5 Ways to Make Sure that a Partnership is a Good Idea for Your Business


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10-28-2010-2

Ask most business people their most horrendous business story, and it will almost always involve a partner. The thing with business partners is that eventually they get all the way in. You may start off as arms-length business partners, or simply cordial associates, but sooner or later, you get closer. And that close working relationship is almost inevitable as you build the business together. In some ways, your business partner may end up being as close as family, or even your spouse. So, if something goes wrong, you’ve got a potential problem on your hands. The closer you are with your partners, the more likely it is that emotions will get involved as you try to sort out issues.

That’s why we recommend that you be very careful when picking potential business partners. Here are 5 of the reasons to partner that we’ve heard from clients in the past, along with our alternative suggestions for your working relationship.

  1. I need this person as a partner because she has abilities that I don’t have.

    In one way that’s good – a partner should have skills you don’t, and vice versa. However, we hire employees all the time to do things that we can’t necessarily do. Can you make this person an employee instead? If they are insistent on receiving a profit share in the operation, can you give him or her a percentage of profits – as a bonus – rather than giving up equity in the business?

  2. I need this person as a partner because he is bringing needed money to the business.

    In the early days, you’ve got two real ways to bring in independent money (i.e., not bootstrapped money): equity and loans. Equity means giving up a piece of ownership. If you can avoid it, that’s always preferable. By borrowing money, you’ll repay it with interest, but your relationship with the borrower will be over once the loan has been repaid. When someone buys equity in your company that person is buying a slice of ownership. That’s permanent – he or she will always have a say in company business, even after the loan is repaid.

    On the other hand, if a potential partner has, in addition to much-needed capital, the knowledge and needed skills, you now have someone who brings more than just one element. Maybe that combination is enough to welcome a partner into the fold. But beware of potential partners with cash flow problems. Their cash flow issues can well transfer over to your business, and there is often something bigger and more fundamental that is wrong.

  3. I need to partner with this person because she’s a key employee, and I don’t want to lose her.

    Again, why not considering a performance bonus or profit share instead? If money is the motivator, she’ll make the same amount as if she were a partner. If she’s motivated by something other than money, then maybe you need to take a closer look at what she wants. Are there other perks, or is it truly a desire to share the responsibility for the good times – and the bad times – that a true business partnership entails.

  4. I want to partner with this person because I owe him.

    When you say you owe someone, are you thinking from a business point of view, or from an emotional point of view? There are lots of people who help us throughout our lives, in business and in personal matters. But making someone a partner is a big, permanent decision. Do they need a job? Do they have something to offer your company? Or, do you want to simply gift this person some money?

  5. I want to partner with this person because she is just like me. We think exactly alike.

    If you and your partner think exactly alike that’s the perfect reason to not be partners. Being exactly alike means you have the same faults and the same strengths.

    Thinking alike doesn’t mean you don’t share the business dream or goal. That’s essential. Instead, it means that the partner you choose should complement your own strengths and weaknesses. If you’re not detail oriented, your partner had better be. Your task is to find a way for you to work together in an atmosphere of mutual respect and trust.

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