Business partners often start businesses together with little planning and
few ground rules. Sooner or later, they discover the hard way that what’s
left unsaid or unplanned often leads to unmet expectations, anger and
frustration. Partners can clash over countless things, including conflicting
work ethics and financial goals, roles in the business and leadership
styles. What follows is a primer on how to avoid that and set up — and
sustain — a business partnership.
First, ask yourself: Do I really need a business partner to build a
successful company? Taking on business partners should be reserved for when
a partnership is critical to success — say, when the prospective partner has
financial resources, connections or vital skills you lack. You may be better
off hiring the other person as an employee or an independent contractor.
Communication is important at every stage of a partnership, and especially
so at the outset. A common mistake business partners make is jumping into
business before really getting to know each other. You must be able to
connect to feel comfortable expressing your opinions, ideas and
expectations.
If you haven’t worked together previously, test the partnership out by
tackling a small project together that showcases each other’s skills and
requires cooperation. This is also a way to learn about each other’s
personality and core values.
Ideally partners’ professional skills should complement one another, but not
overlap too much. For example, you may be detail oriented and your partner
may be a big-picture thinker. Or you may be an expert in marketing and
sales, while your partner prefers to stay in the backdrop poring over
financials.
To gauge how well you might work together, have a chat with each other’s
colleagues and family members. Key questions to answer include:
·
Do you and your partner share
personal and professional values, ideas and goals?
·
Do you trust your partner’s
motivations and character?
·
In what areas of everyday life
and business do you agree?
Other points to consider:
·
What if a spouse or kid later
wants to join the business?
·
How will it be handled if one
partner acts unethically?
·
What if one partner wants to
move out of the country?
Potential partners may want to consider taking a two- or three-day retreat
together to go over their individual expectations for the business and
partnership, one by one, and compare notes. It can help the conversation to
have the partners guess each other’s expectations before revealing them to
each other.
Be especially careful when partnering with close friends or family members.
Like many marriages, business partnerships can end in bitter divorce.
Consider whether you’re willing to risk hurting your relationship if the
partnership falls apart.
Approach a partnership with close friends or family as you might with
strangers: Thoughtfully plan and prepare for every aspect of it in advance
so there’s no question about how difficult situations will be handled.
A note about partnering with a spouse: Working together puts an added strain
on a relationship, and couples can quickly discover there is a little too
much togetherness. Those who succeed often have learned to set boundaries
keep the business from dominating every aspect of their lives. For example,
they may have agreed to leave the office at 5 p.m. and put all conversation
about work on hold until after the kids are in bed.
Once the decision is made to start a business together, you should create a
partnership agreement with help from a lawyer and an accountant. Take this
step no matter who your partner is. People with strong personal connections
may feel certain that their supposedly unbreakable bond will help them
overcome any obstacles along the way. Big mistake. Get a written agreement.
Every agreement should address three crucial areas: compensation, exit
clauses, and roles and responsibilities. Include who owns what percentage of
the business, who is investing what, where the money is coming from, and how
and when partners will be paid.
Typically partners set up equal ownership and each contributes 50% of the
initial investment. But terms can vary greatly. For instance, one partner
might contribute more money if the other partner can bring in expertise or
business contacts. As the business grows and changes, adjust compensation
accordingly. For example, partners may agree to work initially without
compensation, and to get paid after a certain revenue target is reached. In
addition, if the business partnership brings on more people or if a
particular partner is putting in more or less time, building some
flexibility into the contract can let you adjust payments.
The agreement should also cover how you plan to exit the business. Include
clauses that spell out cases in which one partner is obliged to buy out the
other’s interest — for instance, if one wants to quit the business. For
instance, it can state that the other partner must buy him or her out for a
prenegotiated percentage of the business’s value.
If neither partner wants to continue the business, partners can also
liquidate and divide all assets. It’s also a good idea to settle on in
advance how to assess the total value of the business upon dissolution. The
agreement should specify who appraises the business and the methodology to
use.
Outline your expectations for how you’ll operate your business. Clearly
delineate the roles and responsibilities of the partners based on their
skills and desires. This will eliminate turf wars and clearly show employees
to whom they should report.
Establish routines for daily communication. For example, agree to talk twice
a day at designated times and to re-evaluate their goals on a regular basis.
At least once a quarter, sit down and discuss how you envision the future of
the business and what steps to take in getting there.
Addressing these issues up front will help you better focus on your business
later. How you work out the details of setting up a partnership could be an
indicator of how well or poorly your prospective venture will operate.
Inevitably, some potential partners will realize through the process they
weren’t meant to be.
The Wall Street Journal |