The question on the table is business partnerships.
I want to start off by saying that I am all for collaborations. I’m all for building your business with partners if you can, but I am against going into the situation blind. So today we’re going to discuss what you should consider before going into business with someone.
Most people will tell you that business partnerships are all about the contract. While I love a good contract, the foundation of a business partnership starts before the written agreement. Entering into a business relationship requires a conversation or two and observations to understand who you’re going into business with.
The questions you need to ask your potential partner (and yourself) go beyond the scope of the business itself. People go into business because they have this idea to create a service or product, so they talk about what that business looks like from a surface level without really going in to determine what it looks like for the two of them to work together.
A few questions to ask are:
- What are your strengths?
- What are your weaknesses?
- Who’s going to be responsible for what?
- What are your expectations from this business?
- Where do you see it going?
- What is your end game?
- What is your financial situation?
- What is your credit situation?
- Any prior or pending lawsuits?
The purpose of these questions is to make sure you are aligned, share the same vision, and head in the same direction initially. You want to consider the person you’re going to be working with as a partner. Please get to know them, their personality, and quirks.
Just like you wouldn’t get married to a stranger, you wouldn’t want to start a business with the stranger unless you’re on one of those TV shows. This person is going to be directly tied to your livelihood, so don’t be shy.
What do you know about this person? What do you know about their work ethic? Does it mesh with yours? Are they a talker? Or they a doer? Some people talk a big game, but when it comes down to produce, they don’t show up.
So, what do you know about this person? Like for real, for real. Have you ever had interactions with this person? What were they like? Not how they tell you they’re going to act, but what have you observed for yourself? To be clear, we’re not talking about the potential; we’re talking about actions.
What do you know about their work ethic? Does that mesh with yours?
Are you very punctual and this person is always late? If so, is that going to rub you the wrong way?
Are they someone that’s structured and you’re kind of flow with the wind? Make sure that you balance and mesh. These are just a few things you want to consider before going into a business relationship with someone, whether it is a collaboration or partnership. Another question to think about is why you want to go into business together in the first place.
I was approached a couple of times about a partnership. It was presented to me as a way to cut down on expenses. Well, we don’t have to be business partners. The answer was no, thank you.
We don’t have to be married for us to cut down on expenses. If that’s the reason, there’s no need for me to tie myself up with you in that way.
So, what is the reason? What is your goal, and how does entering this partnership get us there?
Can they share?
If you have an established business and someone coming into what you’re doing, are you going to be able to get rid of the “I” to make it we?
Or is it your business even though you have a partner?
That’s something you want to consider strongly. One of the challenges I had years ago when approached with the opportunity to partner with a group of exceptional attorneys was the I.
I didn’t want to let go of what I was building because I believed in it and wasn’t in a space to let others in.
You have to have that honest conversation with yourself. Or are you going to be able to let go and let other people in to help you build something together without having this mine, mine, mine opinion about it?
Now, of course, once you’ve decided you’re going to work together, the next thing you want to do is have a written contract. When you’re building a business, work is done before the actual services or products are sold. For example, you’re building the code for a social media network for college students, but it takes months to complete.
You need to protect yourself in these situations, and that’s where a pre-incorporation agreement comes in.
The pre-incorporation agreement sets out the relationship, roles, and responsibilities are before the business starts. It establishes that you are working together to build the business rather than some other arrangement.
A written agreement will help avoid one of those Mark Zuckerberg situations where you think you’re building a business with someone, but really you’re an independent contractor or employee.
The agreement will protect you until the actual business is formed. Once the business is formed, everything that was created prior is transferred to the business. The pre-incorporation agreement will protect you as you’re working with someone else, so no one can run off with whatever idea you were working on.
A few points that the agreement should touch on.
- Intellectual property. That’s always a huge thing. Someone comes up with the name, and then the relationship doesn’t work out. What happens to it? Is one party free to use it if the business never forms? Or is this, does everyone have to start over from scratch.
- Money is also a big issue that people need to talk about beforehand. How much money is everyone going to agree to put into the pot to get this business started? Will expenses be reimbursed, and if so, when? Will you be getting a salary while this thing is in its pre-formation?
- Who’s responsible for what? What does that look like? When are you guys going to meet to discuss what’s going on in the business are you? Are you meeting weekly, biweekly, monthly? What does that look like? How are decisions going to be made, especially if there are only two of you? Does everything had to be unanimous, or do you have an outside advisor that you can consult?
Bottom line, stop entering into business relationships all willy nilly. Do your due diligence beforehand to avoid a bad breakup down the road.
PS… Our Genius Insider program is perfect for businesses with multiple members. Learn more.