Finding the right partner to help you start up your business more than doubles your chances of success.
Benefits
First there’s resource. Your business will have more financial resources and a wider network of family and friends to help.
Then there are strengths and weaknesses. Very few of us have all of
the talents needed to succeed in business. If you think this isn’t you,
watch the X Factor for an object lesson in over-confidence in
one’s own ability. With two people, you have a greater chance of
covering all the things that matter.
Then, there’s morale. It’s hard to start a business, and with two there’s always one to cheer up and urge the other on.
Finally, growth is easier. The biggest first step in growth is
usually recruiting your first employee. When there are two of you, the
recruit only increases the wage bill by 50 per cent, which is much more
manageable.
Challenges
But there can be problems. Let me give you some real life examples. A
friend of mine went into business with a partner and after several
highly successful years, the relationship became strained to the point
where both hated going to work.
My friend offered to buy out the partner, but with the relationship
broken, the other party was uncooperative. Feeling desperate, my friend
upped the price in an attempt to close the deal. Finally, all was
agreed, but he had to put all of his assets on the line and take a loan
from the other party. Unfortunately, the long period of wrangling had
undermined the business. Unable to meet the loan repayments, my friend
ended up losing everything – his job, his house and the business.
In another example, a different friend split from his business
partner. The partner, again after much wrangling, took most of the
existing business with an agreement to make payments on a percentage of
sales. However, the business partner set up a subsidiary; made sales to
the subsidiary at a highly discounted rate; then the subsidiary sold the
products to the end customer. The result was the ex-partner effectively
stole from my friend, although it was probably legal.
Two tips
The problem with partners comes when you fall out. Of course, in the
heat of enthusiastic start-up this seems a distant prospect, but it
eventually happens in many cases. So I would offer two pieces of advice.
The first is to make sure your potential partner has integrity. If
they don’t, were you to split, they will try to defraud you. I parted
ways with my business partner. It wasn’t easy and it wasn’t a happy
time. But because he had integrity, he didn’t try to “do me down”. In
fact, despite the tensions, I still trust him.
A quick way to check if a potential partner has integrity is to ask
them about the cleverest things they’ve done in business. If they boast
about how they outsmarted (defrauded) other people, you can expect the
same treatment if you ever seriously fall-out.
The second recommendation is to draft a “shotgun clause” between you.
This allows, at any time, one partner to offer to buy out the other.
The recipient of the offer can then choose to either sell or buy at that
price, but they don’t have the right to refuse. This is a great way to
get to a fair valuation of the business.
Despite the horror stories, partnership is still more than worth the
risk. It’s better to have a problem sharing the pie, rather than have no
pie, it just pays to take care. After all, you will probably spend more
time with this person in the next few years then you will with your
personal partner.
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