Beware of Partnerships…An Entrepreneurs Guide – 5 Tips You Need To Know
We are at the greatest time in history for entrepreneurship. I believe that the future of America is in how we reinvent our capitalistic society. Many people are now forced to start their own company and become an entrepreneur or an independent contractor for other companies as large organizations seek to reduce headcount. I recently read an article about Uber and Lyft becoming the duopolies of our current time. It all makes sense based on where we are as a society. More people are stepping out on faith to create their dreams and act out their visions to create wealth and a better quality of life.
With that increased desire to become an entrepreneur there are some pitfalls and landmines that one must watch out for, namely starting a company with multiple partners. Partnerships are tough! They are demanding! And they can derail a great business over time. I just celebrated a two year anniversary of 5 For Friends with my cousin and business partner, Scott Speed. The journey is still in progress, but I believe that what we are working on will eventually manifest into this incredible product that people never knew existed or we will use it as a learning experience for the future. Scott and I have worked on our partnership over time and we continue to improve on our working relationship to make it the best situation possible to have success. We have had tough conversations and will probably have more. I think having transparency with your partner(s) is key to any business endeavor having success.
I was recently consulting on a project, in which a couple of partners came together with a great idea in the energy space. What complicated this idea was including a financial partner that provided the backing for the business. My role was to oversee and help the company get off the ground with one of the partners and the visionary for the business. When you’re first starting out, everything goes well. It’s the equivalent of having that new love feeling with a new boyfriend and/or girlfriend. That magical feeling last only a short time until some adversity hits the startup. In this particular case, the financial partner sensed some tension among the founders and they jumped in and changed the business plan as well the expectations. This can happen to anyone that befriends someone and starts a business.
My goal is to provide you with 5 tips to help you avoid some of the traps of starting a business with partners.
- Get everything in writing — An operating agreement is helpful, but don’t stop there — write down the expectations and roles of everyone in the business (i.e. who is selling, who is accountable to who, etc.) Everything should be written and documented to protect all parties involved. In the example above, company XYZ never received a formal agreement from their financial partners, therefore it allowed them to change the terms of their agreement on the fly. Very important to get everything in writing. Many people say, I just want to start and it eventually will work itself out — that is a person that is naive and chances are it will come back to bite them in the you know what!
- Communicate like it is a marriage – I am not overstating this! Being in a partnership is the equivalent of operating in a marriage. You cannot use text or email to communicate your thoughts or ideas with your partners. It must be done in person or via phone for the simple purpose of sharing your thoughts, ideas, and emotions — no matter how sensitive the other person is to your views. The reason is that it keeps positive vibes flowing in your partnership. In addition, it’s hard not backstab your partner to another partner, however, as a best practice, please go directly to the partner that you have a problem with and share your thoughts. Your success is depending on communication.
- Share Expectations – This is a continuation of the above, however, very important to discuss what is expected in the beginning of your startup, during, and at the exit of your startup. The open lines of communication will allow you to intercept any issues that may develop. It’s going to seem tedious at times, but it will be well worth it in the end.
- Learn from your mistakes – There will be mistakes along the way. I have been guilty of pointing the finger or playing the blame game and that is totally unacceptable in a partnership because you and your partners are in it together. The best part of learning from your mistakes is that your more aware of the personality types that you work with and that can help when entertaining business opportunities for the future. Also be very careful of entering into partnerships with family, people you have known for a short period of time, and friends of friends. Take the time to reflect on the opportunity and do a SWOT analysis to help you make the best decision. Also consider trial periods to evaluate how you work with others.
- Don’t Move Fast – This is a business killer. People that want to move fast have the potential to kill an idea. If you think I’m lying — see Theranos and Elizabeth Holmes as an example to moving too fast. A company in in’s infancy is susceptible to moving too fast to bring a product or service to market. I am not saying that you have to be Tortoiselike, however, you do need to research, think, and observe all outcomes. If you move too fast you are bound to make mistakes.
I think all of these tips could have been helpful to company XYZ when starting up. The benefit is that they now have the experience of these mistakes to help them in the future.