Lewis and Clark, Sears and Roebuck, Hewlett-Packard, the Wright Brothers. What do these names all have in common? Aside from being almost universally recognized, they were also incredibly successful partners. Despite the seeming preponderance of advice on the challenges and pitfalls of having a business partner, there can be great value and tremendous benefits to being part of a successful partnership.
Making the journey together
So what are the advantages of a business partnership? Aside from the legal and tax advantages—a partnership is relatively simple to establish and requires less record keeping than a corporation, and income is taxed only once—the benefits are numerous:
- Shared financial responsibility and start-up costs
- Shared risks and business expenses
- Mutual trust between owners
- Shared duties and tasks resulting in a lesser workload
- Different perspectives and insights
- Mutual support and motivation
- Complementary skills and abilities
- Broader networking and support structure
The old adage “It’s lonely at the top” becomes an easier burden to bear with a partner. Sharing a joint vision and pursuing that vision together can often provide the much needed inspiration and motivation when it seems it may never really happen. Knowing that they’re not in it alone is often a key factor in the success of many partnerships.
Bill Hewlett and Dave Packard were friends who graduated in electrical engineering from Stanford University in 1935. Their company originated in the now famous garage in nearby Palo Alto in 1939 with an initial capital investment of $538. Bill and Dave tossed a coin to decide what they would name the company they founded and the rest, as they say, is history.
Being good friends can help, but being a good partner first is essential to building and maintaining a successful partnership. This means, above all else, recognizing that each partner is an integral part of a business entity and the growth and success of the business must be first and foremost in that relationship. It is far more than two people simply “doing business” together.
One of my clients, a husband and wife partnership, struggled for years to grow their business and establish a thriving organization. However, it was soon clear that despite their working together as owners and living together as husband and wife, they had never established the habit of meeting together regularly as business partners! As a result of their coaching sessions they were soon meeting once a week in what we termed “Leadership Team” meetings with the express objective of discussing, reviewing and planning their business needs and activities as partners. No longer were they just two people working in the same business.
Trust, but verify
If you're just starting a business with the intention of forming a partnership, or have come to a place in your current business where you feel you want to take on a partner, you need to do some due diligence. Many of the potential pitfalls of business partnerships can be avoided at the outset with an objective and strategic approach beforehand.
Here are some key points to cover when considering establishing a business partnership:
- Establish a formal business structure.
This might involve opting for incorporation as an LLC as opposed to a General Partnership agreement. The process will require that you clearly define the specific roles each partner will fill, but also address other issues such as if and when to bring in a third party, how you plan to raise capital, and compensation structures.
- Discuss and determine your preferred exit strategies. David Gibbs, coach for the Houston Texans, once said, “There’s an assumption by many partners that no matter what happens to their business, they’ll be partners forever.” The fact is that either partner, for any number of reasons, may want or need to dissolve the partnership at some point. Aside from unexpected crises it's critical to establish up front what your exit strategies will be and to plan accordingly.
- Determine how you'll “disagree” and how final decisions will be made. It’s one thing to disagree on where you want to go for lunch—it’s quite another to be at odds over hiring an Operations Manager or whether to launch a new product line. Just as the reporting structure and chain of command among your employees should be defined and documented, so should the decision making process for you and your partner(s).
Although it may be tempting to simply “shake hands” and go to it—especially with a friend or family member—you should involve a lawyer and an accountant at the outset to help form your partnership.
Differing work styles, individual preferences, and even personal habits are the points of distinction one would expect among partners. In fact, it's often these differences in personality and talents that lend themselves to the synergistic nature of a successful partnership. No one would realistically expect partners to think alike and agree on everything—and few probably do!
But the wise partner knows that any number of events can suddenly and drastically alter the business relationship. Being aware of this fact and being prepared to deal with it in a constructive and strategic manner is critical to the ongoing success of the business, if not the partnership. What could possibly happen? A number of things actually:
- One of the partners suffers a divorce or sudden loss of a spouse
- A partner suddenly wants to bring a spouse into the business
- One of the partners develops a major and debilitating illness
- Partner A discovers Partner B has done something that doesn't align with their values
- One partner decides they want to do something completely different
A recent client of mine related how he had lost his previous partner: they were acquaintances and drinking buddies who decided to partner together to build an executive search firm. Things went well for a few years until the senior partner discovered that his friend was covertly taking clients “on the side” while utilizing the company’s resources. Aside from being hurt and disappointed, the senior partner had to deal with the eventual fall-out that resulted among his established clientele whom the other partner had been soliciting.
Part of the “art” of partnering is maintaining the mindset that nothing in life is guaranteed and that people and their relationships naturally grow and change over time. This is true of business partners, as well. Being prepared ahead of time to discuss and address issues, problems, and disagreements is key to working through them in a manner that will be in the best interests of the business first and foremost.