Andrew asks …

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  • August 18, 2008

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Andrew asks …

What do you look for in a business partner? Of course I am sure it varies from real estate to internet to any other sort of business but I was hoping you could give me a general idea of the thought process you go through when looking to establish a business partnership.

Here’s a question that I can’t answer very well …

… you see, I have only had three business partners in my life and two of those, so far, haven’t worked out very well. One of those was my father  – that was one of the ones that did not turn out well – and, the other a business ‘marriage of convenience’ that I am about to simply hand back to my partner.

My advice is to avoid partnerships altogether … if you can.

1. Borrow to fund real-estate instead of taking on partnerships – if you must take on an equity partner have a written ‘exit agreement’ and make sure it is a short-term investment (this is one of the rare occasions that it makes sense to cash out, so that you can cash back into a buy/hold investment … on your own).

2. Start businesses on your own, hiring and/or profit sharing others as you need them. Don’t discount the power of being able to make ‘executive decisions’ simply according to your gut, as well as the greatest profit boosting device every invented: no sharing of the sale proceeds 😉

It’s why Felix Dennis (British/American publisher of Maxim’s) says not to share (at least) your first business with anybody … I agree!

There are some exceptions: for example, you want to start an internet business but cannot program and you cannot afford a programmer … go into partnership with the programmer … avoid a financial partnership that allows you to hire the programmer, though (I’ll cover the ‘why’ of this specific idea in another post)!

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August 18th, 2008
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Comment Number:
1
Written by:
Scott
Posted on:
August 19, 2008 at 6:31 am

I’ve always loved the expression “The only ship that won’t sail is a partnership”.

Comment Number:
2
Written by:
Di Eats the Elephant
Posted on:
August 19, 2008 at 9:07 am

Andrew, There is a lot of literature now on partnerships – perhaps more from The Ohio State University where several studies were done with major corporations on partnerships and the type of partnerships that they have formed. Adrian hit a key point here – you do not form partnerships just to have a partnership. The need for the partnership will drive the kind of partnership you will have. It could be an entirely arm’s length partnership (which could be your hiring the firm, having the details spelled out – sales slips and those little bits of paper in our appliance buys are very typical of contracts that are arm’s-length in nature) to a full partnership. Courting, dating, engagements and marriage, as well as divorce, are very good analogies to the types of partnerships that exist. As Adrian said – and it cannot be stressed too much – always have an exit clause in place stating under what circumstances and how the partnership will be dissolved. I suggest doing some online research on partnership or look for the Fisher College of Business (fcob.edu?) website at OSU if you can’t find anything online. I know this is covered in books somewhere. Just scale it down to your operation, and combine it perhaps with those books on entrepreneurship and obtaining funding for those (the FFF (angels) network, and the venture capitalists, and what a major MAJOR difference in their management involvement is and will be). Good luck!