What to look for in a business partner, is a similar question as what to look for in a marriage. Though I’ve never been married, but having a business partner sure feels close to it. I started Jakt with my roommate, and we shared expenses, housing, finances–everything. But business partnerships are highly risky. By year two, we had a completely different understanding of where Jakt was heading to and where we each wanted to go in our lives.
We wanted two different things, and it was clear something was broken. He ended up resigning and we reached an agreement for me to buy him out of his 50% share of the business. Let’s just say it wasn’t cheap. Spending a shit-ton of money to buy your own company is not only a financial challenge but an emotional one. He was the closest person to me at the time since I wasn’t on speaking terms with my family (a story for another article).
I wasn’t sure about how or if I should tell my team and our clients. Or if I could run the company by myself. Time proved I could, but I’d be lying if I said I had everything under control.
When I come back to the question what to look for in a business partner, Something I learned out of this experience (and it can help you in the future) is this:
Only get a partner if there’s no other way to make it work without them
One argument against finding a partner is that in the potential scenario you sell your company, you’ll have surrendered part of your equity and the money that comes with it. But that should not even be your biggest concern, at least not now.
First, you are giving up control from your company –and that can get back and bite you. If you guys are partnering at 50-50, who’s going to make the final decision when you disagree (and you will). Who’s the captain of the ship? (someone always is). Can the other person follow?
Answer: 50-50 rarely ever works because, at some point, there will be disagreement and someone has to make the call. At 50-50 equity there can be a stalemate (even if you never think there will be – there will), and I highly recommend NOT doing 50-50.
And equity is not even that important for most service-based businesses such as agencies and firms. For my company Jakt –a digital product and innovation studio–, it’s less about equity and more about profit sharing –who gets to keep the profits at the end of the year, and decision power. And yes, equity and profit sharing percentages can be different.
Let’s say you want to start a social media marketing agency.
Ideally, you’d have the hard skills (knowledge of FB ads, PPC, campaign strategy, etc.) and soft skills (sales, team-building, HR) needed to grow the business.
But most people don’t. Some people are great at one part and suck at the other, so they get a partner to fill in for what they’re lacking. Makes sense, right?
Kind of. But when you are considering what to look for in a business partner there are other options:
Hiring > Partnering
Instead of giving up the reigns of your company, and a share of its equity and profits, try to hire that other person instead of making them your partner.
So, instead of having a technical co-founder, you can hire a CTO. Or instead of partnering with someone because you can’t sell to save your life, hire a salesperson or a CEO.
Hiring over partnering has the advantage of minimizing the risk of one party leaving the business relationship (and putting the company in jeopardy) while still having someone that provides the missing elements of your skill set.
First, you are not losing control and decision-power of your company. Second, you maintain your equity and profit share. And finally, if it doesn’t work out between you two, he can walk away without taking half of the company value with him (your finances will thank me, promise).
I understand that when you are just starting up, you can’t always afford to hire someone (especially if you don’t have outside funding), and I’m not saying that you should never partner with anyone–just be careful. In fact, I am now co-founding, buying, and investing in cash-flow generating businesses through The Polpo Group, so I have and will be partnering with other business owners.
What is important to me in a partner has been formed on the back of failed partnerships and uncovering why my previous experiences didn’t work out, and turning that learning into a set of principles (I have no doubt that these will continue to evolve as I continue in my business journey).
What to look for in a business partner?
My partner and I parted ways because our understanding of where the company was heading to and our expectations with it did not align. Buying him out was a long, emotionally-exhausting (and extremely expensive) process –one that I hope you never have to go through. In theory, finding a partner should help you move faster and achieve more. They should have a skill set that you don’t –one that is extremely necessary. However, before you go and find someone to co-found your business with, make sure you do this: Really, really, (really) decide if you actually need a partner, or if you could just hire that skill instead and keep onto your equity, profit-share, and decision power. You can also always share profits with your employees but not have to give up equity.
If you want to read more about the things I’ve learned (and continue to learn) throughout this journey as the CEO of a multimillion-dollar company, read the 5 Lessons I Wish I’d Known That Would’ve Saved Me $100,00+