The Small Business Start-Up Guide
by Robert Sullivan

. . . brought to you by The Small Business Advisor

Choosing A Partner

The right business partner can extend your expertise, provide a second opinion when required, share the workload, and provide a synergy that you just can't get working alone. Two heads really can be better than one.

On the other hand the wrong choice in a partner can sink you! Many businesses fail simply due to friction between the partners, or the inability to get things done for a variety of reasons.

This chapter will provide you with some help in choosing the right partner.

I started a business some time ago with a friend who, like myself, was an electronics engineer. The product was an innovative telecommunications device. The partnership was a fiasco. Since we were both design engineers, we argued forever about the design and other product details. After much pain, we got the unit prototyped and were ready to do some marketing. Of course, neither of us had the slightest idea of how to market. Finally, we gave up ... Another great idea bites the dust. Why didn't I find a partner who had expertise in MARKETING? I knew I had to sell my product! I also knew that I had the expertise to design the item myself. So, while friendship is important, of what value was my friend as a partner?

A friend or family member does not necessarily make
a good business partner.

In choosing the right partner you must consider a number of factors. If you chose your partner wisely you will share the risk and alleviate some of your anxiety that is part of going it alone. Here are some factors to consider when selecting your partner:


  • Does this person bring expertise I don't have to the business? The story above helps illustrate why this is important. It also illustrates why having the same expertise can cause difficulties.

  • Does this person share my values, ethics, and goals for the business? This is very important! You must not hesitate to bring up these issues in initial discussions with your potential partner. If your partner's idea of business is to get rich quick at the expense of others, you might want to reconsider. Discuss with the potential partner both your short and long term business goals and determine if they mesh with his or hers. Better you find out about possible incompatibilities before making any formal commitments.

    Ted and Bill were perfect partners, or so it seemed. Different areas of expertise, common goals, both had money to invest in the partnership. Because they were such long-time friends, they never talked with each other about issues that might cause problems in the future. They knew they had a good idea and worked well together and that seemed enough. Unknown to Ted, Bill was about to get a divorce. As female readers know, many men generally do not talk about personal matters, even among good friends, to any degree. Because of Bill's divided attentions, the partnership dissolved. Too bad, since altering the timing a bit might have saved the partnership and another good idea.

  • If the partner is a spouse, does he or she share my same convictions about starting and operating a business? Refer to Chapter 8 for more information on home and business interactions.

  • Does the potential partner share my qualities as an entrepreneur?

  • Does this person have family or other personal problems? Be frank and ask the question! You are going to have enough problems with the new business and you cannot afford the additional stress that is brought on by non-business problems as well.

  • How well do you know your potential partner? Like a marriage, you are going to be working together through good and bad times. Don't be too quick to get involved with someone who is just a casual acquaintance. Has this person been in a partnership before? How did it go?
Do not be quick to make a decision. An ineffective partner is much worse than no partner at all. When you have picked a partner, the next step is to formally (with the help of an attorney) lie out respective responsibilities of each partner. Plan to the extent possible, for unforeseen circumstances.

CAUTION. It is always hard to really know how someone - even a good friend or family member - will react in a business/partnership situation. If possible, work together on a project or two with your potential partner (before any partnership agreements are signed). This way you both can assess each other before a formal commitment is made.


A well thought out and formally-executed partnership agreement
is a must for a successful long-lasting partnership.

Formulate and execute your agreement early in the relationship before any possible problems come up. A partnership agreement should include, but not necessarily be limited to, the following items:

  • Provisions for continuing the partnership in the event of death or withdrawal of one or more of the partners.
  • Clear, easily understood "buy/sell" pro-visions in the event one partner wants to sell his interest.
  • The partners' initial contributions and how profit/loss will be divided.
  • Provisions that spell out the timing of withdrawal of partnership profits.
  • Details of the partners' initial salaries and benefits.
  • Each partners' responsibilities in the business.
In the case of two partners where the partnership being considered is a 50-50 split, some thought should be given to a 49-49-2 split with the 2% going to an outside individual who is mutually trusted by the partners and who would cast the deciding vote in any decision that cannot be agreed on by the partners. A stalemate can occur with a 50-50 split in which the partners simply cannot agree.

In any case, the partnership agreement should be reviewed by an attorney. In all likelihood, each partner will use his own attorney for this review. SUMMARY

A well-chosen partner can increase your chances for success. Your partner can be a "sounding board" for ideas, a mutual problem solver, someone to share the workload, and bring added expertise (and capital) to your venture. However, choose your partner wisely and for the right reasons. When contemplating a good friend as a partner, re-member Plato's words, "You can discover more about a person in an hour of play than in a year of conversation." In other words, ensure you really know your friend. And finally, remember to draw up and agree to a partnership agreement before any business is conducted.