Sunday, 1 November 2009

Selecting the right business partner

Many small businesses have more than one promoter. Frequently it is team of two or three partners – sometimes more.

As a start up entrepreneur managing your relationship with your business partner is one of the most important and yet the area you are most likely to ignore. You frequently take your partner(s) for granted.

Remember a partnership split is an extremely traumatic experience and can be a serious setback for the business and personally for the entrepreneur.

Why do splits happen and what can be done to prevent them?

Before starting out you need to examine why you need a partner in the first place. Most young entrepreneurs do a start up with a friend or a colleague or a classmate. It is usually not a rational selection of a partner – but simply because you feel a sense of bonding and camaraderie, the chemistry seems right, you have discussed the idea together hence you feel a certain joint ownership of the idea. You want to do it together with a friend. Young entrepreneurs may not acknowledge this but - most often you have an emotional and a social need for a comrade in arms since you are taking a risk and feel somewhat apprehensive of going it alone. And the most natural thing for friends and classmates to do in such a situation is to divide the stock equally among the partners without questioning who is bringing what kind of value to the table.

Of course there are other more tangible benefits of doing your start up with a partner. You get width and depth in the management team – without paying a salary. You are able to pool your meagre capital and share your ideas. You have someone to talk to – and you are able to keep each other’s spirits up in difficult times. You may even be bringing complementary skills to the table. You share the work and you share the risk. And of course you share the rewards and recognition.

So partnerships are natural – people do start ups with others because they feel a need to. It becomes important therefore to ensure that you are selecting the right partner in order to minimise the chances of a future split. Most entrepreneurs do business with people whom they know, trust and instinctively like.

Before deciding to do a start up with a partner you need to ask yourselves some hard questions – Do you have similar values? Do you share the same vision, passion and aspirations for the business? Do you have the same commitment to the business? Will you both quit your jobs and be full time on the business and stick it out without a salary for a couple of years? Do you have a similar work ethic – will both of you be willing to work 24 by 7 if required? How much capital will each of you invest into the business? Are both of you equally competent? Do you bring complementary skills and experience to the business? What will your roles be? Who will be the CEO? Will investors trust each of the partners equally? Do you have similar views on how wealth would be shared with employees and how customers and vendors should be treated? Will you agree on the kind of risks that are reasonable to take? Going forward when the business makes a profit would you agree on the utilisation of the profit? Most importantly are both of you good listeners and accommodative of each other’s views, needs and aspirations?

This may seem like over complicating a simple decision when you are starting out however most partnership splits have their roots in inappropriate selection of a partner in the first place. And you don’t want to learn this the hard way many years later?

Having said that - selection of the right partner does not alone guarantee that the partnership will endure in the long run. Right selection is a necessary but not a sufficient condition.

You need to continuously work on your relationship with your partner. Continuously communicate, keep each other fully informed, spend time together, give each other candid feedback, listen a lot and give each other enough space. It’s like marriage

12 comments:

Ankur said...

You are absolutely right Sanjeev. Since in practice it's quite difficult to find a co-founder who you don't already know or don't get along with, it is essential to communicate. I also think it helps to put down things in writing - saves a lot of ill will in the case of a split and creates reasonable expectations. I just blogged about this yesterday.

Thanks
Ankur
www.coraza.in

SanjeevBikhchandani said...

Good point Ankur. Putting it in writing helps clarify matters

Anonymous said...

A very thought provoking write up Sanjeev....Such candid thoughts...
And very importantly in human relationships giving space to each other and letting GO things in broader prespective is also required...One should not miss out the Big Picture...

Bala said...

Read you story in 'Stay foolish and Stay hungry' Inspiring!! Just googled and found your blog... Wonderful!! As said relationship do helps us during hard times more than money.

Radesh said...

my experience -
the right partner should be one you can turn your back on, when you are in the trenches, with eyes front. the partner must be good enough to protect your back and vice versa. also obviously, each trusts the other not to bayonet him from behind ;-)
touchwood! have been lucky to have the same two partners for over 12 years.

Leo Mavely said...

Read this article at the right time.

Point about sharing equity is very pertinent. Many does the mistake of sharing equity equally instead of the value/time/effort they bring to table over a period.

udit said...

Ever since i have read your story in Stay Hungry Stay Foolish, I have become a huge Fan of urs.
I am desperately looking forward to start my own business..
But i believe i should get some Work Exp. before i get into it.
I have been working with an adventure travel company for teh past 2.5 years just shifted my job and got into sales (just to gain exp.)
I am still working on my business idea too.

I just wanted ur views on this approach.

thanks

udit

Vasant said...

Well said Sanjeev. Communication as you pointed out, is the crucial lifeline and it has to be kept ON & open all the time.

Buy a Business said...

Good informative article. yes..... choosing a right partner for a business is like choosing our life partner. A wrong partner can become like a snake in the neck. A wrong business partner can make not only our financial life into turmoil but also make anyone into emotional zombie.

Anonymous said...

Sanjeev,
Based on some experiences, it is exteremely important to select a right partner. We need to unbiasedly assess, the person in various aspects. Most of the time selection could start to start with a friend, but we need to mind that the emotions which both of us share before starting the business may change while actually being in business and many unexpecting things could arise. Whole thought process gets impacted and we can have suspicious feeling also sometime. So many things have to be tackled. It is always good to start with a friend but we need to make sure that do we have some sort of conviction and commitment. Do we have same pace and though process. Do we have proper division of duties and resposibilties while keeping the one vision and clear objectives.

If things go wrong we can have a setback of loosing a good friend also...

Anonymous said...

Sanjeev,
Based on some experiences, it is exteremely important to select a right partner. We need to unbiasedly assess, the person in various aspects. Most of the time selection could start to start with a friend, but we need to mind that the emotions which both of us share before starting the business may change while actually being in business and many unexpecting things could arise. Whole thought process gets impacted and we can have suspicious feeling also sometime. So many things have to be tackled. It is always good to start with a friend but we need to make sure that do we have some sort of conviction and commitment. Do we have same pace and though process. Do we have proper division of duties and resposibilties while keeping the one vision and clear objectives.

If things go wrong we can have a setback of loosing a good friend also...

Anonymous said...

I think you should not have business partner, instead have a indipendant business to run under the team of faithfull friends to grow together indipendantly. This is because business partners can have same goal today, same feeling and edge today, but, tomorrow time will change, so does the needs of partners will change. What is relavent today, will not be same tomorrow. By keeping it indipendant, you will not loose a single friend. by KETAN THAKOR BHATT, Email-ketanthakorbhatt@yahoo.com