Lots of people dream of quitting their jobs and starting their own businesses. But only a fraction of them actually follow through with their ideas. What separates the dreamers from the doers? In many cases, it’s the fact that members of the latter group aren’t starting their businesses alone. They have a partner who is willing to take this brutal journey with them. Countless successful businesses, from Apple to Twitter, began as small business partnerships.
Starting a business with a trusted friend makes the hard parts easier and the good parts that much better. You push each other through adversity, and celebrate together when your hard work finally pays off. But we’ve all seen movies like The Social Network, where two best friends end up hating each other as the business grows. This is why small business partnerships must be approached with the utmost caution.
It’s rare to find someone who believes in your potential and will stand beside you in troubled times. The joy of this discovery often makes people jump into small business partnerships without thinking. In order to avoid this common scenario, you must be absolutely sure that you have indeed found the right partner and lay all of your concerns on the table before getting out your checkbook.
Small Business Partnership: What To Look For
It’s simply not possible for two people to agree on everything, no matter how alike they are. Business partnerships involve a lot of arguing and compromising, but only on fairly minor decisions. When it comes to the bigger picture, both partners must be on the same page.
This includes your short-term and long-term goals, values, work ethic, and expectations for each other. There must be no uncertainty in regards to responsibilities, financial contributions, compensation, and legal liabilities.
As you can see, these are all areas that could tear the partnership apart if they are not addressed from the get-go. Remember, this is you and your partner’s business, so it’s close to both of your hearts. Things that don’t seem to matter, like creative differences, could end up keeping you up at night. If you’re not pleased, it’s not like you can say the issue is out of your control.
Thankfully, you won’t have to worry about making these mistakes if you know your potential partner’s position on the aforementioned big picture areas.
Setting Expectations for Small Business Partnerships
There’s no doubt about it: clarifying the terms of a business partnership is uncomfortable. It’s not an easy conversation to have. But if you don’t get this information out in the open now, you set yourself up for an infinitely more difficult conversation later on. Since the partnership is not official, the worst that could happen is discovering that this person isn’t the partner you’ve been looking for after all. It’s disappointing, but it’s nowhere near as stressful as discovering you’ve spent most of your savings starting a business with the wrong person.
You cannot assume to know your potential partner’s position on anything without asking. Thus, both partners should answer a list of questions that cover every possible subject of disagreement. For example, if both partners share the same vision for the business’s brand identity, there’s a low likelihood of creative differences with marketing materials.
Your answers should also be as specific as possible so you can envision specific scenarios. Are you prepared to answer phone calls from your partner at 1am? What is the maximum amount of your own money that you are prepared to spend in your first year of business? This is one of those conversations where it helps to imagine things going wrong, or your partner having a different opinion.
Small Business Partnership: Goals and Motivation
The first batch of questions deal with you and your partner’s motivation for going into business together. You should not only have crystal clear goals for the business, but for the partnership as well. Since you’re not a solo entrepreneur, your goals will directly involve the contributions of your potential partner. If you didn’t need a partner, wouldn’t you have just started the business on your own?
These questions will ultimately ensure that both partners want to take the business in the same direction and work towards the same rewards.
1. Why not just start your own business?
You must look deep inside yourself to effectively answer this question. Think about why the idea of a business partner is so appealing to you. Why do you make a better teammate than a leader? Why couldn’t you accomplish your business goals on your own? You shouldn’t pursue a partnership solely because you’re too afraid to start your own business. Like any business venture, partnerships only work if they are motivated by personal goals or passions.
Earlier, we noted that small business partnerships are destined for arguments that will test the strength of the relationship. A great business partner should be able to handle these moments with professionalism and rationality rather than letting emotion take over. Can you honestly say that the rewards of the partnership will outweigh the accompanying challenges?
2. What does your partner have that you don’t?
Strong small business partnerships are born out of mutual respect for each other’s talents and personal attributes. Neither partner should feel more or less important than the other.
Thus, both partners should be able to provide several reasons for going into business with this specific person. Why is your potential partner’s skill set the perfect companion for yours? Why are you so sure that the combination of your two skill sets will be successful?
While the previous question asked you to think deeply about yourself, this one asks you to think deeply about your potential partner. Do your personalities complement each other just as well as your skill sets? What makes this person an ideal partner for you and no one else? Think about the skills and character traits this person has that you could never find anywhere else or learn on your own.
3. What is your vision for the business?
Any type of businesses has a higher likelihood of success when the leader’s vision is as clear as possible. For this reason, both partners must lay out their short-term and long-term goals in great detail. How quickly do you want the business to grow, and to what size? Do you want to eventually sell the business or hold onto it for the rest of your lives? In addition to numerical predictions, consider the role the business plays in the lives of you and your customers five-ten years down the line.
Few movies exemplify the importance of this question better than The Social Network. Eduardo wanted to start advertising and earning revenue early on, whereas Mark was more concerned about growing Facebook’s popularity.
4. What are your personal goals and values?
Everyone has their own idea of what constitutes “success.” One person’s idea of success might be purely financial, while another person might place more value on helping people or social change. Your idea of success has a huge impact on your business decisions. For example, someone who just wants to make money probably won’t care about violating certain ethics or morals. This person wouldn’t make a good partner for someone who values honesty and integrity.
Simply put, two people with very different values or ideas of success should not go into business together. There’s really no room for compromise here. This question is also crucial for developing the business’s brand identity, which is a reflection of the business’s values and goals. So, if you get these things out of the way now, you won’t have to do as much thinking before designing your website and marketing materials.
Small Business Partnership: Tasks and Responsibilities
The second round of questions establishes each partner’s responsibilities and expected contributions. This will determine the specific tasks, decisions, and problems that will be handled by each partner.
In the previous section, we said that each partner should bring an equal array of talents to the table. This allows you to divide responsibilities and prevent each partner from getting overwhelmed during stressful periods. And there will be a lot of them.
5. Which specific tasks will you be handling?
Each partner should create their own job description with as many responsibilities and details as they can think of. Start with your expertise, and then imagine the day-to-day tasks you’d be most comfortable with. What do you actually plan on doing every day? Then, consider the internal problems your industry is particularly prone to. Which of these problems are you more qualified to solve than your potential partner? When one such problem arises, you shouldn’t have to waste time arguing over who is supposed to solve it.
6. What responsibilities do you expect in a partner?
Instead of creating your own job description, create one for your partner. This should consist of the responsibilities you expect this person to fulfill, based on what you already know about them along with your own weaknesses. The perfect partner should be strong in important areas where you are weak.
When comparing descriptions, you might find that you overestimated or underestimated your potential partner’s skills. That’s okay: You can’t expect your partner to know everything you don’t. The point is to clear up those assumptions so you can figure out where you might need outside help.
7. What is your time commitment?
The previous questions about goals and visions should have clarified if you’re both on the same page about your commitments to the business. Will this be your full-time job, or just a side hustle until revenue takes off? In the case of the latter scenario, is it realistic to assume you’ll be able to focus on your new venture after long days at your current job?
Once these big questions are out of the way, you can move on to specific work hours and weekends. Remember that the risk of burnout increases with age. And if you commit to a certain amount of hours per week, you must honor that commitment like it’s your religion.
In summary, this is the part where both potential partners bring each other back to Earth. A partnership won’t survive if one partner is ready to work tirelessly and the other would rather keep their sanity. On the other hand, the partnership is more likely to be successful if there is a fairly equal time commitment from both partners.
8. How will you measure each other’s contributions?
One of the biggest risks of small business partnerships is one partner slacking off as pressure builds up. In fact, it’s only natural to blame your initial struggles on your partner when you feel like you’re doing everything you can.
To avoid this common scenario, discuss how you two will measure each other’s contributions. The best solution might be a project management tool that tracks each partner’s daily, weekly, or monthly responsibilities. Business partners need hard evidence that they are following through on their expectations. Otherwise, you’ll always assume that you’re doing the brunt of the work.
9. How will you resolve disagreements?
Disagreements are inevitable with business partnerships. They’ll be easier to resolve, however, if both partners know how the other prefers to handle conflict. For example, while one partner might prefer to solve disagreements right away, the other might need more time to process the issue and think of a solution. One partner might also have a mentor or industry idol that they look to for guidance. All in all, you’re just trying to get a sense of how your potential partner will react to those truly tense moments.
10. How will you settle legal disputes with one another?
Unfortunately, lawsuits between longtime business partners are not uncommon. The mental and emotional toll of running a business can tear friendships apart. Hence, both partners must enter the partnership knowing full well that they could end up in a legal battle.
This battle will be much more civil if you’re already familiar with the process of settling it. What kind of lawsuits are particularly common for partnerships in your industry? What kind of disagreements lead to these lawsuits? Understanding legal proceedings is much harder when both partners aren’t exactly on the best of terms.
Small Business Partnership: Financial Contributions
Finally, the most uncomfortable conversation of all: money. It’s time to determine each partner’s financial contributions and compensation. There shouldn’t be any surprises if both partners have answered the previous questions with complete honesty. You should already be aware of each other’s values, goals, and time commitments. These answers are supposed to provide an idea of each partner’s financial expectations.
One of the two partners might be less interested in financial success, possibly because they will be contributing less money. This partner should still put a lot of thought into the following questions and have specific answers for each.
11. How will each partner contribute financially?
It’s hard to answer this if you haven’t worked out specific startup costs, both one-time and recurring. Once you’ve done that, you must discuss which expenses will be covered by which partner. What will each partner’s initial investment be? How much will each partner contribute per month?
If one partner will be contributing significantly more money, then that partner must be comfortable with that arrangement and not harbor any resentment. In other words, that partner must understand that their contributions will not be used as a tool for leverage during arguments.
12. How much debt can your partner take on?
Certain business expenses will be covered by debt, not cash. That debt could come from a variety of sources: business loans, personal credit cards, business credit cards, or even an outside investor. You and your partner must therefore discuss which expenses will be covered by debt, and how you’ll pay it back.
In order to answer both parts, each partner must know their personal limits for debt. Remember, taking on too much personal debt can make it difficult to be approved for loans and credit cards.
13. How will you spend your money?
While the previous two questions pertain to specific amounts, this one is more about spending strategies or policies. Will you be more conservative or aggressive with your spending? Do either of you have any major investments in mind? Will you stick to a rigid monthly budget?
The main goal here is to develop a procedure for deciding whether to move forward or pass up an investment. You should also decide whether all expenses must be approved by both partners, or if some types of expenses can be pursued on your own.
14. Will you or your partner take a salary?
This topic varies tremendously from business to business. Some new business owners go several years without taking a salary while others need to take one right away to cover basic living expenses. If one partner isn’t taking a salary now, then when? Will they wait until the business draws a profit or until a certain time period has elapsed? And based on the partner’s contributions and commitment, what is their idea of a reasonable salary?
If just one partner is taking a salary, you must decide how this salary will change once the business begins to draw a profit.
15. How will profits be distributed?
Business owners take their salaries from profits. So, what percentage of your business’s eventual profits will go to each partner? This question essentially determines the size of each partner’s salary, and how frequently each partner will pay themselves.
Salaries are based on a myriad of factors. You and your partner must therefore decide which of these factors is most integral to the business’s success. For example, one partner’s expertise could actually be more valuable than another partner’s financial contributions.
Small Business Partnership: Leave No Doubt
If this vetting process feels long, that’s because it is. Starting a small business with a partner is an extreme risk, so you must be absolutely sure you have found the right person. Even the slightest bits of uncertainty should be addressed before the partnership becomes official. After all, the joy of starting a business comes from knowing that no other career path feels right. If you don’t have this feeling, then this person might not be the partner for you.