It’s been almost five years since Justina McCaffrey and her former business partner and ex-husband, David McCaffrey, shuttered their bridal wear company and started separate ventures. So she was surprised when a prospective customer e-mailed her recently asking to meet at the Ottawa wedding gown boutique owned by her ex.
“Obviously, there was a bit of confusion over the two brands,’” says Ms. McCaffrey, whose Toronto-based company, Justina McCaffrey Inc., sells bridal wear in Canada, the United States, Japan and China. “So I had to tell her, ‘no, that’s not me – that’s another company altogether.’”
For more than a decade, Hollywood celebrities and high society brides in Canada marched down the aisle wearing gowns made by the highly successful Ottawa-based company owned by the McCaffreys. By the mid-2000s, the couple was poised to expand their manufacturing operations and retail network. But when the economy tanked, so did their business – and their marriage.
Mr. McCaffrey’s brother ended up buying the bankrupt company and Ms. McCaffrey was, literally, locked out of the business – banned from entering its boutiques. The details of their not-so-friendly breakup were aired in the local paper.
To paraphrase a Neil Sedaka tune, ‘breaking up with your business partner is hard to do.’ But, as Ms. McCaffrey can attest, becoming competitors after you’ve gone your separate ways can be just as challenging.
Just look at what happened after Chris Burch, ex-husband and business partner of U.S. fashion designer Tory Burch, launched his own brand: C. Wonder, a preppy-bohemian line of clothing and accessories. In 2012, five years after their divorce, Ms. Burch hit him with a lawsuit, alleging that the new brand was a knock-off of the Tory Burch brand.
But it isn’t just business co-owners who may find themselves splitting up and competing, argues Will Mitchell, professor of strategic management at University of Toronto’s Rotman School of Management.
Pointing to instances where companies have partnered and then started growing into each other’s space, he says: “The simple truth is this is a fact of life in the world of business: one day you’re partners and the next you could be competitors...there’s really not much you can do to stop it.”
There are, however, actions that an entrepreneur can take to ease the transition from partner to competitor, and to succeed in a separate venture, says Mr. Mitchell.
As a starting point, he suggests taking stock of how much you really know about the business and the market, and then identifying the skills you need to acquire – either by learning them yourself, hiring an employee or finding a new partner.
“Partners tend to take on different roles in their business – one might be in charge of business development and the other might look after the financial side of things,” says Mr. Mitchell. “Before you forge ahead with your own business, you need to ensure you have the skills and resources that used to be provided by your partner.”
With years of experience running her previous business and a degree in manufacturing from the Los Angeles-based Fashion Institute of Design and Merchandising, Ms. McCaffrey says she had no problems going solo.
Today, she looks after all aspects of her business herself – she has no employees – and turns to law, accounting and technology firms when she needs specialized expertise. She also has a New York-based pattern maker she hires on contract, and a network of students who run errands for her in the Big Apple, where many of her customers are located.
Even if a relationship ends on less-than-friendly terms, it’s important for business partners to sit down and draft a legal agreement detailing how they’re going to move forward, says Phil Thompson, a business lawyer with Thompson Dymond in Toronto.
“To the extent that they can, both partners should be really clear about things like whether or not one of them will continue to use the company name or a product brand name, or a variation of that name,” he says. “Or maybe they just decide to bury the old name and each one of them starts fresh with a new one.”
Rights to intellectual property developed during the course of the partnership should also be addressed by the agreement, says Mr. Thompson.
“Any intellectual property created in the business will belong to the partnership,” he says. “But a lot also depends on the nature of the intellectual property and how it’s been documented.”
It’s also not a bad idea to include a provision that says both parties won’t say negative things about each other, Mr. Thompson suggests. But he acknowledges that “no one enforces them because taking legal action can get very expensive.”
Whether they’re on friendly terms or at war, partners-turned-competitors need to put their customers first, says Steve Letovsky, senior partner at Montreal business consulting firm L.B.C. Consulting Services.
Customers should immediately be informed about the break-up – they have a right to know what’s happening to the company they’ve chosen to do business with, says Mr. Letovsky. They also have a right to choose which of the partners they want to continue dealing with.
“Respect your customer and tell your customer,” he says. “Inform them in writing that there has been a change in operation, present your credentials and then ask them for an opportunity to continue to serve their needs.”
Don’t get into the drama behind the dissolved partnership, says Mr. Letovsky. And don’t try to get your customers to “take sides.”
“Emphasize the positive – talk about your exciting plans for the business, and assure your customers that they’ll continue to get the same great service, perhaps even better.”
In Ms. McCaffrey’s case, word of her business and marriage breakdown got around so fast in the industry that by the time she got around to calling her customers, they already knew what had happened. Nevertheless, she says, those conversations were a good way for her to reassure them of her intentions to get back into the business, and to neutralize all the gossip surrounding the split.
While a strong and well-defined brand is always important in business, it’s especially critical for entrepreneurs planning to operate in the same space as their former business partners, suggest Mr. Letovsky. They need to put extra effort into creating a brand identity that’s distinct from the one they had when they were in a partnership.
Ms. McCaffrey agrees. After her marriage and business partnership fell apart, she made a point of talking to customers about her design philosophy and her vision for her new company. She also raised her prices – a move that reinforced her brand as exclusive and high-end – strengthened her presence in the U.S. and put her gowns in boutiques in Japan and China.
“I used the time after our breakup as an opportunity to create a strong positioning for my brand,” she says. “My business has done very well.”
Advice for those making the switch from business partners to competitors
Assess your skills and find the gaps. Do a thorough analysis of what you know about your business and market, and what skills you have – and need – to effectively run your own show.
Have the talk. It will probably be tough, but you and your partner will need to sit down and hammer out an agreement on such issues as brand names and intellectual property.
Tell your customers and suppliers. Make it straightforward and brief, and spare them the dirty details.
Build a distinctive brand. Avoid confusion in your market by defining a brand that’s distinct from your former partner’s. Chances are, this will also make you stand out from the rest of the competition.
Special to The Globe and Mail