The first step in a new partnership is to set expectations. Expectations about who will do what, how compensation will be decided, and the duration of the partnership, for example. We learn about setting those expectations today.
There are a few basic choices that need to be made before launching any venture. First, you and your partners need to set the expectations. A partnership is not a life-long commitment. Rather, it is a merger of convenience based on skill, resources, present life situations, and the opportunity at hand. Forming a partnership with this understanding will allow you to be logical in your business dealings and be able to let go when the time is right.
When you decide to take on a business partner, it is absolutely crucial that you sit down and talk through your long-term goals. Partnerships are all about expectations. Skills need to be aligned and expectations set.
Your goal may be to build the company to a certain level and then sell—at which point you intend to split the profits and begin another venture. Your partner’s goal may be to have a life-long career in this business, with you as his sidekick. It really doesn’t matter what the goal is as long as you are both heading toward the same destination.
Sit down and talk about your expectations, skills, and areas of expertise. Maybe one partner will handle finding new customers and securing contracts, while the other will solidify the processes, make the deadlines, and collect the accounts receivable. You cannot simply assume that you will each “settle” into your roles. You must discuss them and decide them! If you need to adjust down the road, at least you’ll be moving from one decided process to another.
You also need to decide at the outset what to do if you encounter a failure. In Chapter 5, “The Rules,” I explain the importance of knowing when to pull the plug.
I now want to focus on something else that can kill a partnership as easily as anything: Success!
Part of being an entrepreneur is taking whatever resources are around you and using them to create a company. The problem arises, ironically, when the company starts to make money.
How do you put a value on the initial resources? If you start a business in your home and you partner comes over and uses your paper and desks, not to mention your air conditioner, heater, and indoor plumbing, when the company is successful, do you get reimbursed for your costs? If you are incubating several companies in the same office where you use the same secretary, copier, desks, and contacts, when the companies go independent of each other, how do you divide these resources? What if these resources are technologies? How do you divide these?
This is the biggest mistake that I have made. I have learned the importance of defining all of these details up front and not as you go along. Accountants tell us, “Don’t co-mingle funds.” It is just as important not to co-mingle ideas, assets, personal property, or technology.
Regrettably, like Ron and his fish, I have stunk up a few partnerships. The main thing that I have learned from these experiences is to set expectations at the beginning. Have the hard conversations before you even start a new venture.
Porter’s Points—Set the Expectation
- While partnerships may not be life-long commitments, all partners must be committed to a clear understanding of expectations – always.
- Aligning your goals from the outset is paramount. Divergent goals will result in opposing paths that may never merge again.
- Make an exit plan. (For more detailed instruction, see Chapter 19, “No Exit Strategy?”) Determine what you will do in case of success or failure, and stipulate the amount of compensation either partner will receive in proportion to the resources he or she used in starting the company.
Next time we’ll discuss ownership v. upside and how to distinguish between the two.