Do You Need a Biz Partner? Joining with the wrong partner can sink your startup dreams. Learn the basics of partnering up before starting up!
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One of the most popular ways for an entrepreneur to start a newbusiness is to form a partnership with one or more other people:They join forces with friends or associates who have complementaryand mutual supportive skills that are necessary for the success ofthe business.
But a partnership can be the worst way to start a business, ifyou don't know what you're doing. Because entrepreneurs arelikely to be optimistic and action oriented, they're oftenimpetuous and unthinking when they decide to form a businesspartnership. To protect yourself, you must be careful to do yourhomework before entering into a business partnership of any kind.By understanding the nature of partnerships and by thinking themthrough in advance, it's possible to form and developsuccessful partnerships over the course of your entrepreneurialcareer.
There are two important rules to consider when it comes topartnerships. The first is that a partnership is always easier toget into than it is to get out of. The other is that the time tothink about a business partnership is before you get into it in thefirst place. Partnerships often start like romances or marriages,with high hopes and good intentions on the parts of all peopleinvolved. But just like a marriage, they can end with bitterness,anger, bankruptcy, lawsuits and ruined relationships.
Before you even entertain the idea of entering into apartnership with someone, it's important to understand thestrengths and weaknesses of this business structure.
Starting a business usually requires the talents and abilitiesof more than one person. That's because you need someonewho's excellent at detail work, at producing the product and atadministrating the business. You also need someone who'sexcellent at sales and marketing and at generating revenue and cashflow. If both partners have strengths in the same area, one of themis obviously not needed.
The purpose of a partnership is to help the partners achievegreater financial results together than would be possible if eachof the partners worked individually. For this reason, each partnermust have skills that the other partner lacks. Together, thepartners should form a powerful combination that's capable ofgenerating economic results.
Keeping that in mind, understand that the starting point of asuccessful partnership is achieving absolute clarity before youbegin. You must be clear about the values, mission, purpose andgoals of the business--and you must both agree on those things. Youmust be clear about the performance requirements andresponsibilities of each person--and you must both agree on thosethings.
The biggest problem in partnerships generally has to do with theindividual responsibilities and work requirements of the partners.It's almost always the case that one partner makes a greatereconomic contribution to the business and works harder than theother. But the partner who works less and contributes less wantsthe same rewards as the more valuable partner.
To help solve that dilemma, remember that to make the business asuccess, the focus of the partnership must always be on sales andrevenue generation. Therefore, the person who can generate salesand revenue makes the most valuable contribution to the partnershipand is therefore entitled to a greater percentage of theprofits.
Understandings prevent misunderstandings. Agree on the jobresponsibilities and standards of performance for each partner. Setup the partnership so both parties know exactly on what terms theycan leave the partnership should things not work out as planned.And decide upon a formula now to determine the value of thepartnership should one partner decide to leave.
Disagreeing over money and control is one of the major problemsin partnerships. How will the profits of the partnership bedivided? Agree in writing about how the money is to be accountedfor, divided and distributed. Give one person 51 percent or more ofthe ownership and control of the partnership so there's never a50/50 impasse that can't be settled. Be sure to discuss eachpartner's legal liability for the actions of the partnership.And continually review and discuss, at least once a week, thepartnership's financial status.
Your partnership agreement should be carefully drawn up and allelements should be agreed upon in advance. Always write a contractas if the business is going to break up sometime in the future. Itmay sound crazy now, but when you write the agreement, you shouldimagine that your partner is going to become your enemy in thefuture. This is one of the best ways to protect yourself from thevery beginning. And be sure to have your partnership agreementreviewed by a lawyer who can advise you about the dangers inherentin this business structure.
Sometimes the very best partnership arrangements are the onesthat you don't get into in the first place. So think anypartnership through carefully before you act.
Brian Tracy is the "Success Secrets" coach atEntrepreneur.com and one of America's leadingauthorities on entrepreneurial development. He's producedmore than 300 audio and video learning programs that cover theentire spectrum of human and corporate performance.