There is no guaranteed method for determining a potential business partner's legitimacy other than to do business with them. You can increase your chances of finding good people, however, if you take the proper precautions and consider the following tips:
1. Check references. Any legitimate person or company is more than happy to provide references--and more than one. If they are not, or have excuses why they can't, you should see this as a red flag.
2. Find other references. A company will give you its best references. It's also helpful to find others who have done business with the firm. In conversations, make note of people or firms the company mentions having done business with. Later, ask if you may call them. If there was a problem, the good business tells you up front and explains its side.
3. Get industry referrals. I have found that if you can hook up with one good person in the industry, he or she knows who the other good people are. For example, my injection molder, who is trustworthy, has referred me to several other companies, which have all been very reputable.
4. Don't pay in advance. If someone is going to represent you, he or she should work on a percentage basis with no upfront fees (with the exception of out-of-pocket expenses). If someone is going to make something or provide services, only a partial payment, if any, should be required upfront.
5. Don't immediately choose the "Big Name." Many people feel if they use the largest law firm, the biggest printer and the dominant supplier, they'll be safe. The truth is, you will be a very small account to them and possibly get lost in the shuffle. When starting out, I've found it's best to find a small but reputable company that is hungry for your business. If you are trying to find financing, however, it can be a plus to have a large or well-known business partner to add credibility.
6. Visit the company's location. You can learn a lot from just looking around. Is the company organized? Does the place look safe to work in? Do the employees appear happy? Is the environment friendly? Are they willing to take you on a tour?
7. Find a "player." A player is a person or company that has been in the business for a number of years. It is a pretty good bet that if they've been around for a while, they are legitimate. Players can also help you in ways you might not have considered. One player I used was very connected with city hall; through this person, I was introduced to people who have been very helpful to me.
8. Don't agree to long-term contracts. Personal managers and agents deserve some protection if they are going to invest in you and your idea; however, they should also be able to prove themselves within a year. A contract should have a reasonable escape clause should you not see results or feel uncomfortable working with them.
9. Create a relationship. On a first date with someone, you are friendly and on your best behavior. If you want your spouse to do something, you finesse him or her. These are the same skills you should use when you establish a business relationship. I have had several business partners jump through hoops for me to help me make a deadline. They didn't have to, but they did because I had a good relationship with them.
10. Don't work with friends or family. Time and time again, I have seen friendships and families fracture because they worked together. Think twice before doing this.
11. Don't allow yourself to be pressured. Some companies may offer to give you a discount if you agree to do business with them at the first meeting. Others might try to scare you by saying raw material prices are going up or they have an opening to do your work but need an answer right away. Any respectable business will agree to let you sleep on it before making a commitment.
12. Remember the old adage "If it sounds too good to be true, it probably is."
In developing your idea, you'll eventually need the assistance of others. Be careful and thoughtful when selecting business partners, but don't be afraid to risk. The American dream cannot be achieved without taking some chances.