Becoming an entrepreneur can be a challenging venture, therefore many people take on a business partner to share in the vision and goals of the business. Two heads certainly are better than one, however experts say those wanting to take on a buddy in business should pause before signing on the dotted line.
Following are tips to help entrepreneurs select the right business partner.
Understand your need. Look for a business partner who brings something different to the table than you do. If you’re creative, maybe you need a more detail-oriented partner. If you have money to invest in the business, you may want to look for a partner with access to a market, or with great connections. If you’re shy, you might need a good “people person” to balance the social equation. If they’re similar to you, it might be more comfortable, but it may not provide what your business needs.
Understand their financial situation. It is tough to ask what they are currently spending on a house or in payments to an ex-spouse, but one’s prior financial commitments shape the decisions they will make.
What kind of time is needed? Partners don’t have to spend the same amount of time, but it is important that they are on the same page as to each other’s expected time commitments.
Is the commitment strong? A partnership – especially one between friends – can begin with fun and excitement, but within a short time, the slog of the everyday catches up with you. If they’re not as committed to the business as you are, they may lose their enthusiasm and may actually damage the brand every time you open your doors.
Look for problem solving skills. It’s important to know what your potential business partner will do if he has his back up against the wall — and it will happen. The best way to discover this is to look at what they’ve done in past business ventures.
If he couldn’t meet payroll, for example: Did he or she make the right ethical choice and dip into savings or borrow from a credit card or a friend? Or did he pay employees late, or not at all? Or worse, did he skip paying payroll taxes? It all comes down to character.
Try before you buy. Not every potential business couple has this luxury. But if you can, spend some time working together before you both commit.
Program some playtime. It’s those moments outside of the office that may determine if you are compatible with one another. Take part in extracurricular activities or better yet, take a trip. Anyone who’s ever taken a trip with a friend knows that there’s no quicker way to find out just how well you do or don’t get along.
Look for matching values. Do you complement one another? If having similar values and expectations makes for a solid partnership, having different abilities makes for a successful one.
Clearly define roles and responsibilities Make sure you each have defined roles and responsibilities, which will help you understand the expected deliverables. Consider the following: determine business objectives for the next year; set each partner’s responsibilities for achieving those goals; establish benchmarks for measuring success; and make sure both parties agree.
Get it in writing. Spell out your roles and responsibilities in a partnership agreement. While there are some standard agreements online, it’s probably best to have a business attorney draft one for you once you’ve decided on the key terms. You need to determine what you want to give in exchange for a partnership that works for both of you. This includes compensation, equity stake, or more likely, a combination of the two. Often times, especially with friends, this is an afterthought. Partners don’t think about these crucial factors until money is at stake and it’s too late. Address these issues of compensation and equity at the beginning. It only gets more uncomfortable as time goes by.
What happens if you can’t work it out? Most people don’t envision the rough times ahead for a new venture, so this question is probably the hardest to remember to ask at the beginning. Yet, the best time to address potential problems with your partner is at the beginning before emotions run high. You can’t predict every potential problem, but a good startup lawyer can help you work through some of the common problems and put a framework in place to help address unforeseen circumstances.
Do you really need a partner? If you can get someone to do something without giving them a stake in your business, it’s always better. People get wrapped up in the idea of needing to work with someone, but it’s not always a good idea. Sometimes you need somebody to show up from 9-5, work hard and go home. If you’re cash poor, or it’s a startup and you don’t expect to make money right away, taking on a partner might be the better option. But if you can afford to pay somebody to show up and work, it’s generally a better option than granting a stake in your company.
Source: Inc.com; entrepreneur.com; openforum.com
