Should you Consider a Business Partnership?

business partnerships

The Risks and Rewards of Partnering up

Guest Post by Victoria Cimaz, more details at the end of this article

business partnerships risks

Starting and running any business by yourself requires a lot of time and responsibility. For so many first time business owners it can be hard to even know where to begin.

Is it worth sharing the burden and rewards of owning a business with a partner?

It depends.

Companies with more than one owner have been shown to survive longer than other businesses. According to a 2008 study the average revenue for partnership based businesses have increased 157% since 1980.

However, only the right mergers of people succeed. A 2015 Harvard Business Review report report claimed that between 70% and 90% of large business mergers fail due to insufficient preparation. This can easily be applied to the smaller scale where business owners feel that they do not have the time or resources to properly think out a partnership.

Reasons to Consider a Partnership

  • When a certain business area isn’t your forte.

Finding a partner that has the vision and expertise to fill in the gaps of knowledge or expertise can make the difference between creating problems and solutions.  A business partnership should be a complementary relationship, in which your weak points are counteracted with your partner’s strong points and vice versa.

AirB&B founders Nathan Blecharczyk and Joe Gebbia are the perfect example of this, having the technical profile of Blecharczyk merge with the creative mind of Gebbia to come up with a diverse yet efficient platform.

  • When you have great ideas, but not enough resources.

Finding a trusted ally can be a huge help in sharing the financial burden in an early-stage business. Pooling your resources will help leverage your idea, reach more customers and meet potential investors who can solve your resource shortage.  

  • When you can’t afford to take all the risks on your own.

It might not be inspirational for you to look at the negative outcomes of the business but it is a possibility. Having a partner who is willing to take on some of those risks with you may be one of the best risk management strategies.  

How Should You Decide Which Partner is the Right Fit?

Most business owners believe that a good friend or family member will be the best partner. Unfortunately, this is seldom the case. Choosing a partner should be someone who can bring to the table skills, expertise and assets. Liking the individual may cloud our vision as to how good they actually are to partner up with.

Here is our list of top qualities to look for in a business partner:

  1. Brings skills you lack to the table
  2. Is a team player
  3. Similar values to you: this will allow your company visions to align
  4. Passionate about the cause
  5. Ready to pull their weight as much as you are.
  6. Is a natural leader just as much as you are.

The Pro’s and the Con’s

So, before you make your final decision it’s important to assess the risk and reward factor of finding a partner.

Pro’s of Partnerships

  • Broader range of expertise and skill sets
  • Shared risk lessens stressful situations
  • Additional capital infusion increases stability
  • Extended business network opens more doors

Con’s of Partnerships

  • Loss of sole control
  • Unequal investments could cause friction between partners
  • Sharing the fate of your business might be risky
  • Shared vision and purpose may conflict

It’s important to remember that when boundaries are defined and expectations set, most of the con’s that are associated with partnerships can be tempered. Designing effective contracts to help partners relax into their respective roles is one of the main aspects of having a transparent partnership understanding.

The Elements to Decide from the Outset

You’ve taken the final jump and decided to embark in a partnership. The bad news is the hard work has just begun… But the good news is that we’ve set out a comprehensive list of things to consider before you choose your partner.

Here are the things you need to sort before you embark on the venture:

  • Decide how to structure the joint business:

According to a study by Mass Mutual Financial group the most successful business had the roles and responsibilities of each individual clearly defined. Deciding what kind of partnership you want to form from the outset can help you settle a lot of disputes from the start.

  • Decide how to split the profits and losses:

As with any business venture, it is important to decide ahead of time how profits and losses will be handled.  In the long run, it could save  a lot of time if these matters are handled through legal documentation, and it will help the business to not just rely on friendship for matters of trust and responsibility to be addressed.

  • Talk About Values:

Knowing someone as an ex-colleague, family or friend is completely different to embarking on a business venture. It is important to know how each person handles work, stress, money, and business, and what their beliefs surrounding those things are, not just how they are on the weekends. To preserve the relationship, personal values, and work values should be discussed.

  • Get An Exit Strategy:

In the event that one, or both partners wish to dissolve the business, it is important to have a plan. As with the initial startup, this also should be in writing.  As business partners, there is more at stake if something life-altering takes one partner away from the business. It isn’t just a question of being there for a friend to celebrate or commiserate, and so some safety measures should be put in place.

  • Try to learn your partner’s background:

Are you both stable? This question may seem bizarre, but it is these circumstances which can cause a rapid end to a partnership. Knowing your partner’s background and his current conditions can hugely affect your decision to build a business with them. Knowing your partner’s background and personal circumstances may help you predict what kind of approach he would have to a business or what events may cause him to put an end to it all.

Our Final Words

Hopefully our advice can help you decide whether to ultimately embark into a partnership and how to do so safely!

About the author:

Victoria Cimaz is the lead Content Writer for Linkilaw – The legal platform for startups. Linkilaw is a free online marketplace where clients can compare and make the best choice from an all-star virtual lawyer community.

The link to our website can be found here.  

If you want more advice for small businesses, startups or legal contracts check out our blog here.

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