History has shown us that two people with a shared goal can accomplish exponentially more than one person.
Quote of the Week:
“Our success has been based on partnerships from the very beginning.” -Bill Gates
I love partnerships. Without them, I would have made far less income and I also would have had far less fun. At my daughter’s wedding a few weeks ago I was looking at the guests and I saw all my partners there. I even saw a former partner there. Even if we sold out all of my partnerships have ended amicably. To recap last week’s lesson, when deciding to partner you need to have these clearly defined “whys”:
- Bring in someone with a skill or expertise that you need either within the industry or to run a business.
- They have a resource such as cash, credit, a building, property, patent or intellectual property that you desperately need.
- They have the time and energy to run the business.
- You have a mutual obsession with a great idea within an industry.
- You have a great friendship.
Moving forward with a partnership, there are seven laws that you should follow. If you don’t follow at least six out of seven of these, you will have problems because business partnerships are even harder then marriage. Marriages have a fifty-fifty success rate but I have often heard that business partnerships have a lower success rate than that. That is partly because you spend more time with your business partner than your wife. I am with my business partners eight to ten hours a day five days a week and during the start-up phase I with them even more.
One of the main things married couples argue over is money. If you are starting a business, you will talk about money and there will be a lot at stake. Maybe your parents made an investment but your partner’s parents didn’t. You see collateral damage that your partner may not see.
Partnerships are harder than marriage and there is a lot that can go wrong. That is why I implore you to consider the seven laws of business partnerships.
1. Within your partnership, one needs to be a visionary and one needs to be a manager.
Having two visionaries is like a never-ending tug of war. You are never going to agree on how to accomplish the vision. Going into it, one needs to provide the vision and one needs to be a detail person who serves as your checks and balances.
- Your “whys” needs to be critical.
After starting your business, it should be clear that without your partner and their skill, resource, time etc., the business could never have existed. With big whys, it is impossible to regret a partnership.
3. You have responsibilities defined prior to starting the business.
This can be an absolute deal-breaker. Once you have the business going, your partner picks up golf. They tell you that they are “networking” which is the biggest excuse for doing nothing. You have to drill down on responsibilities, meaning the job description, the time expected, and the result expected. Otherwise, you may find that the person you brought in as a partner is unable to do their job.4. Losses should be jointly shared.
We are not splitting the profit fifty-fifty if you are not taking a beating when I take a beating. We are cosigning vehicles, property, and everything else.5. Payouts should be clearly defined prior to starting the business.
Partnerships do not necessarily have to be fifty-fifty. For instance, I want to make sure voting is not fifty-fifty because that can result in a lot of stalemates. If two people start the business together I think fifty-fifty payouts work the best. However, if someone put up sixty or seventy percent the payout will most likely be equal to that share.
6. You should have a prenuptial agreement.
A business partnership is like a marriage. All of the laws I mentioned need to be written out. Spend money on a lawyer or at the very least write up your agreement and have a notary sign off on it. I am not claiming to be your attorney or your accountant, but if for some reason you cannot afford an attorney you want someone to validate that the agreement took place. In the prenup (sometimes these are written down in your LLC operating agreement) you write down what the shares, voting shares, payouts, and share of losses will be. You also want to define responsibilities and what the consequences for failing to fulfill those responsibilities will be. Anything you might possibly argue over should be in this prenup agreement.
7. Decide who has the deciding vote if you are fifty-fifty owners.
Nothing is ever fifty-fifty. In the rules of your partnership, you need to have a tiebreaker in effect for voting situations in which you cannot come to a consensus prior to the business going forward.