Eleven Essential Issues to Consider Before Entering a Business Partnership
/The benefits of a good business partnership are enormous: camaraderie, synergy, better decision making, ability to pursue larger opportunities, relief from those jobs that do not align with your strengths or interests. But the costs of a bad partnership can be devastating; it can tear apart friendships, families and businesses. The emotional toll impacts not just the partners themselves, but also their spouses, employees and anyone who is close to them. Financial costs accrue from partners’ underperformance, time lost focusing on issues that do not generate revenue, lost productivity among employees, not to mention the possibility of litigation or other legal costs. The best way to maximize the chances of having a positive partnership experience is to carefully talk through all relevant issues prior to entering the partnership. Very few people have partnership agreements that are sufficiently clear and comprehensive. Even those who have legal contracts in place generally have neglected to address some basic issues that could and very often do lead to bad blood down the line.
Are your business priorities in alignment? Profitability, customer service, innovation, etc. are all important. When push comes to shove, do you agree on which will take precedence? Have you made a strategic plan for how to move forward? Things will change, of course, but as President Eisenhower said, "Plans are nothing; planning is everything." Going through this planing process will help you to better understand each other's priorities and assumptions.
Is your approach to work-life balance compatible? How many hours per week do you intend to work? Are you willing to work 90 hours a week during the initial start-up phase or is work-life balance a greater priority.
Do you have the same long-term vision? How many employees do you want? How many locations do you want? As the company grows, how will your respective roles change? Do you want to be running this business thirty years from now? Do you expect the core business to stay the same? Do you plan to go public or sell the business?
What is your motivation for going into partnership? Companionship? Accountability? The other person has skills or expertise you don’t have? A partnerships can be wonderful, but it may not be the only way to meet your needs.
What are other ways you could get what you are looking for? Could you hire someone to fulfill those roles? Could you work with a coach for accountability? How about just hiring someone to do the work that doesn’t fit your skill set? How else might you find companionship and professional input?
What happens if one of you is incapacitated for a period of time? Emergencies happen. How will you respond if your partner has a serious medical or family problem that interferes with his ability to perform the work? Do you have a plan in place for such an eventuality? Insurance? Have you decided how this would impact your respective ownership shares and/or income?
How will you make business decisions? Will you make all decisions by consensus? Do you plan to divide responsibilities by area of expertise? How will you resolve major disagreements?
What is your plan for making changes to the partnership? Nothing stays the same forever. What if one person wants to leave? What are your methods for valuing the company and arranging a buy out? Under what circumstance might you add an additional partner?
What if one person wants to dissolve the partnership and the other does not? Do you have a structure in place to resolve disputes? If disputes turn out to be irreconcilable, do you have a plan in place for dissolving the partnership?
Do you agree on what constitutes a good working environment? Is efficiency most important? Colleagues taking the time to get to know each other? High quality support staff? Attractive décor? Using the most up-to-date technology?
By what method (and how frequently) do you anticipate communicating? Do you prefer email? Face-to-face meetings? Phone conversations? Text messages? How late at night (or early in the morning) is an acceptable time to call you on the phone?
These are some of the myriad issues that can precipitate the deterioration of a partnership. If you address them at the beginning of the partnership, your chances of having a positive, long-lasting business relationship improve exponentially. Some people may feel comfortable doing this on their own, and they are welcome to use this article as a guideline to direct their discussions. I have found, however, that most partnerships, even those where both partners have excellent communication skills, can benefit from using a professional coach or other facilitator to keep the conversation on track and make sure they address the most sensitive of issues. Even well established partnerships can benefit from having a structured conversation about these topics, especially if they were too busy at the beginning of their partnership to address such issues in a systematic way.
