Why I love partnerships and why they have made me millions.
Quote of the Week:
“Great things in business are never done by one person. They are done by a team of people.”
-Steve Jobs
Two Commandments of Partnerships:
Because they had such a spirited visionary, most people don’t realize that a lot of big businesses were actually partnerships. Google, Twitter, Microsoft, Apple, Intel, Facebook, Yahoo, and eBay are all partnerships. People tend to be wary of partnerships because they don’t follow the two commandments. These are above pillars. Think of them as the great oracles that come down from the business sky. You should know both why you partnered and have clearly defined responsibilities.
Why do you want a partner?
When your business is not going well, having a partner makes it more tolerable. And when your business is going well, it is fun to have someone to celebrate with. I’ve been in business downturns and having a partner to lament with was quite encouraging. During these times I don’t know how I would have survived if not for the partnership. Then again, I knew why I had chosen the individuals I was partnering with. There are the five reasons for choosing to partner:
- Someone has a skill and/or expertise that you do not have.
In Microsoft’s case, Bill Gates and Paul Allen had different strengths. In Apple, Steve Wozniak was the tech guy and Steve Jobs was the businessman, salesman or front man. In my businesses, I never bring the expertise within the industry but instead bring business expertise. If you think about partnerships in terms of a mathematical equation, 1+1=2, or you plus another person equals a business. 1+0 will never get your business to where it needs to be. You need to add the skill or expertise of another person if you are in an industry you are not familiar with or if you are familiar with the industry but don’t know how to run a business.
- Someone has a resource that you desperately need in order for the business to move forward such as cash, credit, a piece of real estate or intellectual property such as a patent.
After creating the business you should be able to think back and know that you could have never gone forward with the business without this person. When you have a great “why” you don’t question the partnership because you know that without this person the business could not exist.
- Someone has the time and energy to move the business forward.
You may have the capital to get a new business or franchise started but are employed with another job. Or, you may have a great idea, but can’t walk away from your present responsibilities at this time in your life. In these cases, you would partner with someone who has the time and energy to go after this business. I have had partnerships like this quite often; I thought I had a good idea but I didn’t have the time to run with it so I brought in somebody with energy. I will enter into a 50/50 partnership with them because without this person there is no business. It is irrelevant how good the idea is because I simply don’t have the time.
- You and this person have a mutual obsession with a vision, an industry or an idea.
This rule applies more often to those of a certain age, which may sound discouraging. The businesses mentioned earlier were started pre-thirty. You are typically in college or you are at that age where having a mutual obsession with a friend happens. This passion leads to ideas and then a business. Know that just because you are friends with someone doesn’t mean that you are necessarily going to make great business partners.
- You and this person have both a mutual obsession and a great friendship.
The relationship is effortless and you are always hanging around each other. Within this friendship, you have number 4, a mutual obsession. If for example, you have a mutual obsession with an industry or product but this person wasn’t a good friend I would not go forward with the partnership. The obsession is not enough. On the other hand, I would not go forward with a business just because I am friends with someone.
Here are a few other rules to consider when entering into a partnership:
Not All Partnerships Have to be 50/50.
Did you know that all partnerships are not 50/50? It is possible that you breathed an organization into being but in the first few years realized that you needed a partner. It is possible that you may get someone to partner with you for 49% or 40%. 50% is not always the perfect number unless you want to have a tug of war with your partner.
Even if you do have a partnership that is 50/50 I don’t think that voting shares should be split the same way. When you issue shares of the company or you create within your LLC the management structure you can specify that you are the deciding vote. Within all my businesses I am always the tiebreaker. No exceptions. A business is not going to fail because I want to move forward but my partner is unable to see my vision because they are more conservative or they don’t have a growth mentality.
Within my partnerships, I may have a 50/50 payout position where profits are shared equally but in close votes, I am the tie-breaker. I don’t throw that around and I don’t normally bring it up. It’s understood because I would rarely go forward with a decision if someone was completely against it. I would try to create a consensus. I would try to win them over or better explain my vision to them. If they were still against it, I would phrase it this way: “Let’s try it and if six months or a year from now we haven’t attained these pre-established numbers we’ll pull out of it.” I’m not hard-headed when it comes to making decisions but I also want to go into a business knowing that I will not be having stalemates with my partner. If there are three partners in a business, you don’t want to be in a situation where you never get a consensus. Before the business starts you need to decide how you are going to make decisions.
The Importance of Having Strong Whys
These are my whys of entering partnerships. If you follow them you are going to go into business partnerships because of strong reasoning that will strengthen you at times when you are frustrated with your partner. You also went into this partnership without a fifty-fifty voting share because you are the visionary, the one with the good ideas. You know you can push your agenda if need be, but try to push the agenda thoughtfully by building a consensus. At the end of the day visionaries do what nobody else can do because we are risk takers.
