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Like I mentioned last time, we are going to start the partnership series, so this episode is going to be the foundation. These are going to be the things that you need to have in place in order to make sure that you are going to have a successful partnership.
I’m starting this series because in my legal practice, I really enjoy working with partnerships – however, like I mentioned before – I’ve seen too many good businesses fail because of bad relationships, and this is why I’m starting this series.
So if you’re going to start a partnership, I want you to start it with a firm foundation. If you’re planning on starting a partnership or you’re currently in a partnership I strongly recommend that you download our newest freebie, our partnership guide! It will help you determine if this partnership, or this specific partner is right for you.
You need to constantly evaluate the status of your partnership to make sure the relationship stays strong, and this free partnership success guide can help you do that.
If you’re going to start a business, choosing a partnership is a really great option because they typically have a higher likelihood of success, it allows you to pool resources and talents, and it allows you to disburse the risk amongst multiple people. And because of that, it’s more likely for you to succeed as a partner than as a solopreneur. But getting into a partnership is a lot easier than getting out. Because of that, you need to be very wary of just jumping into a partnership without much thought.
I remember a few years ago I was thinking about getting into a partnership with a few of my friends from law school. I turned to one of my mentors and asked his opinion on it, and he told me that a business partner is a relationship second only to marriage. We always make fun of people who go to Vegas and get really excited and have one of those drive-through weddings – however, people actually do that in business every day! They’re in the equivalent of an infatuation stage in their relationship and they decide, hey – you know what? Let’s become business partners! Let’s do it – and then that’s how the business starts. There wasn’t much thought that went into the partnership, it just appeared.
The problem with that is that like with any relationship, the infatuation stage is going to eventually end, and then you are just sitting there, looking at your partner like – how did I end up with this person? But by that time it’s too late, you’re already in a partnership. And not surprisingly, conflicts will ensue. Conflicts are inevitable in any relationship, and business partnerships are no different. So when the conflicts come up, you need to be ready to handle them.
And not surprisingly, businesses don’t operate very well when the partners are in conflict, because conflict kills communication, and effective communication with your partner is a necessity if you want to be successful. Now I know we’re all familiar with the statistics that show that the majority of businesses eventually come to an end. So if you’re flying solo, the end is pretty straight forward – either you sell the business, or you dissolve the business and keep the profits.
But it’s a lot more complex in a partnership, especially if the business ends because of issues between the partners. You have to find a way to divide the company assets; which on the surface may sound easy, but how do you divide things like intellectual property? Or real estate? Or other intangible assets? What if one partner wants to keep working in the business? What if both partners want to continue working in a similar field – who gets the employees? Who gets the customers? Who gets the clients?
These complexities lead to higher costs of litigation and are mentally and emotionally draining. And that’s why it’s so important to make sure you go into these partnerships with foresight, and think through some of these issues before they actually happen. Here are some things that you can do to lessen the likelihood of a messy end to your partnership.
Number one – Create your foundational legal documents.
It’s important for businesses to have customized legal agreements, because no two businesses are the same. And here with the foundational documents I’m talking about your operating agreement if you’re operating as a limited liability company or your partnership agreement if you’re a partnership.
The reason why we need customized legal documents is because we’re all individuals, and we’re going into unique circumstances and unique businesses. And utilizing these free, form agreements from the internet should not replace customized legal advice – and this is not self-serving, because I know the majority of you do not live in my jurisdiction, so I couldn’t even be your lawyer anyway. So you need to have customized legal advice.
So think about this – imagine you have some pain in your abdomen and then you say okay, I’m having pain in my abdomen – let me go to WebMD and figure this out. And then you’re satisfied, you go – oh, it’s cool. WebMD told me that it’s most likely just gas!
Does that work? Of course not! Because it is just generalized medical advice. It makes a lot of sense when you think about medicine, but for some reason it’s not as intuitive with law. You need to work with an experienced business attorney that can help you see problems before they happen; and a proper operating agreement should be able to address these issues. So if you do end the business relationship, untangling the business assets is a lot easier.
What’s interesting is that the majority of people don’t get these documents in place because they feel like it’s too expensive. But in reality, what’s really expensive is not getting them in place. Because for example, I’m working with a client right now – she wants to sue her partner, she wants to get out of the partnership. But she has this six page partnership agreement. I’m like, “what is this?!” You can’t get out of this partnership, you haven’t addressed those issues.
And a well written partnership agreement or operating agreement will address those contingencies, so when certain issues happen, a certain provision is triggered, and you know exactly what to do.
The online agreements that you get for free or for $100 or something like that – they are $100 for a reason! Because they do not address every contingency that you would face as an entrepreneur – that’s why you need an attorney to get in there and help you out. If not, you might end up like my client paying me twice as much on the backend as she would have on the frontend if she got it done the right way the first time.
So even if I can’t be your attorney, I still want to help you out on the legal end, so I made a free legal guide for any entrepreneur who wants to start their own business. It will outline everything that you need to do to make sure your business is legit. If you are planning on starting a business I strongly recommend that you get this freebie, because it is a 6 page guide on everything you will need to start your business.
Number two – you need to create a dispute resolution agreement.
The goal here is not to avoid conflicts, because that’s unrealistic. The goal with your dispute resolution agreement is to help guide you through those inevitable disagreements. Your goal with this system is to outline the rules of engagement before the conflict actually arises.
And then lastly – Number three – you want to work together to create a joint vision.
It’s important for you and your partners to have an agreed-upon vision for the future of the company. This includes business goals, a monetization schedule, your target market, whether or not you want to go brick and mortar eventually, whether or not you hire employees, when you hire employees – or do you hire independent contractors? These are things that will come up in the vision statement that are important to address before it comes time to make those decisions. You want to make sure that you can pre-think as many of these disputes as possible.
Have these discussions upfront to make sure everybody’s on the same page, so we don’t have to slow down the business in order to make these decisions in the heat of the moment.
Here’s a good example of this. One of my clients is a business with five partners. Three of the partners work fulltime, one is an entrepreneur, and another is a professional football player. So as you could imagine, there’s a significant gap between the incomes of the partners, and because of that, the partner with more income is willing to take it slow, while the other partners are more interested in monetizing the business quickly. This can cause serious discord between the partners, because though they ultimately want the same thing – which is a successful business – they have vastly different opinions on which path to take and how quickly they walk that path.
So those are some things that I want you to think about when you’re considering the efficacy of the partnership that you do have, or the partnership that you plan on having in the future. And so you remember in the last episode I said we’re going to break this up into three parts – the reason I want to do that is because I want you to be actively involved with this material.
In our next installment of this three part series, I’m going to discuss how to handle disputes within your team, and so this is an episode that obviously works for people who are going into or are already within a business partnership. But it could also apply to the business professional working within a company who happens to find him- or herself on a team. So stay tuned for that – and if you have any questions regarding this episode or the upcoming dispute resolution episode, let me know! Connect with me on LinkedIn and let me know exactly what you want to hear!
Kwame Christian, Esq., M.A. Negotiation Consultant and Negotiation/Persuasion Coach
Keep listening to the podcast, Negotiate Anything, to learn the keys to confident communication, negotiation, influence, and persuasion.