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7 Steps for Choosing a Top-Notch Business Partner Venture capitalist, author and professor Peter S. Cohan answer readers' top questions about entrepreneurship.

By Peter S. Cohan Edited by Dan Bova

Q: I'm starting a cupcake business and my friend wants to be my business partner. I'm not sure she's the best fit. What factors should I consider when choosing a business partner?

- Jamie Barrera

A: First, you need to answer some more fundamental questions, like: Why are you starting your business -- to have fun making and selling cupcakes or to make enough money in a few years to retire? What do you want your business to look like in five years -- a single store or a chain of them?

Once you've answered these questions, you'll be in a better position to decide the factors to consider in bringing in a business partner. For example, if this business is destined to become a large company, you will need different business partners as the company grows. But, if you want the startup to remain a one-shop operation, the capabilities you need in a partner are going to be different.

Related: What to Do When Friends Want to Be Co-Founders

Here's a brief tutorial on how to choose partners wisely:

1. Pinpoint goals. Regardless, when picking a business partner, the first step is to list what needs to be done to achieve your goals for the business. Here are some items that might be on your specific list: choosing the product selection, buying ingredients and equipment, baking the cupcakes, finding a space to operate, attracting and keeping customers and getting financing.

2. Get a second opinion. Once you have your list of key activities, you might check with other people in the industry to find out if you missed anything and to learn which of these activities are likely to be most important to your success -- particularly at the early stages of the company's development.

3. Decide responsibilities. The next step is to create a matrix. The rows will be all the critical activities that will need to be done, there should be a column with your name on the top, and another column labeled business partner. Put a check mark under your name for the activities that you want to do and leave blank the ones that you would rather delegate to a partner.

4. Be honest. I suggest that you also try to assess whether you are really the best person to do the things that you want to do. For example, can you think of at least three successful experiences you've had doing each of the things you want to do for your business? If so, you should do them. If not, you might consider whether those are activities that your partner should do instead.

5. Write it down. It might be a good idea to write-up a contract that describes details such as what the partner will do, how you will decide whether to give equity to the partner, and if so, the objective things the partner will need to do in the future to earn that equity, cash compensation, benefits and the terms under which your partnership will dissolve.

6. Find the right fit. Search your network for a business partner who can best perform the key activities that you don't want to do. Even if you consider your friend as a candidate, you should definitely compare that friend to other candidates who get good references from people you trust.

7. Narrow your choices. Finally, you should interview all the candidates, pick the two or three that can best do what needs to be done, and conduct intensive due diligence on the finalists. Since your business will change as it grows, you might want to pick a candidate whom you think can take on different roles as the needs of the business evolve.

Related: Oh, Brother! Tips for Sibling Collaboration in Your Business

In general, you want a business partner with high integrity and the ability to perform the activities your business needs done. Moreover, your business partner ought to be rigorous about communicating what he or she plans to do, doing those things and letting you know about them.

Peter S. Cohan

President of Peter S. Cohan & Associates

Peter Cohan is president of Peter S. Cohan & Associates, a management consulting and venture capital firm. He is the author of Hungry Start-up Strategy (Berrett-Koehler, 2012) and a full-time visiting lecturer in strategy at Babson College in Wellesley, Mass.

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