Should you go for a business partnership ?
All Entrepreneurs at some stage of their business careers have asked themselves this question, about whether to bring in a partner or not.
Entrepreneurship is a very lonely path and often it requires tremendous patience and self confidence to stay the path. Success is often the result of great teamwork and support from collegues, friends, family and business associates. The question to ask is what are the key motivations of bringing in a business partner and what will the key roles clearly be of each partner. Sounds easy enough, except most partnerships do not account for defining these roles and most others fail to adjust to changing circumstances and changing personal or business fortune of the partners. This can lead to a devastating impac on the business itself and create a very negative environment for staff morale.
I think the most important thing is to first and foremost know oneself and our own limitations and strengths and then scout for a partner accordingly. Sounds like a how to find an ideal spouse seminar....guess in lots of ways it is !
Some common partnership forms that I have seen are as follows ;
1. Husband/ Wife teams : Millions of small family businesses have been run successfully over the years by husband/ wife teams.
But on the flip side, things can get messy indeed if there was a falling out like a divorce. There are also issues with impartiality as professionals may not be entirely comfortable in this ' family style' environment. A friend of mine worked for a business which was operated by the husband/wife team and the wife was responsible for the accounts. eventually both of them probably so confused their personal/ business accounts that they ended up being investigated by the tax authorities for lax accounting. What was otherwise a good business ended up being shut down as no one was willing to overrule the 'boss' who also happened to be the owners wife and a partner too.
2. Brothers in arms : A friend of mine was passing through a rough patch and needed some extra help so decided to bring in his brother as a partner in the business on a whim without going through the details of each partners roles and responsibilities and a partnership document specifying the effective management control parameters. The conflicts basically tore the business apart and of course their relationships too. The brother felt he was never allowed enough say in the strategic decision making and that staff never reported' directly' to him despite his being a partner. Meanwhile, the founder felt his brother was ungrateful and incompetent and was basically getting a free ride on his original efforts in setting up the company. Very soon both were busy in reckless spending on company expense and staff were busy scoring' loyalty points' and the business fell off a cliff.
3. Friends Forever (but not in business) : This is probably one of the most common partnerships. You like someone, you share ideas and you think it would be great to get into business together. Things go great and then you run into a rough patch and all hell breaks loose because no one bothered to clarify what were clear roles and who had effective management and equity control.
I have entered into partnerships with friends and noted following drawbacks;
1. Because you are friends, lots of the hard issues are never discussed openly like equity split and management control and exit strategy for either partner if things do not work out. Unfortunately business is about harsh realities and the sooner one faces up the better it is.
2. We often grossly underestimate or overestimate our friends abilities. We need the best man for the job not necessarily our best friend for the job. Conversely, if your best friend is also the best man for the job, we often do not credit them enough for their role in building the enterprise.
3. Personality types : What makes certain people great friends are the exact same qualities you may not want in a business partner or worse you may start to resent as business grows. Someone who is the opposite personality type i.e quiet vs outgoing could feel the outgoing partner is hogging all the limelight and credit for the business while the other partner may actually feel that all succes is due to his 'outgoing' personality.
Often, the same friends we love to party with are probably the worst people to have running a serious business operation. They think business is an extension of last nights activities.
So what works ?
1. Select people based on relative value addition not solely on the basis of personal relationships. Value added is something I define broadly as anything that complements the entrepreneurs skill sets be it technical or human resource skills or capital ( rich partners by the way are not the best partners or the easiest guys to deal with so sorry but no free lunches anywhere)
2. Boring is good. Get the equity ownership issues and the mangement control issues sorted out clearly and early.
Lots of misunderstandings happen because people confuse equity ownership with management control. They are not the same thing. You can even be a significant equity partner without effective management control. Nothing wrong with that If you know if beforehand.
3. Share the credit ( and the cash ) : Easier said than done but not only is it good ethics but it makes better business sense. One of the things less appreciated about Bill Gates is the fairness with which he shared equity with his co-founder Paul Allen and his friend and current CEO Steve Ballmer ( All of whom are billionaires). How many people have heard of the other co-founder of Apple besides Steve Jobs? Yes Steve Wozniak was also there building one of the greatest tech companies in the world.
Question to ask oneself is of all the successful personalities mentioned above, what type do you fit into and work out your partnership deed accordingly.
