Choosing the right partner can easily be one of the most important decisions you’ll make when starting a business. A thriving partnership can help a business soar to new heights, but a shaky one can be more trouble than its worth. A large percent of business partnerships ultimately fail, and it’s usually because of reasons that could have been addressed before the partnership was formed— clashing personalities, failure to plan, and irreconcilable differences are often cited.
Partners need to start with a strong foundation to make it through the rocky building process. To ensure that you and your potential partner are a match made in heaven, you’ll need to consider a few things:
Do you really need a partner?
Choosing to bring on a partner is a huge decision for your startup. Ask yourself what exactly it is you need help with, and if that help could be a new employee, consultant or intern. You don’t want to bring on a partner just because it’s cheaper than hiring someone, in turn giving away 50 percent of your future revenue.
How much stake are you willing to give away?
The easy answer here is usually 50/50, like most partnerships. But for a partner who is proving less time commitment, you may not need to give up a full half of your ownership. However, be aware that some will feel that being called a “partner” should earn them a 50 percent stake in the business. Equity division is something that should be thoroughly discussed in the business partnership agreement.
Is your potential partner’s personal life in order?
This part can easily be overlooked by an eager founder, but is incredibly consequential for the future of the business. Is their spouse behind them 100 percent? A non-supportive family can cause friction in your partnership in the future when your partner begins to waver in their decisions or commitment to the business. Your partner’s personal finances can also affect the business as well, so those need to be taken well into consideration. Bad financial decision-making will roll over into the business, and if your partner ever files bankruptcy, do you want to take their creditors as partners instead?
What type of commitment are you looking for in a partner?
Yes, your startup is your baby. You will work or think about it 24/7 or be sleep-deprived because you dive right in after your 9-5. But a partner may feel differently. You may be looking for someone with as much commitment as you, but some people can’t give you that. Some may just want to throw money at you and show up to meetings, while others will be just as mentally invested, and some will be in the middle. Time investment must be addressed before bringing on a partner, as a lackadaisical partner might be fine at first, but may grate on you later on.
What values do I need in a partner?
You don’t want to bring on someone with the exact skill set as you, otherwise they won’t have much to add besides sheer manpower. You want a partner who complements your area of expertise, so that you can be two halves of a whole. If you have a business background, perhaps your partner should have a more technological background. If you’re an idea machine, you may need someone to be head of operations. Just find someone who will add what you don’t have, and you won’t have to be the one-man-band you once were.
Are your goals clearly defined?
There shouldn’t be any discrepancies when it comes to the future of your business. Would you wanting to sell if a buyout is on the table? Will one partner ever want to buy out the other? These should be discussed and written down so that no partner is blindsided by the intentions of the other.
Are you willing to put everything in writing?
A comprehensive partnership agreement must be hashed out before any partnership begins. Proper time and monetary investment, along with profit division, should be agreed upon and set in stone by putting it in writing. This way there are never any disputations about who gets what, what goes where, who does what and the like. All changes should also be put in writing and agreed upon. By getting everything written down, our last point becomes a bit easier.
What if things don’t work out?
It is often said that divorcing a business partner is much harder than divorcing a spouse. With a whole legal business entity in the throngs, things can get quite nasty. A dissolution strategy in your initial partnership agreement will make this cut and dry should it ever happen. You will most likely still have to consult a lawyer, but with proper documentation, it should be a clean break. One partner can also buy out the other, leaving the business intact. But hopefully— if you follow steps 1 through 7— things won’t ever even come to this, and you and your partner can enjoy a long, fruitful relationship.