By: Carlos Antonio Flores.
Someone once told me that a partnership is like a sinking ship, or even more extreme, that the only good partner is a dead partner. Yes, someone told me that. According to Forbes, 70% of partnerships with two to four partners fail. That’s probably why only 10% of businesses in the United States are partnerships.
Personally, I have businesses in which I am the sole owner and others in which I have partners. As you can imagine, each has its pros and cons. At the end of the day, there is no definitive answer as to whether having a partner is better or worse; it all depends on what you are trying to accomplish. Some of my partnerships ended in failure and even resentment, while others thrived and led to success.
If you want to start a business with a partner, I’d like to share some of the things I look for based on my experience in selecting the right partner and how I go about making them successful.
Look for someone who shares the same values:
I once saw a business partner who charged for a high-end tequila, but served a cheaper brand. When I confronted him about it, he simply said he was out of it. Never compromise your values for the sake of keeping the peace! Shared values are the foundation of any successful partnership. If you and your partner have different visions of what success means or different ethical standards, conflict is inevitable. It’s important to have open conversations early on about your core values, business ethics and long-term goals to make sure you’re on the same page.
Someone who has stability in their life:
Sometimes we see the best in people and are too close to the problem. A partner with a stable personal life is more likely to be reliable and focused on the business. Stability in a person’s personal life often translates into stability in business relationships. If your business partner is sleeping on the couch at home, DO NOT start a business with him.
Someone with discipline:
Discipline is key to running a successful business. A disciplined partner will be more likely to stick to plans, meet deadlines and remain committed to the business even when the going gets tough.
Someone emotionally stable:
Emotional stability is crucial, especially in the high-stress environment of running a business. A partner who can manage his or her emotions well is less likely to make impulsive decisions or let personal problems affect the business.
Someone who can handle pressure:
Business can be stressful and the ability to remain calm and composed under pressure is invaluable. A partner who can handle stress well is more likely to make good decisions in difficult situations. In addition, he or she will not try to pressure you into making a bad decision.
Someone with a good credit rating (at least 700):
A partner’s credit rating can be an indicator of his or her financial responsibility. A rating of 700 or higher suggests that the partner is likely to manage finances well, which is critical to the health of the business.
Consider what stage of life each partner is in:
It is critical to understand what stage each partner is at in his or her personal and professional life. A partner who is ready to retire in five years may have different priorities than one who is just beginning his or her career. Aligning your timelines and expectations can help avoid future conflicts.
Someone you can talk to easily:
Communication is the backbone of any partnership. A partner with whom you can communicate openly and honestly is essential for resolving conflicts, sharing ideas and making decisions together.
Identify the skills of each partner:
A strong partnership is usually one in which partners bring complementary skills to the table. Evaluate what each of you can bring to the business. One partner may excel in operations while the other is excellent in sales or marketing. Understanding and leveraging each other’s strengths can create a more balanced and effective partnership.
Additional suggestions for increasing the success of the partnership include
Define the decision-making process:
Before jumping into working together, it is critical to establish how decisions will be made. Will decisions be unanimous or will certain decisions be made by majority vote? What happens if there is an impasse? Defining a clear decision-making process beforehand can prevent disagreements from stalling progress.
Have an operational agreement:
An operating agreement is essential, especially in a multi-member association. This legal document outlines the management structure, profit-sharing arrangements and procedures for resolving disputes. It is a road map that can guide the association through good times and bad, and helps ensure that everyone is clear about their rights and responsibilities.
Clearly define roles and responsibilities:
Ambiguity in roles can lead to frustration and inefficiency. Clearly define who is responsible for what within the company. This not only avoids overlap, but also ensures that each partner is responsible for their respective areas.
Decide how you plan to incorporate:
The structure of your business whether it is a partnership, limited liability company (LLC) or other form will have legal and tax implications. It is important to discuss and agree on the best structure for your company based on your business objectives, risk tolerance and financial situation.
Have the tough conversations from the beginning:
It is essential to discuss potential challenges and scenarios that could arise in the future. This includes what happens if a partner wants to exit the business, how profits and losses will be shared, and what the plan is if the business fails. These are difficult conversations, but addressing them early on can avoid misunderstandings later on.
Have an exit strategy:
No partnership lasts forever, and having a clear exit strategy is essential. Talk about how the company will be valued, how shares can be sold or transferred, and what the process will be if a partner wants to leave. A well-thought-out exit strategy protects both the company and the partners.
Visualize the end goal:
Finally, it’s important to have a shared vision of what success looks like. What is the ultimate goal of the business – is it to scale and sell, build a legacy, or provide a steady income? Knowing what the endgame looks like will help guide your decisions and keep both partners aligned.
Conclusion
Choosing the right business partner is one of the most important decisions you will make when starting a business. By carefully considering these factors, both personal and professional, and having open and honest conversations from the beginning, you can increase the likelihood of a successful and lasting partnership. While partnerships carry risks, they can also offer incredible opportunities for growth, innovation and shared success when built on a solid foundation.
