Try dating first
First of all, there is a reason why the Partnership Dissolution Agreement is one of the most popular downloads on LegalZoom. But fear not! You can avoid the nasty pitfalls of a bad partnership by preparing for the “marriage” up front with a well-thought-out “prenup.”
It’s all about finding the right partner with the right synergy. But how do you go about choosing the right partner? What characteristics should you look for to create a perfect match? Finding the right business partner is a lot like dating, and its best to get laser-focused on your “must have” list. Start by considering the following:
E.I. HARMONY
Great partnerships require complete trust and respect. But how do you know whether the person has a decent moral compass? How will you ensure they won’t collapse under challenging business conditions? If you take the time to evaluate not only their skills, qualifications, and competencies but their emotional intelligence (EI), you will get a better idea of their true character. EI may seem a little touchy-feely for the business world, but it’s a great yardstick for measuring potential personality clashes. Ask yourself these questions:
Look for high EI traits, which include integrity, self-awareness, good listening skills, and positive self-management. Do they anticipate conflicts or potential reactions? Do they respond appropriately? Are they tuned in with the needs and values of others? Do they search for solutions?
Or…Do they twist the truth, make excuses, and shrug off responsibility? Are they spiteful, selfish, and defensive? Will they listen to all sides? Or are they prone to be combative, negative, and divisive? Low EI traits include a lack of integrity, low compassion, and responsibility.
THE LOVE CONNECTION
Leadership development is an organic, evolving process that is the special sauce of any great business. Effective leadership requires a broad range of abilities and approaches, not just specific behaviors and attributes. Remember that a flexible leadership style is best since different situations or industries call for distinct approaches, and it’s helpful to mix and match styles to engage and motivate teams.
Will you have a hands-on “gut feelings” approach to running the business, or will you run the company with a policy-based method without the close supervision of a leader? Do you prefer a transactional or “fly by the seat of the pants” leadership process? Consider how conflicts will be handled or avoided and whether it’s best to lead with a style that’s inspiring, accountable, and transformative.
A GREAT MATCH
Nothing kills a business or company’s morale faster than misaligned management styles. Good decision-making processes and timeliness in approach to problem-solving with agility and strong execution styles are keys to successfully running a business. Conduct a personal and business SWOT (strengths, weaknesses, opportunities, threats) analysis to evaluate each person’s business savvy and gain insight into their preferred or chosen temperament.
THE RECIPE FOR SUCCESS INCLUDES PURPOSE
Any successful business’s foundation is built on a mission, vision, and unified values. The mission statement provides focus and describes what the business is and isn’t….now and in the future. The vision is how the company will look in years to come. Values represent the business’s moral compass and set the workplace culture’s tone. But don’t stop there! Go the extra mile and craft a purpose statement that reflects how the organization conducts itself. Include the “why” behind the “how” and be sure to connect with employees and customers on an intellectual and emotional level.
FINANCIAL BLISS
Is one partner frugal and the other a spendthrift? As with any partnership, there should be a collaborative approach to asset management, budgeting, and expenditures. Create a business plan that addresses how profits will be handled. Will the partners take cash out of the business annually or delay financial gratification in favor of long-term growth? What are the current and future financial goals of each partner? Is everyone in the game for the long run, or is the goal to make profits no matter the cost? You may want your product to be a long-lasting lifestyle brand, but your partner may want to sell out early and retire on a beach. Work through these differences upfront to prevent conflicts.
DEAL BREAKERS
Would you be upset if you worked through lunch, put in an eighty-hour work week while your partner enjoyed long lunches, regularly took off early, and used the workday to run personal errands? The later situation happened to me, creating a lot of resentment. Outline a fair division of labor by creating definitive job descriptions (both current and projected for future growth or dissolution). Make sure you have an idea of how the division of labor will evolve in the future, especially if you hit a stellar growth spurt which can cause tremendous stress and overload.
WORKING HAPPILY EVER AFTER
As an entrepreneur and founder of a company I owned and operated for 20 years, I thought I had seen everything and experienced all the possible hardships while overcoming incredible odds. But surprisingly, every day seemed to bring new challenges, fires to put out, employee problems to attend to, and management issues to handle. Problems are easier to handle when the company is profitable and growing at a steady rate. When the company is struggling, stagnating, or growing too fast, tensions run high and bring out the worst in people, especially those with major skin in the game.
The Pre-Nup (the written partnership agreement) should outline a clear exit strategy that includes the good, the bad, and the ugly. What if your partner suffers a horrible divorce that leaves them financially and emotionally destroyed? What if they have an affair with your administrative assistant? Think about how the person “shows up” and whether their behavior will be consistent over the next few years. People, like everything else in this world, change. If you prepare for the worst, hopefully, you will avoid disputes.
Never, ever choose a 50/50 split, even if your partner is someone you’ve known since first grade. Without a clear leader in place, things will quickly get messy. Decide the most natural choice for the CEO — the big idea, the whole picture person, or the person who gets things done.
Another big mistake start-ups make is when they can’t afford to hire someone, so they offer ownership via a vesting schedule. Do your research and due diligence, and don’t jump into a partnership if your business is struggling. The new partner could inherit the company’s debt, and you could end up in miserable mediation sessions or a nasty lawsuit.
Last but not least…hire a business coach to help you through these tough business decisions. Don’t make the mistake of thinking you can do it all! Having a good coach (especially one with no agenda)…could save you time and money.
