When clients comes into my office to talk about their new business venture, the first question I always ask is: “Do you have a partner?”
My second, more challenging, question is then: “Are you sure that you want a partner?”
Much like a marriage, business partnerships can enhance the underlying business idea and bring it to the next level, or quickly make the business a battle ground leading to long lonely nights contemplating the meaning of life and the appropriate exit strategy. Knowing what you need to be aware of before you enter your business partnership can help prevent the horror of a business breakup. Through my practice I have come across a few keys to business partnership success and things to watch out for. Here are my top five:
- Your partner needs to make your business better. This sounds like common sense, but far too often I see business partnerships that have arisen because two or more people just really like to hang out together, and think starting a business is a logical move. Startups are a 24/7 grind in the beginning. The enjoyment of hanging out with each other will quickly wear out when confronted with project deadlines, billing practices, employee issues and discussion about how to keep the lights on. Your business partner(s) need to make the business better by adding their unique talents and connections, funding or expertise that helps enhance your product or service. A business is not a formal friendship; a business is there to make money. Surround yourself with people that will help it do just that.
- Partnership agreements are real things. And they are really, really important. My most successful business clients have sat down with me to draft their partnership agreement at the very beginning of the partnership. (In a limited liability company, this is called an “operating agreement”) This agreement determines ownership interests, profit and loss allocation, how decisions are made for the company and even how one partner can buy the other partner(s) out or how the company will bring on new partners. By sitting down and hashing out this agreement at the beginning, partners get used to talking through problems and potential issues and finding ways to address them, constructively, from the very start of the business’s life.
- Identify your weaknesses and find a partner that fills those gaps. None of us are good at everything. Maybe you are an ideas woman but hate dealing with accounting. Or maybe you love the back end of the business like setting up the software and running invoices but hate being the guy serving the drinks. Find a partner that will fill those gaps! No bar needs two quiet and surly bartenders, just like no manufacturing business needs three salesmen and no one to manage the production line. Be honest with yourself, identify what you are good at and what you are bad at and then find a partner or partners to fill those gaps.
- Your business partner’s home life matters to your business. If I were to tell you that your anticipated business partner faces a very real likelihood of financial ruin that will not only result in bankruptcy but may also make him or her an emotional train-wreck for the foreseeable future, would you want to bring that partner into your business? While not always fatal, having a partner in a tumultuous family or financial situation can have a real and lasting affect on your business. Your partner can bring a lot to the table, including their rocky love life. Evaluate whether you want that tumult as part of your business, because trust me — girlfriends, boyfriends, spouses and kids will all, in some way, have an effect on your business.
- Treating your business partner(s) like your lover is a great idea. I’m not advocating a workplace romantic liaison. Instead, think about what makes your relationship with your romantic partner successful: providing mutual respect, supporting each other and being sounding boards for the other’s ideas, dreams and hopes. The same things that make a successful relationship at home apply to your business partner. Supporting each other, being good sounding boards, demonstrating mutual respect; these are keys to making sure your business partner, and your business, continue to thrive.
Business partnerships can help your business thrive, and they can also doom it from the start. Picking the right partner adds tangible and intangible benefits that can bring your business to the next level. When you walk into your business adviser’s office and he asks if you are sure you want a partner, make sure you’ve done your homework and considered the five factors above. Then you will be ready to make a commitment to both your business and your business partner.
Jeff Mohrmann is the founder and managing attorney of Rogue Mountain Law, LLC, a Colorado law firm that focuses on business law, bankruptcy and estate planning. When Jeff isn’t helping new businesses launch with success he can be found on the trails and slopes of Colorado. An avid cyclist, runner and snowboarder, he has competed throughout the country in a variety of running races and organizes everything from fundraising fun runs to beer marathons in his home town.