Starting a business appeals to you, but you don’t want to go it alone? There could be many reasons (isolation, financial risk, lack of skills, power of persuasion, etc.). Starting-up – or taking over – a business with partners is a common and natural idea, and it has been proven that a good partnership optimizes the probability of success and growth. But failure occurs often too!
Partnering-up has certain advantages:
- More people = more creativity! When you’re alone, there’s no contest, no multiplier effect, no interaction.
- A broader skill base, and the possibility of sharing skills required for running and growing a business: management, financing, creativity, communicating, marketing, production techniques, leadership, etc.
- Multiple people means augmented working capacity.
- Strategic decisions can be made as a team: investments, recruiting, responding to a call for tender… It’s reassuring!
- Risks and setbacks are shared: you endure and work through them together.
- Team spirit can make all the difference to partners like bankers and investors.
But a poorly thought-out partnership can lead to serious difficulties:
- Making decisions together isn’t always easy.
- There’s always a risk of conflict between cofounders. It’s one of the leading causes of failure for young businesses.
- You could be faced with a lack of implication from a business partner who doesn’t share your view of the business’ future.
- It can be hard to leave a company, from a legal standpoint.
An ill-prepared partnership can lead to great difficulties for a company. Since the partners will be at the very heart of the budding business and that complex human relationships are involved, it’s essential to work on this aspect from the get-go. Here’s a bit of advice to help you partner-up with the highest possible probability of success:
1. Ask the right questions upstream
- Why do you want to partner-up? What questions, hopes and concerns do you have regarding the possible partnership?
- Do your answers to those questions line-up with your partners’? Do you share the same views for your future business?
- What position do you hope to have in the company? How do you see your daily activities? What really interests you in the business project?
- What level of commitment is each partner, including yourself, willing to devote in terms of time and money?
Agreeing on a view of the business is essential. If it turns out, for example, that starting this business is a life project for some partners but a side-project for others, you’re looking at trouble down the road.
2. Establish each partner’s responsibilities
We all have comfort zones (and discomfort zones). No one has all the skills. And though it comes naturally to look for people who resemble you… there’s value in rounding up different skills that complement your own. For example: manager-technician / salesman-financer / creative-rigorous / introvert-extrovert / daring-cautious.
Clearly define each person’s role and the scope of their responsibility. Some go as far as formalizing each partner’s detailed role in writing!
3. Clarify the decision-making process
Between the partners, who decides what? It’s a vital, delicate and complex question.
- Either a leader emerges unanimously. Relationships to the chosen captain will have to be defined. Designating a frontman can make running the business easier.
- Or you set up a system for making decisions as a team (collegial, unanimous, majority, floating majority, etc.).
It’s common enough for two partners to want to be on equal footing, both in terms of their financial contribution and their decision-making power. Of course, it’s best to avoid that situation. If, however, it’s the situation you’re in and you do not wish to add a 3rd partner into the equation, now is the time to draw up a procedure for disagreements between partners and be sure to include it in a “Partnership Pact.” Perhaps you could designate a trusted person or mediator to be in charge of finding a solution. It’s much easier to consider these issues when you’re still in the creation phase and are getting along, than later on when problems have begun.
4. Evaluate contributions and determine pay
Right up there with decision-making, pay is one of the most sensitive issues between partners. You’re both a judge and a stakeholder, and the psychological aspect is important.
Two golden rules:
- pay comes only when the company’s financial situation allows.
- respect the balance between partners.
A few more points to abide by:
- Objectify by comparing pay rates with the market
- Distinguish return on capital from remuneration of work. It’s in the interest of passive partners to maximize return and minimize remuneration of work; the opposite is true for active partners.
5. Think forward to leaving
Paradoxically, it’s important to think about potentially leaving a business from the moment you start with it and lay down the terms in writing.
A central point is company value and the shares of the exiting partner. Agree on a sustainable valuation technique, but always keep in mind that the project remains your priority.
Getting advice from a lawyer provides an outside view and can help you ask the right questions. They’ll point you toward the appropriate legal solutions for your situation.
Something that often leads to a failed business partnership is the fear of expressing one’s desires and expectations in clear terms. To ensure success, communicate often, be transparent, foster an environment of trust, talk about your long-term views and share your values.
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