Gates and Allen, Hewlett and Packard, Ben and Jerry, Thelma and Louise. This list of famous partners is part of business lore. It seems natural to have a partner both in life, and in business. So why do so many business partnerships end reluctantly. So why is it that not all partners ride off into the sunset with a Roy Rogers soundtrack playing instead of flying off a cliff?
There are many reasons to have a partner or partners as you start, or as you pursue success in your business. Having a partner can be the key to achieving your vision as an entrepreneur. In fact, a recent edition of The Enterprise, Utah’s Business Journal, highlights a firm celebrating 40 years as a “partnership of friends.” Although many of the details of how this firm has made it are not detailed in the article, I am certain their business bliss was not happenstance. One of the biggest mistakes in forming partnerships occurs when two or more friends share a great idea, shake hands, become 50/50 partners and begin to work. This approach can be as dangerous as getting married on the second date!
That being said, a look at Inc Magazine’s fastest growing companies year after year shows that majority have partners as opposed to being solopreneurs.
Here are five reasons a business partner is a good idea:
Having different perspectives and new ideas to a business. It is true, two heads are better than one. If your business depends on new ideas and creativity this is a huge plus.
Help in shouldering the burden. Many hands make light work and often business growth is capped by the capacity of the owner.
Bringing additive, or complementary skills. No one is an expert in all aspects of a business. Understand your personal SWOT first and then bring on a partner who fills the gaps can be essential.
Providing moral support. It is lonely at the top and having someone else with skin in the game is the best advocate and motivator when things get tough.
Contributing money. A partner can add capital, cash flow, or creditworthiness spreading the inherent risk of being a sole owner.
There are twelve fundamental steps that will enhance the success of the partnership. These steps are ideally put in place as a part of a partnership formation process but can be used to fix a wounded partnership.
1. Develop and document a shared vision and agreement on strategic direction. The key word is documents. This shared sense of purpose must be written down and referred to as each key decision is made.
2. Understand and discuss each partners personal work styles, values and motivators. Each of these elements should be formally assessed by a third party. To maximize the people in the partnerships, working and communication styles are and should be different. What values each partner holds and what motivates each person can be measured and used in avoiding conflicts.
3. Clarify and document how decisions are made and what authority each partner has in making commitments on behalf of the firm. An outline of what decisions can be made at a managerial level, a board level or an owner level will provide guidance and protocols avoiding miscommunications.
4. Discuss contributions each partner brings to the table and the outcomes each partner desires. Each partner has a list of the tangible and intangible items they bring and the dreams they bring as well. Documenting and discussing this list is often very eye opening and can make or break the formation process.
5. Define the roles each partner is expected to play. Looking at the reasons for having partners, additive and complementary skills are one of the key benefits. It is imperative that roles be documented and agreed upon to avoid stepping on each others’ toes or having gaps in necessary duties.
6. Create a process for mutual accountability. Entrepreneurs have a natural dislike for accountability. That fact makes a process for holding each partner accountable is even more essential than you would with employees.
7. Design a compensation strategy for the partners. Notice this is step seven in developing a successful partnership. It is my observation that this is often where the discussion starts in unsuccessful partnerships. After all, money will be unlimited right? How much should be paid in salary and why? Should there be defined incentives? How much of the gross income should be retained, reinvested, or paid in dividends? What are the tax implications of the options being considered?
8. Calculate the percentage ownership for each partner. Building on the conversation in step four, it will be obvious in most cases that the tangible and intangible contributions are not 50/50. Partner contributions must be evaluated and a comparative formula developed to rationalize ownership percentages.
9. Agree on specific expectations for performance. This builds on the discussions five and six above but takes this down to a measureable or observable level. This part of the process must be refreshed periodically to make sure the expectations are in line with the current business conditions.
10. Plan for the unexpected. What will happen to the partnership when reality intervenes? Partners are not immune to life events. They get sick, get married, may divorce, abuse substances and they will die. It is beneficial to establish strategies and pre define decisions should certain contingencies occur.
11. Establish a dispute resolution process. The question is not if, but when disagreements happen. The goal of a pre-established process is to prevent disagreements from escalating into conflicts and further into partnership collapse. Many partnership agreements, ably drawn by our friendly attorneys, begin with the conflict stage. A foundation built on the prior eleven steps can avoid mediation, arbitration and lawsuits.
12. Commit to the partnership. This last step can be accomplished by taking the steps above and having a commitment ceremony, much like a wedding, where the partners actually sign a document containing the results of the process defined above. This document should be reviewed and revised annually and a re-commitment ceremony held to seal the revisions.
Like a marriage, a successful business partnership requires cultivation and continuous, hopefully joyous effort. Being a more rational, non-emotional relationship a business partnership lends itself to the process defined above. Crossing the bridges above in our minds before facing them in real time can provide a blueprint for success. Remember even the Lone Ranger had a partner. Happy trails!
Russell Lookadoo is the HR Guy for small businesses. His firm, HRchitecture, specializes in helping business leaders accomplish their goals by effectively using their teams. Russell brings over three decades of experience designing Human Resources solutions that achieve business strategies in varied organizations ranging from a small manufacturer to the nation’s second largest bank. Russell holds the Senior Professional in Human Resources designation from the Society of Human Resources Management and earned the Certified Compensation Professional designation from World at Work. Russell attended the University of North Carolina on the prestigious Morehead-Cain Scholarship and graduated with a Bachelor’s in Industrial Relations. Visit his website at www.theHRGuy.biz