Starting up is never easy, and wanting to do everything by yourself could take a lot of time. Business partnerships are a great way to share the load and accelerate your start-up. A business partner brings in a fresh perspective along with experience, which can help in more ways than one. The partner must eat, breathe and live the same dream as you. Here are a few questions you must ask yourself (and introspect) before zeroing down on a business partner.
1. Why do I need a business partner (and why now)?
A business partner could bring in exceptional key talent or experience and add value to the business. He/She must complement (and not duplicate) the skills you already have within the team. Evaluate if the potential business partner would be able to fill in the gap that exists. It could be his/her technical/financial/marketing skills or the network of contacts that can help grow your business. If he/she has the same skill set as you, you may have a harmonious relationship but it may not benefit the business. Look for a partner who enhances your capabilities and expertise. A perfect example of two diverse talents coming together is that of Intel, co-founded by Noyce, a visionary and Moore, a technologist.
2. Do we share the same vision and commitment to the company?
You and your potential business partner must share the same vision and passion for the company. Your vision will influence your business strategies and decisions. A lesser committed partner may fail to follow on with the work and may discourage you from getting there. The pace at which the partners want to move must also match.
Hewlett and Packard, both Stanford electrical engineering graduates shared the same vision and objective: to build an electronics company. With their similar management styles and a common vision, they started HP, and the rest is history.
3. What is your partner’s financial status, right now?
Start-ups may not be cash-rich from the beginning, and each partner must have financial back-ups to sail through tough times. Know the potential partner’s personal and professional financial standing. Knowing each others’ credit ratings helps to form trusting relationship. And if it’s not known, the financial problems may creep into the business and hamper the ability to work.
4. How much time is your partner willing to commit to the business?
Partners don’t always have to work the same number of hours for the company. However, it is important to know each others’ expectations to ward off frustration and conflicts. The split of Saverin and Mark Zuckerberg of the famed “Facebook” is said to be based on disagreements over one partner’s lack of commitment. You and your partner must get on the same page regarding expectations, hence discuss this in detail beforehand.
5. What will be the capital investment and profit-sharing ratio?
Not all business partners bring in an equal percentage of capital at the start. Some partners may bring in more capital while others may bring in the expertise and invest more time during the start-up phase. Document the contributions to keep away from any fallout in the future. In a business partnership, you can split the profits anyway you want as long as everyone agrees. Document profit-sharing terms as part of your partnership agreement. Set precise percentages, concerning the remuneration of each partner before signing the contract.
6. How would the partner handle a trying situation?
Partnerships work great as long as everything goes as planned. But, the real test comes when the business starts facing challenges. If you haven’t know your potential partner long enough, it’s better to do some prior checking to get a sense of how he/she works under pressure. Discuss how the potential partner handles stressful situations beforehand and hence have mechanisms in place for a fast and relevant response. Getting to know your partner on a more personal level can help you determine whether or not they can handle difficult situations.
7. Is the potential partner fine with documenting all discussion points, and signing agreements?
Before you and your partner start working together, you must put everything in writing and conform to the terms of business. The business agreement should include the profit-sharing ratio, any contributions or assets each partner brings in to the business, how decisions will be made and how disputes will be resolved, exit strategies as well as work responsibilities of each partner. Though an agreement is not mandatory by law, having one can safeguard everyone’s interests and benefit the company in the long run.
8. What is the potential partner’s main priority?
Just as you know our goal, you must also know the prospective partner’s main priorities. Know how serious he/she is about this business and how much he/she is committed. Check out if the business partner has any other commitments (which could be personal or professional) that could take center stage, making the company a second priority.
9. When would the partner call it quits (and how)?
You (and the potential partner) may not want to envision a rough time when you are just starting. Talking about the terms of a split is unfortunately very important. Pen down what will happen and how assets shall be split to avoid nasty legal battles. Discuss (and pen down) the exit plan, before you commit to the partnership. Bear in mind, that at times you may want to call the partnership off, hence discuss and document.
Pondering on the above points before on-boarding a business partner can help you choose the right one, and hence make a wise decision for your company.
Reach out to us for expertise relating to startup and partner agreements. Call us at: 044-46315959