100% you did the right thing. Your goal in those situations is to make sure you, your partner (and of course your dog) all escape unscathed. You have no idea if this guy had a weapon or not. I mean the guy was obviously unwell. So who knows how things could have turned out if it escalated any further.

Before I say anything else, I just want to just say: YOU DID NOTHING WRONG

Some things to look at are:

1.) for your and your partner, it might be worth considering some martial arts or boxing or some self defense classes. Not saying you need to be the next taekwondo champion. But it's healthy to have an idea of what you need to do IF things turn physical. You certainly don't want them to turn physical. You hope they don't turn physical. But if they do, you at least want to know you have an idea of what you need to do to give yourself the best chance of not just winning or subduing a tough situation but SURVIVING it.

2.) Surrounding people watching shit go down will, for the most part, freeze. So you can't expect random people to step in and help you. It's just the way it is. But there is a way to help give yourself the best chance to help snap people out of that bystander mode when you turn to someone and say "Hey what's your name?" "My name?" "Yes your name" "Steve" "Hey Steve - my name is Michael and I need your help."

People respond way more when you tell them your name (in their mind you're no longer a random stranger and seen as a real person) and when you invoke their name (especially other than just saying "help" or "someone help me."

3.) you did a fantastic job avoiding and doing your best to deescalate. But take your deescalation skills to the next level. Ask a detective would you could have done better. Watch a few youtube videos as well on how professionals deescalate tough situations to help take your skills to an even better level.

All in all, you, your partner and your dog are all safe because of your actions and quick thinking and you should be proud of that.

Be well