BM1803

TASK PERFORMANCE
Members: Date: Score:

Section:

New Venture Suffers from Unmet Partner Expectations: A Case Study

George and Nora are partners in a new gourmet food store in an upscale Washington D.C. neighborhood. The store
was starting to gain traction after a rocky first year but their inability to communicate was making it hard to take
timely action and they worried that they were missing out on critical opportunities. They agreed that mediation was
the best course to try to resolve their issues.
Partnership Background:
The partners met and became friends in business school almost 15 years ago and had remained friends since then.
They both had experience as management consultants, but neither had run a retail store. Nora had been in a business
partnership previously that had ended very dramatically, and expensively, and was sensitive that this partnership did
not end as that one had.
They had decided on a 50/50 equity split though George contributed over 70% of the start-up capital. He planned to
keep his job as a partner in a management consulting firm, and Nora would manage the daily operations of the store
and keep some of her own consulting clients on the side. He took on the role of CFO and Nora was COO.
A year in, the store launch was over-budget, they were having issues with inventory management and staffing, and
both felt unable to communicate their concerns as attempts were often met with defensiveness on both sides. One of
the store staff was now running interference on their communication; something both of them knew was a bad idea.
Some details:

 Nora felt that her work at the store had become all consuming, much more than expected, and wanted
additional equity to compensate for lack of salary. George agreed that Nora was much more engaged in the
store, but saw that as part of their deal and felt her management-by-crisis led to the financial distress in the
company.

 They were going to need another capital infusion to continue, and George was reluctant to do this without
resolving their work issues.

 George had always seen Nora as incredibly competent and was surprised by how much support and input
she needed in managing store operations. He had seen his role as contributing capital, monitoring finances
and thinking strategically, and given his demanding job that was all he felt able to do.

 Nora valued George’s advice; it was the most valuable thing she thought he brought to the business. His lack
of responsiveness, sometimes not responding to her texts for days, left her without support in dealing with
day-to-day decisions, but then second-guessed when it came to the financial implications.

 George was sometimes late with financial reporting which Nora felt made it hard for her to manage
inventory and plan appropriately, which affected sales and customer service.

 They both were concerned that they did not interact as friends at all anymore and the business had taken
over their entire relationship.

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Questions (3 items x 10 points):

1. What are the main partnership issues in the case?

Answer:

 The store launch was over-budget, they were having inventory management and staffing issues,
and both felt unable to communicate their concerns because attempts were frequently met with
defensiveness on both sides.

 George is lack of responsiveness, sometimes not responding to Nora’s texts for days, and left her
without support in dealing with day-to-day decisions

 Nora felt that her work at the store had become far more demanding than she had anticipated,
and she desired additional equity to compensate for the lack of a salary.

 Nora had been incredibly competent and was George was surprised by how much support and
input she needed in managing store. Because of that George had seen his role as contributing
capital, overseeing finances, and strategizing, and given his demanding job, that was all he felt he
could do.

 They would need another capital infusion to continue, and George was unwilling to make that
decision until their work issues were resolved.

 George's financial reporting was sometimes late, which Nora felt made it difficult for her to
manage inventory and plan appropriately, affecting sales and customer service

 They both were concerned that they did not interact as friends at all anymore and the business
had taken over their entire relationship.

2. Given the issues presented in this case, do you think the partnership is still a preferable form of business
ownership? Why or why not?
Answer:

Given the issues presented in this case, as we can see, there were many issues in their business. They no longer
notice that there is such a problem or issue. So, we think the partnership is not a preferable form of business
ownership because they were experiencing inventory management and staffing issues, and both felt unable to
communicate their concerns. They would require another capital infusion to continue, and George was unwilling to
make that decision. Nora struggled with inventory management and planning because George's financial reporting
was late, affecting their sales and customer service. George is unresponsive, sometimes not responding to Nora's texts
for days, and has abandoned her in dealing with day-to-day decisions. Our advice or all we can say is that before you
enter a business organization or a partnership, you should know how to manage a business and be ready for the
problems that will come.

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3. If not a partnership, what form of business organization would you like to recommend to the two? Defend your
answer.
Answer:

The form of business organization that we would like to recommend to the two is a corporation, because we noticed that
some of their problems are about staffing issues and being unable to communicate with their concerns, so in a corporation,
there are more shareholders because this form of business organization is larger than a partnership. According to
Entrepreneur, the advantage of a corporation over other business structures is liability protection. Because corporations are
considered separate legal entities from the people who own them, shareholders do not risk losing personal assets because of a
company's debts. Owners of partnerships and sole proprietorships, on the other hand, are personally liable for all company
debts and legal responsibilities and may lose personal assets if the company goes bankrupt or becomes embroiled in costly
legal proceedings. Corporations can sell stock to raise funds for operating expenses or to pay off debts. Sole proprietors and
business partners, on the other hand, must try to raise funds on their own or rely on loans or credit programs. Selling stocks
takes less time and effort than applying for loans or seeking investors for a business. So, we assume that in the corporation,
their staffing issue will be solved on this, and if they are unable to communicate with their concerns, there are more
shareholders they can ask regarding their issue. They can learn more or get advice from the shareholders on how to solve the
issue.

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Group Case Analysis Grading Rubric:

Categories Performance Criteria Total Points

The information is clear and based on the case study. 7
The thought development of the answers is clear,
Answers to Case Study 1
logical, and consistent.
Answers are well-elaborated based on the concepts and
2
theories discussed relative to the topic.
TOTAL 10

REFERENCE:
New venture suffers from unmet partner expectations (n.d.) Retrieved from The Partnership Resource:
http://www.thepartnershipresource.com/CaseStudies/Mediation.aspx

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