. Bootstrapped from the start, their personalized software attracted a loyal client base. As they eyed a potential capital raise to expand, their partnership issues came to the surface.
Conflict Trigger
Charlotte discovered that Ivan was doing outside contract work. Feeling cheated and questioning his commitment, she doubted Ivan deserved an equal stake. Meanwhile, Ivan felt that Charlotte had made several unilateral decisions based on advice from an executive coaching program he believed was not grounded in real-world business success.
Charlotte’s Perspective:
Worked full-time at the startup, often pulling late nights.
Viewed Ivan’s side gig as a breach of trust, especially on the eve of a major investment pitch. When Charlotte initially broached this with Ivan by telling him he was stealing from her, tempers flared and they started communicating ‘in writing’.
Ivan’s Perspective:
Had a wife who was recovering from a car accident, losing her job and health benefits.
Took additional work partly to cover family medical needs and ensure financial security.
Felt alienated by Charlotte’s unilateral strategy changes based on questionable “coaching” sources. Ivan had tried to show Charlotte where the information she was being told was derived from and why it did not apply to their business. Charlotte’s response was that Ivan was ‘closed minded’ and ‘did not have a growth mindset’. They had agreed not only to disagree - but worse to not discuss this matter.
Our Role as Collaborative Mediators
When Charlotte reached out to us, the tension was palpable. Both partners realized that if they didn’t resolve the dispute, their capital raise—and the future of the company—would be in jeopardy.
Initial Assessment
Uncovering Motivations: We met with each partner to understand their individual fears and underlying concerns. Importantly, we did this with both of them present.
Evaluating Outside Influences: Charlotte’s coaching program offered questionable or uncredited material, while Ivan’s side work was initially perceived as disloyal.
Mediation Model
Structured Conversations: We facilitated open dialogues, bringing up the “skeletons in the closet” so no hidden resentments remained.
Intended vs. Unintended Consequences: Highlighted how Charlotte’s well-meaning quest for external expertise threatened Ivan’s sense of partnership, and how Ivan’s side work, rooted in family necessity, appeared to Charlotte as betrayal.
Resolution and Growth
Incorporating Ivan’s Consulting: Instead of forcing Ivan to drop his outside work, we helped them integrate it into the business. This opened a new revenue stream for the startup.
Shared Commitment to ‘People First’: Both recognized they had to look after each other’s well-being and that of their team if they wanted sustainable growth.
Reaffirming Equal Ownership: Once they saw the true value of each other’s contributions, Charlotte and Ivan maintained the 50/50 arrangement.
Enhanced Business Value: With renewed unity, the partners presented a stronger front to investors, securing funding at favorable terms and relinquishing less equity than they had initially feared.
Enhanced Communication : Consulted and Trained the partners on methods to have open communication then coached them as they started doing this. Interestingly, these strategies worked well both in and out of the ‘Boardroom’.
Outcome
Strengthened Partnership: Open communication revived mutual respect and trust.
Successful Capital Raise: Investors recognized the cohesive leadership team and growth potential, leading to a beneficial deal.
Lessons Learned: Transparency, empathy, and collaborative decision-making ensured both partners realized the advantages of retaining 50/50 ownership. They walked away with more robust equity and a more valuable company.
Section 4: Strategies for Resolving Partnership Conflicts and Enhancing Value
Establish Clear Roles and Responsibilities
Avoid Overlap: Define each partner’s domain—e.g., technical decisions vs. finance and operations—to minimize confusion.
Document Contributions: Keep a record of who handles which tasks, including accountability measures.
Open, Consistent Communication
Regular Check-Ins: Weekly or monthly partner meetings can prevent misalignment.
External Advisors: Consider hiring mediators if tensions are high or if both partners struggle to find common ground.
Define a Partnership Agreement
Ownership Percentages: Reflect the true input and risk assumed by each party.
Responsibilities and Decision Protocols: Outline how major decisions are made—unanimous or majority?
Dispute Resolution Mechanisms: Formalize how conflicts will be handled (e.g., mediation or binding arbitration).
Exit Clauses: Spell out buy-sell options in case one partner wants out.
Align on Vision and Goals
Long-Term Objectives: Are you aiming for steady growth, a quick sale, or major scaling?
Evolving Roles: As the company grows, partner duties may need recalibration. Regularly revisit and update roles.
Create a ‘Pre-Due-Diligence’ Mindset
Proactive Resolution: Tackle partnership disputes before prospective investors notice them.
Stable Leadership: Demonstrate unity and clarity in decision-making to maximize valuation.
Adopt a ‘Pre-Mortem’ Mindset
Identify Potential Killers: Brainstorm events or issues that could “maim or kill” the business—e.g., partner disputes, legal liabilities, market shifts.
Plan for Effects: Don’t just address the cause; plan for how you’d mitigate damage if the “unthinkable” occurs. This level of preparedness reassures both employees and potential investors.
What the Greats say about this:
“Great teams do not hold back with one another. They are unafraid to air their dirty laundry.”
— Patrick Lencioni, Author of “The Five Dysfunctions of a Team”
“The most important thing in communication is hearing what isn’t said.”
— Peter Drucker, Management Consultant and Author
Consider these quotes from two giants in the fields of Leadership and Management. Lencioni emphasizes the importance of calling out the elephant in the room and the crucial nature of making explicit the aspects that most choose to hide or to hide from. Drucker speaks to the importance of what Sean Callagy of Unblinded Mastery calls Level 5 listening - calling out too that which isn’t explicitly stated but which underlies the issue and underlies the communication. Together, these are pearls of wisdom that we repeatedly bring into our work with clients - and sometimes is the most important thing that we do.
Section 5: Action Steps for Business Owners
Self-Evaluation
Spot the Red Flags: Reflect on recent interactions. Is there tension brewing?
Unilateral Moves: Check if one partner has been making major decisions without consulting the other.
Engage in Constructive Dialogue
Structured Conversations: Schedule formal discussions focusing on high-level strategy, not just daily fires.
Professional Mediation: If emotions run hot, an impartial third party can guide respectful dialogue.
Revisit or Draft a Partnership Agreement
Equity Stakes: Clarify how and why each partner holds their percentage.
Buy-Sell Arrangements: Outline how ownership changes can occur, especially if one partner wants to exit.
Seek External Expertise
Human Behavior Advisors: Guides who understand both emotional dynamics and business strategy.
Legal Counsel and Financial Advisors: Vital for drafting robust legal documents and ensuring a partnership agreement that stands up to investor scrutiny.
Estate Planners (If Applicable): For family or legacy-oriented planning, especially if the partnership is tied to personal estates.
Plan for Future Transitions
Define Roles Post-Sale: Will partners remain involved or step away?
Roadmap for Scaling: If you plan on partial equity release, ensure that investors see a clear path to growth, led by a harmonious partnership team.
Conclusion
Partnerships can be both perilous and full of promise. They bring together diverse skill sets and a shared vision, but unresolved conflicts can threaten day-to-day operations and drastically reduce your company’s value—especially as you approach a sale or equity raise.
Key Takeaways
Partnership Conflicts Can Undermine Value: Hidden resentments or trust issues can scare off buyers and investors.
Mediation and Communication: Open dialogues, structured conversations, and sometimes professional mediation can convert conflict into collaborative growth.
Proactivity is Essential: A “pre-due-diligence” mindset and even a “pre-mortem” approach help you anticipate challenges and present a united front to potential investors.
Encouragement for Proactive Action
Minor issues left unaddressed can escalate rapidly under the pressure of a sale or capital raise. By investing time and resources in clarifying partner roles, drafting comprehensive agreements, and communicating regularly, you can safeguard both the relationship and the business’s future.
Looking Forward
Our next chapter will delve into the critical role of financial and operational transparency in maximizing valuation. Remember that proactive conflict resolution isn’t just about dodging pitfalls—it’s about laying the groundwork for a smoother, more profitable transition when the time comes to exit.
With Gratitude,
Amit and Kumar