This is a guest post from Archie Ward.
Business partnerships can be an integral part of start-up success and growth of a new venture. If properly implemented and executed, partnerships can be an effective way to grow your enterprise without having to implement time consuming and difficult changes or having to make costly investments.
Each partner brings expertise and assets which can help to increase your market share and competitive advantage. However, just like marriage, business partnerships can be difficult and getting out of one can be messy.
The winning strategy is to ensure that you conduct due diligence prior to getting into a partnership. If you are starting a partnership and wondering how to navigate through these murky waters, consider the five (5) pointers below.
1. Don’t rush into it
The adage “fools rush in” was never truer than when it comes to business partnerships.
Cash-strapped entrepreneurs will often stop exploring their options as soon as they find a person who can write them a big check, but it is important that you don’t overlook potential opportunities.
Remain uncommitted and stay flexible until you have explored your options. Cultivate your alternatives actively and do not be too quick to ignore potential business partners. Take time to compare the relative benefits and disadvantages of every alternative. And at the end of the day, ask yourself, “is this the best option for my business”?
Take time to calculate the opportunity costs of entering into a business partnership, and remember that you will also assume any liabilities of the partnership.
2. Don’t overlook the importance of shared values and integrity
Your values and those of your business partners need to be aligned.
A potential business partner may be extremely smart or have a proven track record, but they may also have engaged in shady business deals to get where they are.
If you enter into a partnership with someone who has no regard for ethics and integrity then you can expect strife. Many big businesses (think Arthur Andersen) have come undone as a result of engaging in unethical practices.
3. Have an exit strategy
Having an exit strategy is not jinxing your business, it’s just good common sense.
The reality is that conflict is inevitable, and you can never predict how severe a conflict might get. By putting measures in place ahead of time you can help to ensure that you are not the loser if things head south.
While the partnership may not disintegrate, better opportunities may emerge, and so you need to have an exit strategy that will allow you to change with the times.
How will the partnership assets be shared in the event that the partnership is dissolved? What happens if a business partner dies?
When considering your exit strategies you need to consider all of the possible eventualities.
4. Map Out Mutual Expectations
What expectations do you have for the business partnership? Are these the same as the expectations of your prospective business partners?
It is best to have your expectations written down before you meet with potential partners. This will serve as a road map for the partnership, and will provide several advantages:
- It will act as a partnership draft which will also be presented to the lawyers once the partnership kicks off.
- Your expectations will give you a guideline within which you can experiment with the different potential partners before you make up your mind.
- It will give you a clear vision of what you want from the partnership, which will help you to avoid getting sidelined even if you meet a potential partner with huge financial muscle.
- A list of expectations should distinguish legal matters from partnership issues, and you can discuss the legal ones with a business lawyer.
5. Seek legal advice early
When starting a partnership, it is a good idea to seek legal advice right from the outset, and certainly prior to any negotiations between you and potential investors.
You need to let your lawyer know your expectations for the venture so that they can assess how realistic they are. They will also assist you in strategising the negotiations, and ensuring that you ask all the right questions. Your partner will also have a lawyer and it is best to be prepared because each of the attorneys will pursue the best interests of their client.
6. Don’t Overlook The Details
As an entrepreneur, you are likely to have an eye for the bigger picture; however, overlooking the details can have dire consequences.
There are several bases that you need to cover before you begin:
- Establish your objectives and match them against those of your partners.
- Determine the contribution to be made by each partner.
- Assign the roles and duties of each partner; for instance, who will hire and train the employees and who will manage the enterprise?
- Agree on a dispute resolution mechanism for the partnership such as arbitration or mediation.
By paying attention to the above key pointers, you can give your partnership the best chance of success.
Archie Ward is a business consultant and social media strategist. Archie splits his time each year between Asia and Australia. While he is hard at work helping other people make their businesses successful, he hopes to launch his own by year end.