What To Know Before Entering A Business Partnership... And Why Many Don’t Work

I’ve heard it said many times that “the only ship that doesn’t sail is a partnership”.

Why?

People.

We’re emotional creatures.  We have shifting thoughts, ideals, perspectives, and interests.

What excites us today may not excite us tomorrow.  For those business owners who are married, you already realize that marriage is a lifetime process to work at and build.  Partnerships are not much different from the perspective of setting expectations.

The emotions of a partnership can range from relief to appreciation to frustration and even so far as paranoia.

Partnerships are mysterious.  If a partnership is 50/50 then what happens when there is no consensus on an issue?

Typically, partners will push the can down the road until... BOOM, explosion.

Partnerships can work when great care is taken to make them work.

Here are a few things that need to take place before a partnership is ever entered into.

First, both partners must share a vision.  If two partners have two visions, then they are likely to compete for resource and energy pushing the vision they most align with.  A partnership with two visions has no vision at all.

Second, both partners must preemptively have hard discussions.  How will ownership be divided?  What day to day role will each partner play in the business and what is the fair market compensation for that role?  Do you agree on the debt tolerance of the business?  What about time commitments, non-competes, intellectual property, and entity endgame (sale, cash flow)?

These conversations are better discussed prior to the launch of the partnership instead of post-startup, or even worse, not at all.

Third, partnerships need to be mutually aligned and very aware of each personality within the partnership.  Is one partner passive and the other active?  Is one partner a driver and the other more compliant?  Is one partner more loose to laws and regulations where the other partner is a stickler for compliance?

A partnership must function at the same speed... together.

Fourth, partnerships must discuss and agree on the financial details like reinvestment, debt, compensation, and draw percentages.  

Running pro formas and budgets beforehand can save a lot of time, headache, and frustration on the back end.  

Finally, partnerships must have a set weekly time they meet to discuss the business part of the business.  Even better if these meetings have a set list of questions that the partners ask each other.

Questions like, what blind spots do you see?  What opportunities are we missing?  What support do we need to be extending to our team and customers?

These are hard things.  Partnerships should only exist where the skill of one partner fills the gap for the lack of that skill in the other partner.  If not, it is likely best that you stay away.

Ships are meant to sail.  Partnerships often sink, but it doesn’t mean they all do.

A business coach is well placed to help mediate the regular communication of partners.  Every partnership needs a dedicated, long term coach.