How to Choose a Partner and Manage the Partnership
Starting your own business is an enormous undertaking. The to-do list seems endless, as does the number of decisions you must make. One of the most critical, strategic decisions you will make is whether to take a partner. This is one of the earliest and most important decisions entrepreneurs face. This choice will have a lasting impact on not only the success of the business, but on your emotional health as well.
Horror stories abound about the partner from hell and about partnerships gone wrong. Deciding whether to take a partner and choosing the right one is a strategic imperative, and if given proper focus and consideration, you can make the right choice, one that can have a profoundly beneficial impact on your business.
Do You Need a Partner?
The first thing to do is assess your situation and decide if you need a partner. Statistically speaking, businesses started by partners do better than businesses started by individuals, but that doesn’t mean your situation warrants or will be benefitted by a partnership.
Sometimes going it alone is the right course of action
There are many benefits to going it alone. First, it certainly is simpler. As president and chief executive, you'd have the authority to make crucial decisions and shape the future of your company without having to reach agreement with another individual or a group. Of course, this can be a good thing or a bad thing, depending on whether you work better as a consensus builder or as a maverick. If you're a sole proprietor you can brainstorm with employees and advisers, but ultimately company decisions and responsibilities will rest on your shoulders.
Second, without a partner, you will own it all. You won’t have to share the business's wealth, rewards or achievements. You will have complete control and complete recognition. Third, you won’t have any emotional ties with anyone and no conflicts or issues (personal or professional) to resolve with a partner. If you have the resources, the experience and the wherewithal, you should seriously consider going it alone.
On the other hand, there are many benefits to forming a partnership, including sharing the financial burden, the responsibilities and work load; benefitting from your partner’s experience, skill set and network; and added capital contributions. With a partner, you share the risk and the rewards, the breaks and the burden.
A partner can also provide valuable psychological, motivational and emotional support during tough business times. You can help each other out, lean on each other and work together to reach a shared goal. Two heads can be better than one.
So, the first step is to get clear on whether you need a partner or not. To do this, ask yourself these questions to assess your situation. Be honest -- there’s a lot at stake:
- What are my goals?
- What are my strengths and weaknesses?
- What are my skill sets?
- What skills or experience do I need for this business to succeed?
- What are my financial resources?
- What do I need to reach my goal, and where/how will I get it?
A critical assessment of what you have, what you need and where you want to go will determine if you can go it alone, if you need to take a partner and what you need to look for in a partner. If all you need is money, find investors or get a loan. If all you need is marketing or web or graphics capabilities, look for a good hire. But if you determine that you can reach your goal best with a partner, go for it.
It’s Like a Marriage, Only with a Bottom Line
In many ways, a business partnership is like a marriage. As with a spouse, you and your business partner are throwing your lots together and working toward a common goal. The qualities of a good marriage are virtually identical to those in a good, productive business partnership. You will likely get out what you put in. A good partnership requires:
A shared vision and goal
Mutual hard work
A balance of power
Effective conflict resolution
Like a marriage, a business partnership is not a decision to take lightly. There is a lot at stake here – money, time, effort, emotions. In addition, you’ll be spending many of your waking hours working with this person, so you’ll have to develop an effective working relationship. Choose well.
People make the same mistakes over and over again when choosing a business partner. We choose people either too much like ourselves or we choose people who are so different than ourselves that we are in constant conflict. Oftentimes two people who are technically brilliant start a business but neither has a head for numbers, a knack for rainmaking or any idea how to run a company.
People also rush the decision, which can be catastrophic for your mental and financial health. But perhaps the biggest mistake is not in the choice of partner but in how the partnership is structured and managed. Many partnerships do not get started on the proper, structured footing, with all the roles ad responsibilities spelled out. This is a critical. Partners should agree on the vision and the goal and should know who is doing what, the chain of command, etc. From the beginning.
And now a word about partnering with friends and family. This is rife with danger. Walk this line very, very carefully. Whoever coined the phrase, “It’s not personal, it’s business,” never had a business partner. With partners, it’s almost always personal on some level and at some point in the relationship. And if your partner is a friend or family member, it’s personal from the get-go.
Family and friendship dynamics will always seep in. If and when
something goes awry in the business (and it will), it will affect your relationship. And if something goes wrong in your family or friendship, it will affect your business (and your employees). There is very often little or no separation between family and friendships and the business.
While friends and family are often likely and good candidates for business partners, be aware of and consider the many pitfalls. If your partner is your brother or best friend, it is extremely difficult to keep personal issues out of the business, and business issues out of the personal. This is not to say that it can’t be done, but it is to say that you should be very wary of this approach.
I have seen this work brilliantly and I have seen it end very badly. Personally, I’ve been business partners with family members and friends several times, with varying degrees of success. I lost a very dear friend, who was a business partner at the time, over a business disagreement. On the other hand, I had an immensely fruitful and successful business relationship with my sister for 15 years. What was the difference? Well, I always said it worked because my sister and I had a lifetime of experience fighting and making up! But I think crystal clear goals, expectations and responsibilities helped make our partnership a success. Just be careful.
The How’s of Choosing a Partner
The next step is to choose your partner. In the first section, you determined your goals, analyzed your strengths and weaknesses and determined what you need to reach your goal. Now it’s time to choose a partner. Start by reviewing the answers to the questions you asked in the first section, the ones that assessed your strengths, weaknesses and goals. Now, think about what you need and draw up a set of criteria that you're looking for. You will use these criteria to judge potential partners later. The criteria must include a person’s:
- Financial investment potential or stability
- Relationship needs
- Is there someone who can help me reach my goals?
- What are his or her strengths and weaknesses?
- What does/doesn’t he/she bring to the table?
- Do we have the same value system?
- What is his/her work ethic?
- Will she/he complement, duplicate or hinder me?
Think about the criteria and the questions carefully. The goal is to choose a partner who complements your skills, not duplicates them. For example, if you are terrible at sales, then you should focus on someone for whom sales is a strong suit.
Think about the personality traits you can and can't work with
This requires you being really honest about who you are and what you bring to the table. Are you a control freak? If so, be honest about it and pick someone who isn’t a control freak! Two control freaks may not work well together. Similarly, are you a big picture/pie-in-the-sky type? Then you might want to pick somebody more detail-oriented and grounded. Are you a fast decision maker or do you like to think, think, think? Picking someone who is a slow decision maker might be a good thing or it might drive you crazy.
Also, what kind of relationship or psychological support do you need in the relationship? Do you want someone who is warm and nurturing? Do you want someone who is all business? Determine what type of person you want to work with and go from there.
Most importantly, pick someone who is as excited and as driven as you are to make this business idea a success. And pick someone whose work ethic matches your own. Find out early on whether your partner thinks a six-day workweek is to short or likes to punch out on Thursday and breeze back in on Monday.
Who NOT to Pick
Just as there are many qualities to look for in a partner, there are some obvious and not so obvious red flags, too.
First and foremost look at the person’s finances. You may not need a partner who brings any investment to the table, but you do not want to choose someone who is financially unstable. This is harsh but true: financial troubles often indicate a person who lacks discretion, self-control and good judgment. Running a business requires careful and sound financial decision making, and someone who has shown a lack of this in their personal life may not be the best choice for a business partner. Your partner doesn’t have to be a millionaire or possess MBA-type skills, but he or she does have to be financially mature and responsible. Furthermore, it may be some time before your new venture makes money, and if your partner comes into it desperate, it won’t be a good working relationship.
Second, pick someone who is mature and stable. Avoid people who are flaky or skittish or who have a history of flakiness. How can you tell? Well, have they had problems committing to other jobs or projects? Do they have a good reputation or a bad one? Can they commit and stick to your new venture?
Along those same lines, pick someone for whom drama is something they watch on TV, not a mantra for their personal lives. We all know people who thrive on drama. They should not be your partner. Also avoid people with a lot of personal baggage. Starting and running a business requires 100 percent of your attention. If someone is a drama king or queen, or who is distracted by their personal life, they will detract from your success. Avoid choosing them.
How about a maverick? Well, mavericks tend to be confident, self assured and energetic. But mavericks can also be a problem. They often shoot from the hip, don’t think things through and, by their very nature, are not good collaborators (that’s why they are mavericks). Tread lightly. I personally would never choose a maverick as a business partner.
Other red flags to seriously consider include if the person doesn’t listen well; doesn’t have strong emotional intelligence; has poor morals or ethical standards; doesn’t play well with others; doesn’t have a strong network or networking skills; has legal or emotional problems; is boastful or otherwise full of himself. These and any quality that rubs you the wrong way are all red flags. Pay attention to them because the problems that nag at the back of your mind now will be magnified 100 fold when that person becomes your partner.
Put a Ring on It
Or, in this case, legalize it. You’ve found a business partner you know and respect and you want to start a business together. Great. Now put everything in writing. Don’t be complacent or lulled into thinking that nothing could go wrong, that a handshake and mutual respect will be enough for your partnership. This is business; you need legal documents that spell everything out and that protect you and your partner from each other and the vagaries of business.
Luckily, none of these documents is rare or unusual. They are standard documents that can be procured on-line and customized or may be drafted for a nominal fee from any corporate lawyer.
First and foremost, you need a partnership agreement. This is a document that spells out the partnership and includes everything from how you’ll raise money to how you’ll divide responsibilities. It usually includes a buy-sell agreement, which spells out who can sell what and to whom, if one partner is given first right of refusal for the other’s shares. Etc. The agreement also often includes a non-compete agreement in case one partner leaves. Partnership agreements can and should also spell out bonuses, benefits, perqs, sick-time, continuing education, profit taking, what happens if a partner dies, voting rights, shares and sweat equity, etc.
There are many, many things to think about and as much of it as possible should be spelled out in your partnership agreement. You need to put it in writing. Discussing it and agreeing to terms is not enough; your agreement and partnership must be formalized in a legal document. I cannot stress this enough. Don’t skip this because you are friends or afraid of hurting someone’s feelings. This is business. Put it in writing. You must try to consider everything – especially the worst-case scenario – and cover it. It is money well spent to hire an experienced corporate attorney to draft an agreement for you.
Remember, a partnership can be the foundation of your business or it can be your complete undoing. But if you assess strategically, choose wisely, and manage effectively, your partnership can be the cornerstone of your business, and of your success.
You can hear Mary discuss this topic on the radio: http://www.wmzq.com/pages/wafaudio.html
You can watch Mary discuss this topic on tv: http://careerstonegroup.com/media.html