No. I mean, Yes. Well sometimes…
Here’s the rule of thumb – You only take on a business partner if ABSOLUTELY necessary. Here are the only reasons it would be necessary:
- They have the money you need. – This is self-explanatory and if you’re young, have educated yourself, and willing to work hard is the number 1 reason to have a partner. You need cash to get started. Obviously “young” is relative, however if this is the point where you are in your life and you just need some cash don’t let that stop you from taking on the partner. Below I’ll get into a few ways to ensure this partnership will work.
- They have the experience you need. This one isn’t actually too different than the one above. Maybe you have money, maybe you just have the right opportunity. The best example of this would be if I have great leadership talent yet can’t cook and I have a great opportunity for a profitable restaurant. If I’m going to recruit a top-notch, dedicated chef chances are they’re going to need a piece of the action (I’d recommend offering them profit sharing instead of ownership, though). Notice I did not say “you want to have a restaurant”. Never forget that you don’t buy a business “for fun”. You buy it for its profit potential. Once you’re rich you can then start having fun with all of your money on “risky” businesses.
- They have the connections you need. The best example of this would be the entertainment industry. You can be the most talented singer, comedian, actor, or artist on the planet but if you don’t know the right people chances are you aren’t going anywhere. Granted, with the advent of the internet, Myspace, Facebook, Youtube, etc. etc. etc. you have a lot more avenues for people with those connections to find you. After all, if you put a video on Youtube that gets 10 million hits, you can make a pretty good argument that your talent is truly entertaining.
Again, you need to evaluate your situation and determine if you REALLY need their cash, experience, or connections (or all of the above – but if you need all of that, then what do they need you for?).
You’ve determined that you do need a business partner so here are a few things you should setup BEFORE getting into business together. Do not wait until 2 months, weeks, or days down the road when issues arise. The easiest way to avoid conflict is to work it out ahead of time. Here are the 5 things that are crucial to a strong business partnership.
- Have an exit plan up front. This is something I reviewed with my business partner as soon as I knew it. My plan was to sell the business within 2 years or at least step away from the business and train someone else to replace me. In other words, if I can make money without working all day every day then I’ll keep the business.
- Have a Growth Plan in place so you know where money will be reinvested. – When the business starts doing well, you may think the best investment of all the money is back into the business whereas you partner might think we’d be better off having more company perks or taking additional distributions. If you clarify that up-front, it makes things a lot easier when the time comes.
- Have a “cashflow crunch” plan in place. – This is the one I forgot. Some business owners, such as Brad Sugars, say “Always pay yourself first” however most business owners, myself included, have difficulty with that. I can live on next to nothing and I always have savings so I’m more comfortable paying all of the bills first and then paying myself. If you’re business partner isn’t on the same page then you need to know that up front.
- Document each person’s responsibilities. – If you have a partner both of you can’t be doing the same thing. If your partner is just injecting cash but is going to have no say on the operation of the business then you need to spell that out up front. Keep in mind the 3 leaders every business needs since most partnerships based on experience fall along those lines. Make sure you indicate what happens if one or the other person doesn’t keep to their responsibilities. You may want to include working hours, benefits, paid vacation time etc. in this area as well.
- Bring issues up as soon as reasonable. – If there is something you didn’t discuss up front that you think is going to be a problem, do your research on the problem so you have all the facts, and then bring it up. Don’t wait months for it to fester or wait until your partner finds out from someone else. If you’re not comfortable discussing difficult topics with him or her, he or she shouldn’t be your partner in the first place. In my opinion this is the MOST important aspect of finding a partnership. You cannot possibly plan out or think of every problem that may arise. However, if you can reasonably trust and discuss things with each other then you are much more likely to make it work.
Brad Sugar’s once told me that “if you want a partner, get married.” Though when he was getting started he had to take on partners to get the cash he needed and he’s done alright for himself since then. So don’t avoid partners at all costs – especially if the cost of not taking on a partner is not getting that business – However, educate yourself properly on the person and the synergies you have together. And you better make sure you do the five things listed above to keep everything positive for the term of the partnership.
To your partnering success, Bryan