In my career I have been involved in several business partnerships. Three were based on a simple hand shake agreement. One of these hand shake partnerships covering ownership of a manufacturing company lasted over 10 years and worked the best. Another hand-shake arrangement in the venture capital and consumer publishing field also held up well over a several year period. Another hand-shake deal in the financial services industry was a real disaster that turned ugly and could have been much worse if law suits had started flying.
I have been involved in three written partnership agreements. Two were in the financial services industry. One of these lasted 10 years and is still going. Another one lasted 5 years and ended for health reasons of the other partner. And one written (potential) partnership in the consulting profession ended the day we were both supposed to sign and finalize the partnership agreement.
In short, I have had lots of experiences with starting and trying to sustain viable, successful business partnerships. It’s never easy. These are some of the things I have learned along the way:
• Think about whether or not you even want to have a partnership. Would you be better off going it alone? Or not moving ahead at all on the project you are planning with a partner? What’s the advantage of having a partnership? What does the other partner or partners bring to the party?
• Really know the person with whom you are thinking about “partnering”. Putting together a successful business partnership is no different and no easier than entering into marriage. And we all know that 50% of all current marriages will end in divorce. Understanding the potential partner will take significant time. Don’t rush into a partnership. There is always more time to decide. Better to avoid going ahead rather than getting stuck in a bad one.
Unless you really know the potential partner really well it makes sense to run a background check. There are firms that specialize in this sort of work. The fees are more than reasonable and can help you avoid a real disaster.
• Get to know your potential partner’s family. They can have an enormous impact on any partnership. Expect that to be the case. Will your potential partner’s family let him or her take the risks and put in the effort needed for the venture to succeed. One of the least successful partnerships I ever had was one in which the partner’s spouse was a real loser and just never “got it.” It wasn’t very long into the relationship before the 5 PM phone calls would come asking when my partner would be home for dinner. And working on the weekends was taboo.
• Make certain you have complimentary skills. And make certain all partners are prepared and willing to sell. Nothing happens until something gets sold. I have seen lots pf partnerships fail because one of the partners felt he or she was the only one selling.
• Put the key points of your partnership in writing. Spend lots of time thinking through up front all the various issues that the partnership needs to address. For example:
- How will the equity be split?
- How much capital are the partners putting up?
- What will be the partners’ compensation?
- How will decisions be made?
- Who manages the check book?
- What happens if a partner quits, passes or is incapacitated?
- How will the partnership be terminated if necessary?
- How will new hires be decided? Can family members work in the
- If there is a board how will directors be selected?
- What will be the responsibilities of each partner?
• To me it makes sense for partners to put together a well thought out draft of their agreement before getting the lawyers involved. When a solid draft of the agreement is completed then each partner should have his or her lawyer take a look at it to make certain the partner’s interests are clearly defined and protected.
Failure to have a clear written partnership agreement is almost always a formula for disaster.
• Don’t just sign and put away the partnership agreement. At least once a year pull it back out and sit with your partner(s) to review it again. Viable businesses change constantly. Partnership agreements need to be reviewed periodically and adjusted as necessary. There is nothing wrong with evolving a partnership.
• Spend plenty of quality time with your partner(s). Successful partnerships are no different than successful marriages. The partners need to enjoy and want to be together.
Finally, before you sign the partnership agreement, shake hands and hug each other. Take a deep breath and make certain you feel totally comfortable with your “about to be” partner. If you don’t have this feeling, simply put the pen down and let the proposed partner know you are not comfortable and will not be moving ahead. I did this once and it was one of the better business decisions I ever made.
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