Startup 101: How to pick the right business partner

In the late 80s as a young man I was at a party with my wife’s family. There were many very successful business people there that I had conversations with. There was one discussion in particular that I still remember to this day, 20 years later. When I told Tony that I was interested in starting my own business at some point he said:

 
"David, whatever you do, don’t get a partner. Just do it on your own."
 
Funny how some things just stick in your head. At the time he gave me this advice he owned part of a successful business and he was just a little older than I am now. I didn’t follow Tony’s advice and in retrospect I’m really glad I didn’t.
 
People pick business partners for all kinds of reasons. Most often it’s because they want to have someone to turn to for help, support and encouragement. Starting a business is hard work and the motivation you get from having a business partner is like having a workout partner: you can lift more weight when you know you have someone spotting you and encouraging you to push a little harder.
 
Picking a partner to go into business with is an interesting challenge, especially when you are just starting out. If you think finding the right life partner and getting married is stressful, think about this: in all likelihood you will be spending nearly double the number of waking hours working with a business partner than you will with your spouse. That’s a lot of "quality time" to spend with a person.
 
The Do’s and Don’ts List
Here is my list of the things you will want to do, and not do, when picking a partner to start a business with:
 
DO: Choose someone that compliments your skills.
When you are first starting out you will probably not have all the skills you need in order to make the business successful. Sure, you’re a bright person and can learn quickly but sometimes you are better off finding someone that can really help you get up and running quickly.
 
Every business has at a minimum two critical areas: Sales/Marketing and Product/Services. Someone has to sell it and someone has to provide the product. You can break it down into increasingly more focused areas but in general these are the two biggest areas of concerns for a new business.
 
DON’T: Choose a partner because you really like them.
Starting a business is not about picking friends, it’s about building the foundation for a successful business. Just because someone is a great person to be around doesn’t mean that they are someone that is really going to help your business be successful. Before you decide to ask someone to go in with you on a business you need to make absolutely certain that it’s because they will add real value to the business. I have watched (and experienced) this firsthand many times and it has contributed to business failures and major complications down the road.
 
DO: Choose a partner that has connections.
If I have learned anything in business it’s the power of networking with others. If you can find a partner that can help you get in the door of critical new customers or open that line of credit you need, excellent. Maybe they have a long list of candidates you want to be able to hire down the road as you grow. Your partner is doing more than just working with you, they are exposing you to their network of people just as you are exposing them to yours.
 
DON’T: Choose someone that has different goals.
I know this sounds obvious but in the excitement of starting a new business you may overlook a critical attribute of picking a partner: making sure you are both shooting at the same target. You will avoid a huge amount of tension later in your partnership if you are both on the same page and meet regularly to ensure you still are.
 
If one of you is shooting for working hard for 4-5 years and then seeing an equity event because you want sell the company and get out, but another partner wants to set up a lifestyle business that will supply them with a steady job and nice salary then there will be problems. Figure that out up front and save on investing in Maalox by the case.
 
DO: Define how you resolve disagreement up front.
Before you finalize being partners you need to establish how conflict will be resolved. Trust me, there will be disagreement and conflict. You need to make it very clear how that conflict is resolved and ensure that a potential partner buys into that. Put it in writing. If you only have one partner then don’t set up a 50/50 split of the company. If you want to make it equal from a revenue/income standpoint make it a 50.5/49.5 split. Someone has to step up and resolve the conflict that will happen.
 
DON’T: Worry about offending a potential partner.
In your excitement to get your business started you may find yourself walking gingerly around things that you are concerned about with a potential partner. Maybe you are worried that you will scare them off or perhaps it’s just not in your personality to bring up sensitive questions. Stop that, and get it out in the open. If you see something in a potential partner’s history that you have concerns about, explore it.
 
Partners are not like employees. You can fire an employee that lied to you and, if you handle it properly by documenting it you can fire them for performance reasons. You can’t do that with partners nearly as easily.
 
DO: Check references.
Ask for and call at least 5 people that have worked with a potential partner, even if it’s someone you know pretty well. If you and your partner are young, put college professors or teachers on that list. We all know that people provide references that they know will provide a positive review, but that doesn’t mean you shouldn’t call them.
 
Ask how they handle pressure situations, what they get excited about, specific problems they have resolved. Come up with a list of questions for the reference that focuses on direct observations they have had of your potential partner.
 
DON’T: Compromise on the issue of ethics.
Just because someone has an incredible skill set or the best network of connections you have ever seen, don’t overlook questions on ethics. Explore hypothetical situations with a potential partner about ethics. Things like: "We once had a customer that closed their account and overpaid it by $20. Cash was tight for us, it wasn’t much money and they were leaving us anyway – what should we have done?" If the answer to that one is anything but "write them a check for $20", you should have serious concerns.
 
You will need to trust your partners. They will have access to more information about you than most employers have and will be in a position to take advantage of you if you are not very careful.
 
So should you even get a partner?
Obviously that’s a question that only you can answer. There are advantages and disadvantages to having one or more partners. I was lucky to have fantastic partners, especially in my last business. We didn’t always see eye-to-eye and there were time we pissed each other off like crazy but it was easily the best decision I have ever made to take on both of my partners. I highly doubt the business would have succeeded without them.
 
If you have all the skills you need, are completely self-motivated and are willing to take a little longer to get your business off the ground then you may be able to go without partners. It only took me 20 years but I think I’m going to try starting my next business using Tony’s advice.
 
–David
 
Copyright © 2008, David R. Alison. All rights reserved.