There can be a lot of differing opinions about the pros and cons of whether or not to partner up with one or more people when you start a business. I am someone who advocates for partnerships, when appropriate. While some people think that having partners just means you’re having to share your profits, I firmly believe that the right partners help you reach your goals faster and to achieve more. I like to use the example that 50% of a million dollars is still twice is good as a 100% of a quarter million.
There are a few questions to ask yourself that may be beneficial when deciding first, whether or not to have a partner, and second, how to choose the right one(s). Much of this may seem pretty elementary at first, but when it comes to moving from a concept into actual operation and growth, these otherwise simple questions or tasks soon become very important to your success.
Sharing a Vision for the Business
Although you may not always see eye to eye on every detail about your business, you and your partners should at the very least share the same overall vision in what you’re trying to accomplish and a general agreement of how to get there. As long as those remain in place, you’ll continue to work toward those goals and not let minor details get in the way or distract you from the more important stuff.
Use your Mission Statement or Purpose as a good grounding mechanism to bring things back on track. Make sure and have these written down from the beginning. If your potential partner doesn’t share the same mission, then it’s not a good idea to proceed.
One of the first things to do is to examine your strengths, weaknesses, contacts, relationships, talents, abilities and areas of expertise. Then do the same with a potential partner and find areas that overlap and also areas where you are able to compliment each other and fill in the gaps.
Two of my most successful businesses to date include partners that primarily fit completely different roles than what I do for the companies. Although there is definitely some overlap in abilities, it is important to define who will be responsible for what and try to stay within those roles as much as possible. I have had to learn the hard way not to stick my nose into areas I shouldn’t, as it can often create confusion and even chaos at times. You have to be willing to trust your partners to fulfill their roles. There will be plenty of tests along the way of how strong that partnership is.
You will have to decide if those things that you’re looking for could otherwise be hired out (and still done to your level of satisfaction) instead of needing to give up a portion of equity in your business. You may also have to look in another direction if you’re too similar and would therefore be stepping on each others’ toes too much along the way.
Some examples of complimentary roles can include one partner having key relationships for sales while another has them for manufacturing, or one has the time and drive while the other has money and guidance. One may have a building and connections while the other has marketing experience and loyal customers to bring. There are endless possibilities here. The point is to find out what pieces of your puzzle fit together the best.
Inevitably, there will be times when you have disagreements with your partner(s). One of the best pieces of advice I was given regarding this is to clearly lay out in writing what to do when that happens, well in advance of any issues. An example would include how to vote on something or who the ultimate decision-maker is in a conflict, keeping in line with the goals of the business. Too often people ignore this and think that things will magically work themselves out, and although it may be easy to address most of the time, there is going to be something along the way that requires more depth to resolve. I have made mistakes in this area as well, and would recommend some form of controlling interest or more detail about what should happen in the event of one or more partners wanting to exit the company.
Dissolution and Exit Agreements
So what happens when one or more partners would like to exit the company? A well-written operating agreement (for an LLC) will cover what happens with their shares or interest in the company. A common action is for there to be a valuation of the company performed and the other members may purchase that interest. Finding a proper valuation may be tricky, though. Therefore, one of the best ways to come to a fair price isn’t necessarily an outside valuation, but for there to be a “shotgun clause,” which allows a member to offer the other person to buy them out at a certain price, or to accept the offer and be bought out themselves. This way, the person making the offer feels it is adequate enough to take for themselves and walk away, or they feel it is worth the price to have a larger share in the company.
If you have other questions about your business and partnerships, feel free to reach out to us any time via info[at]cattoncommunications.com.