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