Business partners must overcome obstacles, keep eyes on goals

vbridges@newsobserver.comJuly 22, 2013 

  • Pros and cons of partnerships •  Advantages: A shared financial commitment that could create more resources and easier access to capital; complementary skills and shared responsibilities that can lessen individuals’ burden and strengthen the business; and an opportunity to attract qualified and motivated employees. •  Disadvantages: Joint liability; partners must consult each other, make compromises and address disputes as amicably as possible; shared profits.

    Source: U.S. Small Business Administration, sba.gov/content/partnership

— The three business partners behind Triangle Rock Club are a motley crew.

Andrew Kratz, 43, is a clean-cut former high-adventure and student-activities director at Hargrave Military Academy in Virginia who grew up listening to his dad talk about his real estate business at the supper table.

Luis Jauregui is a certified anti-terrorism instructor with a long, brown, graying beard and an arm full of tattoos. The 41-year-old also has a second job as a private consulate for the U.S. Department of State. That position takes him out of the country about six months of the year.

Joel Graybeal, tall, lean and 53, has an aerospace engineering degree and worked on weapon systems for the Pentagon before spending 25 years in banking.

The mix of personalities and backgrounds that make up the leadership at Triangle Rock Club, an indoor rock-climbing gym in Morrisville, has enabled the company to move to the next level and aggressively chase the Triangle indoor climbing market.

“We are starting to see the potential,” Kratz said. “It isn’t keeping your head above water. It is ‘How high can we go?’ ”

The strategy for the business, which has increased its revenue by 45 percent annually over the past three years, includes opening a second location in North Raleigh in September and tripling the size of the Morrisville spot in 2014, the partners said.

“One of the things that really helps us fuel our growth is the fact that we have the full gamut of necessary skill sets between the three of is, and they are complementary,” Graybeal said.

Plan for some friction

Partnerships can be a key part of starting or expanding a business, local experts and small-business owners said. If it’s not done right, however, the partnership could end in emotional and financial disaster.

A relationship should only transform into a business partnership after a long courting period that helps determine whether the individuals have complementary skills and shared values and objectives, experts said. The roles and responsibilities of each partner should be put in writing, along with an exit strategy to use if the partnership starts to unravel.

A combination of factors often leads to a partnership’s end, but emotions almost always play a part, said Houston Barnes, a business strategy consultant, business attorney and founder of the Barnes Law Firm in Durham. That’s why it is best to hash out the exit strategy in the beginning.

“So when that difficult time comes, there are no questions,” Barnes said. “People are certainly upset, but it will be a lot easier transition.”

Established business owners bringing in another party should tie the ownership to a vesting schedule, experts said, so the new partner doesn’t quit the first week and walk away with a percentage of the business.

Partnership agreements should also include clauses that restrict partners from recruiting clients or employees for another business venture, Barnes said.

Profits or problems?

Jon Fjeld, a Duke University professor and executive director of the Center for Entrepreneurship and Innovation, said that before entering a partnership, business owners should decide whether they can achieve the company’s goal by themselves or by hiring an employee with the needed skills.

If the answer to both is no, Fjeld said, then they should seek and develop a relationship with someone with shared goals.

Scott Howell, a serial restaurant entrepreneur, real estate investor and owner of Nana’s in Durham, said he has learned a lot about partnerships after multiple ventures. Howell said before bringing on potential partners, owners should figure out whether a partnership and additional responsibilities will make more money or just create more headaches.

Howell said when the roles and responsibilities are put it writing, partners can turn to that material if there is a disagreement or a contention that expectations aren’t being met. Then the owners can decide whether to stick with the original plan, change it, or go their separate ways.

“You get out of a partnership when the expectations are very obvious that they are not being met,” Howell said.

Three guys, one business

In 2011, Kratz and Jauregui, longtime friends who met in the U.S. Marine Corps, invited Graybeal to become a managing partner of Triangle Rock Club, a gym that now has about 1,200 members and 9,000 square feet of climbing terrain.

Kratz and Jauregui started mountain climbing while in the Marines. When they left the service, they explored opening an outdoor guide and climbing business.

“It seemed like a really tough way to make a living being out in the rocks all the time,” Kratz said. “So we started working on the climbing gym idea.”

The friends visited gyms across the country. Kratz wrote a business plan, and the two sealed the deal with a handshake.

“It’s the bond and the relationship and the trust that we built with the Marine Corps that fostered where we are today,” Jauregui said.

The gym opened in December 2007. Kratz handled the day-to-day operations, Jauregui pitched in whenever he was in town.

In the gym’s third year, Graybeal, who fell in love with the sport after taking a rock-climbing class at the gym, started mentoring Kratz and helping him shift his focus from the day-to-day operation to identifying and managing revenue and costs.

In 2011, Graybeal left his banking job and started spending more time helping Kratz, who was struggling to keep up with the business’s fast growth. A few months later, Graybeal became a partner.

“Joel was able to jump in at that time and put form to the direction and helped it accelerate even more,” Kratz said.

Kratz and Jauregui remain majority owners, but Graybeal has the opportunity to earn an equal partnership over time. The partners haven’t written out their roles and responsibilities, but did sign a buy-sell agreement, which outlines an exit strategy for the partners.

“It’s the level of trust between us,” Graybeal said. “It has worked.”

Kratz and Jauregui said they don’t look at it as giving up a slice of their pie.

“We just knew the pie was going to be bigger with Joel here,” Jauregui said. “It was an easy decision.”

Bridges: 919-829-8917

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