In our ASE Advisory meetings we often come across this comment from businesses we advice. “I need a partner”.
Sometimes so frustrated is the client, that I believe they simply seek an accomplice they can blame.
Other times the comment is valid. Work load excessive; Skill sets missing; such partners fill gaps in resources such as complimentary skills, cash injection etc.
I have also noticed the term ‘partner’ used loosely. ‘I partner with my customers or suppliers’. This is a worthy attitude but not really a legal partnership.
I will also not dwell on private investors or Joint Ventures in this blog.
It is therefore imperative to define why you need a partner and what you seek a partner. I will also outline some How to as well as some important cautions.
Why
• You need cash investor who has a skin in the game (shares your profits and liabilities)
• You need skill sets to fill gaps in your top level organization (you cannot be the ‘jack of all’)
• You need a confidante who shares your vision and cares about your business as much as you do
What to look for
• Trust, Reliability, Commitment and Transparency. Find someone with whom you can have a good rapport and who brings competence and character to your business.
• Understand each other’s expectations and temperaments (especially when under pressure).
• Complimentary skill sets Does the business partner have the skills I lack? E.g. if you are good at operations management and administration they could bring in skills of Sales and Marketing. There is a tendency for many Entrepreneurs to seek people who are similar to them – This can result in a poor partnerships.
Every partnership is unique, but all partnerships should include the above qualities to ensure mutual success. Remember both parties should be communicative, accessible, and flexible. You and your partner should seek and provide mutual and measurable results. These qualities are crucial in optimizing your partnership agreements.
How to proceed
You’d be astounded at the number of clients we meet with who literally know nothing about their partner’s background, their approach to business, and their vision for the partnership. They rush into the relationship so quickly that they don’t even gather this fundamental knowledge about their partner.
Vetting – This could mean conducting background checks and calling personal references as well as knowing the potential partner’s financial and family situation. I also recommend checking on the partner’s reputation in their profession / business.
Address potential issues before they become issues. Talk about worst-case scenarios. If your partner isn’t willing to do so, for whatever reason, you have the wrong partner. Have you thought about the potential of having to deal with your partners spouse in case of death.
Some legal concerns
Company structure – Incorporated companies provide greater protection for both partners. Limited liability protection shields you from the acts of your partner (and vice versa). Without it, you have unlimited vicarious liability.
Read and understand your partnership documents before you sign them. A good lawyer can help you identify possible issues and present solutions, but ultimately you and your business partner(s) need to take ownership of the agreement and share a thorough understanding of how it will govern your business. Some issues that come to mind:-
• Partnership agreement should be in writing and lawyer approved. Many partnerships are cemented with a handshake, but this can be a recipe for disaster.
• Clear defined authorities, duties and responsibilities would avoid a lot of future issues
• Buy Sell agreements
• Exit / expulsion strategies “If someone simply isn’t pulling his or her weight, you need to be able to get them out without destroying the business, if it’s in writing, there’s no arguing it.”
• Non-compete provision. “ You do not want this partner to be your future competitor”
Behaviors for good partnerships and cautions
Listen to each other to hear understand and collaborate and co create NOT to respond / judge / defend
Offer a positive attitude and goodwill – communicate well – your partners are NOT your employees
Examples of some very successful partnerships –
• Larry Page and Sergey Brin of Google.
• William Procter and James Gamble of Proctor and Gamble.
However there are many more examples of partnerships that have failed miserably. One of our Associates used to say beware of partnerships… they are not good ships!
Often one is merely seeking to unload some chores, to someone who can also be their confidante. In that case could a good employee, who you can delegate to, is generally a better option than giving them a stake in the company.
While partnerships can be highly effective, they can also be an albatross around your neck. Caution: When you are committed to a partnership, you must realize that you are conceding away some controls over your company. The extent of controls so concede are dependent on the percentage of shares you are giving away. These controls not only affect your operations but also some major decisions such as selling or expanding of business
Consider all aspects before you embark into this marriage. Like a marriage, a business partnership often begins with enthusiasm and high expectations – only to end in acrimony and legal proceedings.
It’s therefore important to know as much as possible about a potential partner, including how their finances and family life may affect the business, before signing on the dotted line.
Shishir Lakhani ASE