Many who know me reasonably well are often surprised when I say that do not counsel people to run from the idea of business partners, or business to business partnerships. Let me clarify that this includes two dudes who decide to develop software together as well as an architecture firm that decides to partner with a builder on a mixed-use project. Even though the situations are very different, the principles of effectively managing the relationships are the same.
Here are the three major cautions to consider when trying to develop a successful business partnership:
- Be as equally yoked as possible (financial, familial, values wise, etc.).
- Have an agreed upon, crystal clear division of partner roles and responsibilities. This should rarely be crossed once established and egos subordinated to this agreement.
- NEVER, ever, ever enter into a 50/50 partnership. NEVER.
Business to business partnerships are very similar to partner to partner. This point is well illustrated by a story one of my mentors told me. He was in business with four other guys. He was on the corporate board of directors, the whole nine yards. The company needed cash and they found a bank to make the loan. The catch was that the bank required personal guarantees from all the Board of Directors - including my mentor. The day of closing came and they were all at the bank sitting around a big bank table, getting ready to sign their guarantees and that's when my mentor took a good look around the table. He quickly ran the numbers and realized that his Net Worth was considerably higher than either of his partners. Therefore, if the company defaulted he knew the bank was only going one place and the knock was going to be on his front door. He wisely pushed away from the table and walked away. He was unequally yoked.
The second caution is all about knowing your potential partner very, VERY well before you get in bed together. Spend hours together. Meet his wife. Talk to old friends. Pull a SLED report and find out every speeding ticket he has ever had. You may find something that could save you and your investors a boatload of money and suffering. The SLED report costs $50 by the way. Your attorneys can pull it. Spend the money.
Back to strengths, weaknesses and ego...you must know everything. You must tell everything. There must be trust. If your strength is in sales then stay out of ops. If your strength is in leadership, strategy and fund-raising (CEO stuff) then stay the hell out of web design. If you have a partner that let's his ego and hubris compel him to stick his nose in everything and micromanage, you are screwed (or you must fire him). The positive side of getting a partnership right is that it can be amazingly beautiful. You play your role, he plays his and both of you are at peace serving one another and the organization. This is a true co-leadership environment and it is a place where two becomes the power of 10. One more thing before I leave this one; you need to make sure that your partner is willing to work as hard as you. I have always worked harder and put in more time than my partners (a fact that I used to be okay with). Experience has taught me to weight my time a little heavier than I used to.
The third caution is the most important. Have you ever heard or read a news story that described a combining of two companies as a 'merger of equals'? Never has there been a larger business load of crap than those three words. There is only ever an acquisition. Why? Because someone always has to have the final say and everyone knows this, but for some really strange reason people get stupid and think that this only applies to big deals and not with two guys writing code or launching a restaurant. Whether you work out terms with a handshake or with an LLC Operating Agreement or C-Corp articles, it doesn't matter. Someone (one person or unified investor group) ALWAYS has the last say. There is only ever one person or party on top. This does not mean that it is bad to be number two. Just don't be number two thinking you're number one.
Once you get past the big three and your partner(s) pass the test of being equally yoked, having a subordinated ego to the organization and all agree to a non 50/50 arrangement, there are lessor but still important considerations. Probably the biggest one is that you don't have to be a partner. Every business needs smart, committed leaders. Being at the top of the pyramid is often where the flash and stress resides. The character of the company resides in the team. Please understand that I am not saying partnerships are bad, just that you CAN be a leader with an ownership stake in the business and still be very fulfilled and happy. I think that Warren Bennis (author and SoCal prof) has some interesting thoughts on what it means to be a great co-leader. Adding to Bennis' thoughts I think that great co-leaders have four primary qualities:
- They subordinate ego to attain a common goal
- They have the courage to speak the truth to power, even when it hurts
- They possess and use creativity (the power to go beyond the manual)
- They have the wisdom to be candid in private and discreet in public