#136: The ‘Texas Shootout’ Partnership Exit [Part 2 – The Exit]

Welcome back to Life After Business. This episode is part two to my interview with Michael Kaplan. Michael was a financial partner in a carpet cleaning business called ZeroRez. To recap, episode 135 is the companion episode to this one. During the last episode, Michael told the story of how he got involved in ZeroRez and how they grew a 300 thousand dollar business to 18 million.

This episode, Michael explains why he exited the business and how his relationship with his partner changed. Michael and his partner had an agreement laid out since day one. There was a clear protocol to solve problems established. As time went on, however, the agreements began to erode. Michael honestly explores how the communication broke down and the last straw event that led to what he calls “the Mexican Standoff.”

Michael is very candid about what happened in his partnership and he doesn’t shift all the blame to his partner. It is a real glimpse of how business partnerships work and why you need to lay all your cards out and stick to your guns.

What you will learn:

• A quick recap of part one of this interview.
• How the original partnership began and the initial agreements.
• How Michael protected himself when other partners left.
• How they handled the first departures.
• What is a “shotgun clause” and why do you need one?
• A change in capital structure.
• A new Omaha location and the lessons learned from the experience.
• An offer to purchase equity in the franchise.
• Why they didn’t just buy the franchise.
• The beginning of agreement erosion and the issues that developed.
• The launch of new locations and the success and growth rate.
• Addressing the problem of “meddling” with the technicians.
• A change in company culture and Michael’s view on it.
• Why he left the leadership team and the fallout.
• The last straw that led to Michael’s exit from the company.
• The Mexican Stand-Off that got Michael out of the bad situation.
• The lessons learned from the experience.
• How Michael vets business relationships now.

Links and Resources:

GEXP Collaborative
Red Hook Investments
Michael’s email
Booya Capital Partners
Life After Business Episode 135

Takeaway:

Make sure you have solid agreements with any partners from the very beginning of your business. Be transparent and make sure everybody is on the same page.

About Michael:

Michael Kaplan spent most of his 20s thinking he would go into some sort of law practice. However, he found himself partnering with a friend to purchase ZeroRez. After a few stumbles and lucky economic breaks, Michael and his partners were able to scale the carpet cleaning business to 18 million dollars.

After erosion of partnership agreements and some company culture issues came to light, Michael exited ZeroRez. He credits the use of a “shotgun clause” for diffusing the situation and teaching him something about his business expectations moving forward.

He currently works with Red Hook Investments, a firm that specializes in turnarounds, private equity, and cash infusions.