Partnerships are one of the most important – and messiest – parts of business. Right now, I am working with clients who:
1: Are building a great partnership
2: Are trying to get out of bad partnership
3: Have narrowly escaped a seemingly good partnership gone bad
To grow beyond a solopreneurship, a business owner often needs to enlist the help of a partner. There are many reasons for this including:
1. Not enough hours in the day for one person to do the work of multiple people.
2. Almost always, a single person does not have the opposing skill sets and thought processes of both a CEO and COO. The CEO is the visionary and the strategist; the COO is the realist and the implementer. The CEO focuses on the “Why” and the “What,” while the COO focuses on the “How,” the “Who,” and the “When.”
3. Every growing business needs a checks-and-balances system.
When a business owner enters into a partnership, of course everything is wonderful. It’s like dating. Partners only see the best in one another. They can’t possibly imagine anything going wrong to break them apart. They have discovered the yin to their yang. They meet each other and think, “You complete me.”
In my work and experiences with dozens of business owners, I have seen firsthand how a business can flourish with a healthy partnership. I’ve also seen partnerships erode into living nightmares that suck the life out of you.
I’m working with a dynamic-duo real estate team. Scott Koval and Sarah King Taylor of JS Realty have done everything right to establish their partnership. They work well as a team for these reasons:
- Thoughtfulness. They did not rush into the partnership. They worked together as independent agents for a long time before deciding to partner.
- Balance. They balance each other out regarding roles and business interests. Sarah is the visionary/strategist; Scott is the operations expert and implementer.
- Equality. They bring an equal amount of experience and value to the partnership. Their client portfolios are balanced, so there is no sense of superiority from either partner. One partner is not indebted to another for helping them become established.
- Shared industry knowledge. Both Sarah and Scott bring a similar level of industry awareness. They each know what works and doesn’t work in a partnership in their industry.
- Primary Drivers. They are each building the partnership for the same reasons: they want to provide the most ethical and trusted service in their industry. While profitability is important, money is not their #1 driver.
- Core Values. They share similar core values, and are both committed to creating relationships that result in “customers for life.” This made the exercise of creating the company’s values, mission, and vision enjoyable and easy.
- Shared Vision. They share the same vision for growth. Both want to grow smartly, rather than aggressively. They are strategic in their growth plans.
- Commitment to Learning. They both believe strongly in personal and professional development. Both Sarah and Scott understand the value of executive coaching, as well as continuing education for themselves and employees.
- Legally Covered. Sarah and Scott have done an outstanding job of covering all of their legal bases. They recognize that eventually, one partner may want to leave, or may encounter other personal issues, so they’ve created buy-sell agreements to eliminate any difficulty.
On the other hand, some of my current and past clients have experienced great distress from partnerships gone wrong. Here are some scenarios that put a partnership at risk down the line:
Potential Pitfalls of Partnerships
1. Sharing capital instead of expenses: Whenever you share your own capital (money, resources, information or property), you automatically give away your enterprise ability. Work out an arrangement where expenses are shared in an “associative” arrangement. It also makes it easier to walk away if things go wrong.
2. Partnering with someone because you can’t afford to hire: This is a partnership killer right from the start. If you’ve got the idea and someone else has the skill, simply hire him or work out an independent contractor agreement. Don’t give away what you don’t have to.
3. Lacking a written and signed partnership agreement: Due to the nature of partnerships, every detail and obligation must be clearly defined and written out, and agreed upon by all parties. This is best done with a written legal agreement drafted by a well-qualified, mutually agreed-upon lawyer.
4. Overlooking a limited partnership: One of the main downfalls of a partnership agreement is the assumption of liability each partner makes for the other. A way around this is a limited partnership, where the limited partner is not liable for the actions or obligations of the general partner.
5. Lacking an out or an exit strategy: Big-time marriages start with a pre-nuptial agreement. In business and contractual terms, a pre-nup is analogous to an exit agreement. In any partnership agreement, define the terms of an exit strategy that allows you or your partner to walk away from the partnership, or that provides options to buy out the other party.
6. Expecting the friendship to outlast the breakup of the partnership: Again, from the perspective of a marriage, how many ex-couples do you know who are truly friends? Not many, I suspect. So don’t go into any partnership with a friend expecting to remain friends after a partnership breakup.
7. Having a 50/50 partnership: Every business, including partnerships, needs a boss. If you decide to go the partnership route, make it a 60/40 or 70/30 split – or even a 51/49 percent split which is common with government contractors. Then you and the business have a point person for accountability and overall operational control. Plus, when disagreements get contentious (and they will!), one person needs to be able to say, “I really respect your opinion, but this is how we are doing things.” In addition, employees want a single captain of the ship. They need to know someone is “in charge.” 50-50 may “feel” good when you’re setting up a partnership, but it’s not good business.
These three articles share additional strategies for avoiding partnership purgatory, and for creating the best partnership possible.
What have your partnership experiences been? Please share with us.
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