You’ve got a great idea. Now all you need is a partner or two (or four). Everyone does what you expect them to, you all get rich, splitting the rewards equally—right?
Partnerships are great in theory, but a lot like a marriage in perpetual states of compromise, pressure, and decision (without the extra benefits). Here are some extremely common potential points of friction that most entrepreneurs don’t consider.
- Your partner doesn’t want what you want—they want similar things, but there’s a world of hurt between those two when it comes to the finer details. They want a lifestyle business. You want a growth-oriented company.
- Your partner isn’t doing what you *expect* of them – a viewpoint that is more than likely not shared. They’re okay with clocking 35 hours a week with long lunches and taking advantage of executive/discretionary “privileges”. You’re busting ass, with your head barely above water.
- Your partner isn’t as economically committed and won’t guarantee business loans, lines of credit, or leases that the business needs. It’s either you stake all the risk or have the business suffer the consequences of a lack of capitalization.
These are only a few common destructive scenarios, but examples are legion. You’re not partners for a little while—you’re partners until the business fails, the business is acquired, or one partner buys out the interest of the other. Thinking of it differently is shortsighted.
There are a lot of questions that needs to be addressed before partnerships ever get off the ground:
- How does conflict resolution work? There will be times that you simply won’t be able to “work it out like professionals."
- What happens if one partner’s life ambitions change and they want to cash out unexpected? Or shut down? Or they become unable to perform their duties (ex: protracted illness)?
- How do you manage expectations, fulfillment of roles/responsibilities, and corporate organization?
- What are the cultural and vision disparities?
- What’s the exit strategy?
Too many partners are reticent to create a nuanced partnership agreement that has triggers, sub clauses, and shotgun options. The erroneous belief is that while things are good, they’ll always be good. Beyond being an unrealistic viewpoint, the only time to ink deals that protect all partners (and critically, their families/estates) is when things are good. Fighting through fundamental problems when there’s no executed framework in play means litigation, tens (or hundreds) of thousands in ever-mounting legal costs and incredibly expensive business paralysis. Or sucking up a raw deal to make the problem partner “go away." Neither of these are enviable positions, nor smart on any business level.
If your partner won’t sign a detailed legal agreement that protects both of you and the business, you may want to think very hard about tying your balloon to theirs. They’re either hiding something, or they're unprofessional or naive. (Perhaps a combination of all three).
The majority of partnerships fail; that’s the stark reality. Everyone wants to be the exception, but few are willing to push through the uncomfortable conversations, decisions, and legal costs to setup your business/partnership for lasting success. At least not the first time around.