I was recently asked for insights on what people should think about before becoming business partners.
Partnership is marriage. Period. When it’s great, it’s great, and when it’s challenging…you have to dig in. Partnership is being legally entwined with someone else (or multiple people), for better or worse.
I’ve been privy to partner dynamics throughout the last 15 years of my life. I’ve had several business partnerships personally.
I’ve worked with partners who realized they weren’t a good match through our work together. I’ve worked with partners who were in bad shape but solidified their commitment and relationship with me through our work together. And I’ve worked with people who were interested in partnering, but, after our work, realized it wasn’t a long-term fit.
So what questions should you answer before entering a partnership? Here are 10 of the big ones.
1) Why this partnership?
What are your personal goals? And how will this partnership help you meet them? For you, is this partnership about making more money, adding capacity to perform and serve clients, diversifying your offerings, spending more time with your family — or something else? What are the pros and cons of having a partner? And why this person? You don’t need to be best friends with your business partners, but you do need a profound respect for who they are as leaders and business owners.
2) What’s the BIG business goal?
This question takes things a bit deeper. What goals are you looking to accomplish in your company? Vision will play a part, but specifics are important here. That clarity will help you determine the metrics to evaluate whether the partnership is working. (By the way, on this question and the ones to follow, you’ll thank yourself later if you get all partners’ answers in writing.)
3) What are your values?
Marriages weather all sorts of storms when the partners approach life from the same values. Values are the things you really care about, and they come into play when you make big decisions – the exciting or hard ones. Your values and those of your partner(s) don’t have to match exactly, but they should be related and connected. Without this common ground, partners will make decisions based on their possibly diverging personal agendas vs. the betterment of the partnership and greater team.
4) What are your titles?
What will you get paid for? Titles highlight who is responsible for what within the business. I like answering this question with C-level titles because they’re clear. The CEO is responsible for vision and moving the company forward. The CEO may also handle new business efforts, etc. When there is a president, too, that person can be more active in the day-to-day business and relationships. The CFO is in charge of mitigating liability and growing funds by accounting, tracking, and leveraging. The CMO is in charge of marketing and usually aligning with the sales teams to bring effective results and measurement. The COO’s duties can range from being in charge of doing everything operationally to making sure the company is making money through workflow. Here’s one way to think about what your title should be: Whom would you hire to replace you? And what would you call that person?
5) What are your roles?
What role will each of you play in the company? Roles include the things that we get paid for, but that aren’t described in our titles. What will people expect of you as a leader of this company? What about your partner(s)? Who will be the Den Mother, the Enforcer, the Inspirer, the Realist, etc.?
Partners should play complementary, not overlapping, roles. You have a lot of work to do – efficiency can help you be effective.
6) Who is your board of advisors/directors?
Everyone needs a board – in work and in life. These are the people you’ll reach out to for guidance. They have typically been where you are (or close to it), so they have valuable experience to understand what’s going on within your organization. They can be your sounding board, give you feedback or consulting, help you work through disagreements, and make connections. Make a list of the expertise you are missing. Who can help you close that gap?
7) How will you disagree?
Any company that values innovation and creativity needs debate and diversity of thinking. When you disagree, how will you determine the best way to move forward? Establish some guidelines now on how you’ll handle decisions. When will they get made? Who will make them — and who can overrule others? Which decisions need full participation from all partners?
8) What will the equity split be?
This isn’t about salary – although that definitely matters in determining viability of business plans and partnerships. Equity split is about ownership of the company. You can split the profits but not own a dime. Will your split be equal (50/50)? Almost equal (49/51)? Or will one of you put more resources and experience into the partnership? Will one of you take on more liability? There is no science to this, but there are best practices. Consult a lawyer. If you need one, let me know. I have several in my network I appreciate and love.
9) What — and how — will you celebrate?
People don’t celebrate enough. If you don’t create a habit of celebrating along the way, when you reach one big goal, you’ll just move on to the next without a pause. What are the milestones in this endeavor that you’ll want to mark? And how will you mark them? (People can have very different celebration styles. How will you honor those of all the partners?)
10) What is the exit plan?
Life happens. People stop connecting around the same vision; they fall ill or have to care for aging relatives. Or the market gets volatile. Lots of things can influence someone to shift, modify, or exit a partnership agreement and/or company. Have a plan in place from the outset. If you own a very successful company and you’ve decided to exit, it could take your partner(s) some time to gather the funds to buy you out on their own or through another partner.
There are also tricky situations where companies are growing and not making profit, but the sweat equity of those first few years is pivotal (and therefore worth something) to the success and revenue of the future. This is where upfront planning is key. If you need help with an exit as it’s happening, consult your board of advisors, your attorneys, and your bankers. They will each give you a unique point of view that can help you determine what to do.
We walk executives and partnership teams through a development experience to help them hone their relationships and impact. If you are interested in more, you know where to find us!