The other night my wife and I took the opportunity to get out and have a meal together at an Indian restaurant. Turns out the owner is an old friend of mine. We got catching up and before long our conversation turned to his partnership troubles. He’s had three partners in the three years the restaurant has been operating and all have ended in messy divorces.
This got me thinking about my own partnerships over the years and the lessons I’ve learned from them. On the positive side every partnership I have had has helped me to grow personally and professionally, regardless of the outcome. The problem is that when things go wrong, and believe me they do, getting out of a partnership can be like defusing a bomb. In this case one false move and bang! You land up in divorce court.
On your journey to create a successful business you’re going to encounter many opportunities to build partnerships. Your reasons for going down this path will vary, at some point a partner with deep pockets may be important or you may need industry connections. Whatever the reason one of the first questions you should be asking yourself is, “Do I really need a partner?” Once you have answered that question and assuming your still committed to following this path I hope these guidelines help you create a great partnership.
1) Make sure your goals are aligned. A partnership should be built on trust, a shared vision and properly aligned goals. Is your partner in it for the long term or the short term? Is your dream to build a company to take public while your partner is aiming to create a small giant? Make sure you share the same goals then do a proper due diligence, especially if you are merging your business with that of a partner. It may seem that your goals are properly aligned but reviewing financial information and talking to previous partners may reveal ulterior goals.
2) Put it in writing. One of the things that a partner agreement forces you to do is deal with the difficult details of the partnership upfront. Often you are swept up in excitement of getting stuck into a new venture with the best intentions of creating a partner agreement. Stop, breath and get an agreement in place. Initially this may be a simple heads of agreement followed by a more detailed partner agreement. The agreement should define things like the role that each partner will play in the business, how a new partner will be brought into the business and how the business will be capitalized if need be.
3) Have a trusted party look over it. Find an experienced person to look over the agreement before signing it. This should be an experienced business person and not the lawyer that helped you put the agreement together. It is likely that this person will raise points you may not have considered. As an example you may find your shareholding being diluted when it comes time to recapitalize the business because the way the agreement was structured puts you at a disadvantage or limits your options.
4) Agree to disagree. From the outset make sure you agree on the roles you will each play and how decisions are to be made. It is inevitable that you will not always agree so it is important to agree on how you handle situations where you disagree. For instance you may agree that unless both or all partners agree on a strategic direction, for example a merger or an acquisition, you will not follow that course. What is important is that the partners all pull in the same direction and continue to pursue the common vision regardless of the disagreement.
5) Have an exit strategy. Not all matches are made in heaven. In a perfect world the partnership lasts until the partners decide to sell for a fortune or merge with another great business and go public. This is typically not the case and often one partner lands up buying out the other partner. When you get started discuss the exit strategy and make sure you put in place a buy – sell agreement in place. This could save you a fortune in legal fees or the pain of a new partner who does not share your goals.
The effect that a failed partnership has on the morale of a business is enormous. Fighting between partners is likely to lead to a lack of focus which results in a loss of revenue and ultimately a loss in profits.
Jean Moncrieff is the founder and CEO of the Emerge Group of Companies. The Emerge leadership team is focused investing in individuals passionate about building great businesses that contribute to the growth and sustainability of Africa. www.emergegroup.co.za
Category: Startup Advice