Starting a business with a partner can really increase your odds of success. It can also bring that success to a level and speed you may not have been able to achieve as a sole proprietor—but only if you base your choice of partners on the right criteria. This article will look at reasons why partnering is worth considering and also the most important points to remember when choosing a partner.
Small Business Survival
Partnerships—companies with more than one owner—are likely to be in business longer than sole proprietorships—one-owner companies—according to Brian Headd, an economist with the U.S. Small Business Administration’s Office of Advocacy.
Though there is no hard data provided to substantiate why this might be, having the right partner provides several benefits, including a support system to keep each other motivated during tough times, and someone to share expenses and responsibilities.
Financially speaking, a 2008 report from the U.S. Internal Revenue Service found that while income for sole proprietorships have been on the decline since 1980, income for partnerships increased during the same period.
Yet, despite this rosy forecast, 87 percent of non-employer companies (those run by one or more individuals with no staff or employees) are sole proprietorships; only seven percent are partnerships, according to the Office of Advocacy.
Not all types of businesses require or would benefit from partnership. For those that do and also hope to survive, there are several points you need to cover before declaring a partnership and signing on any dotted lines.
Each of the points that you’ll read below work together to provide a holistic understanding of how to proceed with choosing the correct business partner.
Establish a Pre-Business History
Whether you’re dealing with a friend, acquaintance or total stranger, you’ve got to establish some kind of history with them, like collaborating on one or more small projects—particularly the kind where there is little risk. This could take weeks, months or even years. This isn’t to say you’ve got to start from ground zero; you may have known and/or worked with someone for a long enough period of time to get an idea of their suitability.
By developing a pre-business history or reviewing an existing one, you can get a ground-level perspective of the other person’s work style: how they work, how they communicate, their level of responsibility, energy, and similar things which will tell you if they’d make a good partner … or not.
Ensure You Both Share the Same Values
This is related to establishing a pre-business history and is probably the most important factor to consider when choosing a business partner.
While you and your partner will likely be able to handle the occasional difference of opinion or other upsets, where values are concerned, your mutually-piloted ship will likely run aground on the basis of differing values. This is because one’s values are usually a matter of deep, personal conviction, which may have, been formed over a long time and reflect a person’s background, beliefs and experiences.
When values are aligned, it can be a beautiful thing, such as when both partners value social responsibility over raking in huge profits (or vice-versa). But when they are not aligned, or are opposed, such as one partner valuing leisure while the other values industriousness, it’s simply not going to work out, unless one person changes.
Choose Someone With Complementary Strengths
If you are the idea person, then you probably don’t need another idea person; you need someone who excels at action, implementation, and execution. One of the best examples in history of this was the early Apple computer: Steve Wozniak, the engineer and idea guy, had been “building” a better, more innovative computer on paper for years. (This was long before computers were common and affordable to the average person.) Steve Jobs, a computer buff of only average skill, took his enthusiasm for Wozniak’s creations and went out and found customers for it.
Of course, if you team up with another idea person and it works on that level, you would need to bring in a third person who is strong on execution. And your main strengths should be laid out in the beginning so that your job roles are well defined and mutually understood.
In addition to complementary strengths, it may be important at some point to recognize and utilize any additional skills each partner has that could benefit the business. There are probably as many possible skills a person could have and contribute, as there are different kinds of businesses. By making them known and figuring out ways to use them, the partner gets to fully express themselves through their work, which is a positive thing.
Establish Each Person’s Commitment
How many hours are you putting in? How many hours is your partner putting in? And what are they supposed to accomplish during those hours? Is one partner still working their day job and working on the business during nights and weekends?
These are the kinds of issues that have to be looked at, understood, and agreed upon by the partners, in order to prevent future disappointment and discord. If the partners, for instance, have said “50-50” yet one is working on the business full-time while the other is still at their day job, it could sow the seeds of future trouble.
However, time invested may not be an issue if you base commitment on hitting the required targets to move the business forward. If one partner is still working a day job but is hitting the necessary business targets, this might be considered an acceptable level of commitment.
Be as upfront as possible about this aspect of the business because it won’t take long for the reality to show itself.
Get the Money Issues Squared Away
If you’ve got a great business idea (or even just a good one), and one or two motivated, dedicated business partners who want to make it a reality, you’d better have this discussion sooner rather than later.
Take a good look at individual involvement and commitment and decide, based on that, how the profits will be shared. Then get it all down in writing.
Agree on the Endgame
Most business owners—partners and sole proprietors alike—don’t look far enough into the future, particularly at formulating and agreeing on an exit strategy for the business. Whether the business is successful or not, the two or three people who start it will gain a lot of experience. However, odds are against them gaining enough experience to be able to make the leap from a successful small business to the world of big business without a lot of expensive outside help.
Many businesses reach a point of profitability and success that attracts the attention of a larger business that will seek to purchase them. It may or may not happen to your business, but it pays to have an exit strategy agreement worked out long in advance.
Are there other aspects of partnership other than these? Of course, including hiring and firing staff (whose responsibility is it, etc.), conflict resolution, and accountability.
But the main thing to realize is that even the best partnerships are not without their rough patches. That’s why the most important thing is the discovery period. Use it to take a close look at the person you are considering as a partner. Spend time with them. Meet their family, if any. Find out all you can to assure yourself that the person will be the one who can hold up their end in creating a mutually beneficial relationship.