Starting a business can be an intimidating endeavor. Statistics show high failure rates within the first five years, with many more businesses closing their doors between the five-to-ten-year mark. Common reasons for failure include a lack of capital, insufficient research, and poor marketing. However, one critical factor often overlooked is a bad partnership. Many aspiring […]
Starting a business can be an intimidating endeavor. Statistics show high failure rates within the first five years, with many more businesses closing their doors between the five-to-ten-year mark. Common reasons for failure include a lack of capital, insufficient research, and poor marketing. However, one critical factor often overlooked is a bad partnership.
Many aspiring entrepreneurs excel in their craft but may lack some of the skills needed for long-term success. That might be a lack of financial knowledge. Others may not have sales or marking skills. Still others have not honed their leadership skills. This leads them to seek out a partner to help manage the business. But how do people find a business partner? Some rely on recommendations from friends and family, while professionals might connect with potential partners at industry events or conferences. It’s also common for individuals to turn to current or former colleagues when starting a business, thinking they know these people well. But do they really?
I thought I did when I partnered with a co-worker to start my media production company. The plan was for me to handle sales and creative aspects while my partner managed operations and technical tasks. On paper, it looked promising. It even impressed those we approached for loans. We seemed compatible and like-minded when we worked together at a television station. However, working with someone is very different from co-owning a business with them. That’s why some partnerships fail, as mine did. This experience led me to develop a “business prenup” to help others avoid the mistake I made. It’s crucial to be smart about partnering; otherwise, you might end up needing a business divorce.
My concept, first introduced in my 2013 book *Small Business for Big Thinkers*, goes beyond the usual topics discussed when considering a partnership, such as business structure, compensation, and buy-out agreements. While those are important, conflicts often arise from the grey areas that are overlooked because you think you know the person. This is especially true when partnering with current or former colleagues. In my most recent book, *Small Business, Big Success*, I expanded on the business prenup concept to include additional areas. Here are three things to consider before starting a business with a potential partner:
Some people are great at their jobs but may not have what it takes to be an owner. Being an owner means taking responsibility for everything, not just tasks within one’s area of expertise. Owners must be willing to put in the hours, make tough decisions, and drive outcomes—qualities that differ significantly from those of an employee. Some people can make the transition; others cannot. My ex-partner was more interested in filling out reports and doing mundane tasks than focusing on what would drive results. He preferred “busy work.” To determine if your potential partner has the “right stuff,” ask them a few questions: What do you see as your role as a business owner? What is your vision for the business in the first five years? Beyond that? Are there tasks you won’t do for the business? How do you see us working together?
People’s family backgrounds and upbringing influence how they behave in business. Working side by side with a co-worker in someone else’s operation is different from spending massive amounts of time together building a business. Small annoyances can become significant issues. For instance, everyone has different ideas of ideal working hours or work-life balance. One person’s “glass half full” mentality might clash with another’s constant negativity, which can strain the relationship.
When you work for someone else, the organization sets the structure. In a partnership, personalities take over, potentially leading to power struggles. That mild-mannered co-worker might become controlling or unrecognizable in a partnership. When it comes to money and power, people’s reactions can be unpredictable. That’s why it’s critical to uncover potential issues or differences before joining forces. Ask yourself: Do you and your potential partner have complementary personalities? Does your potential partner have a healthy lifestyle? Is there anything about them that seems annoying or troubling? Do they have a positive outlook, or are they more focused on the negative? Do they have a sense of humor? Are they able to laugh at themselves and not take themselves too seriously?
This last one can make a big difference. Yes, it is business, but we all know that the ability to lighten it up and laugh can have huge benefits. Laughter is proven to reduce stress, help with anxiety and depression. In the business world today, every one has stress and so having a partner who can deal with it appropriately and manage through tough times can make your life easier.
Consider this: when you partner with someone, your financial future—and your family’s future—becomes inextricably tied to theirs. It’s not just about money; your reputation is also on the line. If your partner engages in risky behavior or operates on the fringes of integrity, it affects your business and life. If you can’t communicate openly with a potential partner, it’s best to walk away. Communication is the foundation of trust, which is essential for a successful partnership. Ask yourself: Is your potential partner a good communicator? Are there things they seem hesitant to discuss? Do they exaggerate the truth?
Business owners wear lots of hats. We are doers. But that can also be our downfall. In looking for a partner ask yourself if this is a person who is willing to ask for help. I left this one thought for the last because I think it is so important. When you are a small business that wants to grow you simply can’t know it all. You have to rely on trusted advisors, peers, and others to help you navigate difficult situations. If you can’t ask for help, you are doomed to make mistakes. Watch carefully to see if your potential partner is a know-it-all or has developed the habit of reaching out for help.
Partnering with a co-worker or colleague can bring out the best in both parties. The old saying, “two heads are better than one,” holds true—partners provide support and additional expertise. However, it can also be a nightmare if you don’t share values and maintain open communication. Before forming a partnership, ask lots of questions and listen with an open mind.
The original version of this post was published in Entrepreneur.