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Berkonomics

My dad said: “Never take on a business partner.”

My dad was a smart businessman, even if not formally trained. He occasionally gave me advice that turned out to be more than wise, looking back at subsequent experience and events.  His personal teaching event was a typical experience, as I reflect now upon the tens of partnerships I have counseled over the years.  Most often, one partner remained active as another partner drifted away from the business, no longer carrying the weight anticipated at start-up.

It’s just one – the most prevalent – of the many things that can happen to well-meaning partners after time changes plans, and after the business passes through phases of growth or contraction.

I recall one very personal situation when I was very young, that reinforces Dad’s advice. Through my college years, I managed a phonograph record production and manufacturing business that I created as a senior in high school, using independent contractors in local venues to record and edit ventureforwardweb-237the original tapes from recording musicals and performances from schools, colleges, churches and organizations throughout the USA and Canada – and then to sell the records to the appropriate audiences.

[Email readers, continue here…]  It grew to significant size during my college years, and I associated myself with a “strategic partner” throughout those years, ceding to him all recording and editing of work throughout the large home territory, and any national jobs we received. The agreement was that he would retain all of the revenues generated from those activities.  We called ourselves “partners” and received lots of press, even nationally, as we managed our teenage business.

A year after graduation from college, I left for six months to serve my active duty obligation in the US Navy, while others took care of accounting and customer relations.  And my “partner” left the company without notice and set up a competing company in my absence, never saying a word to any of us.  I was bitter, but unable to do anything about it, since there was no partnership agreement.  Luckily, after my return from active duty, my company flourished and his remained a small, one person operation for the rest of its existence.  But, as they say, everything he learned, he learned from me.  Dad was right, even if I learned the lesson years later.

  • Brandon

    While maybe not what David was discussing, be very very careful even talking about entering into business relationships.

    In many states statutes provide for the “presumptive” partnership where even a discussion about entering a business together with someone can make one a ‘presumptive partner’ [if it looks like a duck, quacks like a duck, it’s a duck] and thereby mutually liable for the acts and transaction of your presumptive partners. Talk is not always cheap.

    That said, there is no question that well thought out mutually beneficial business relationships can, and do, provide leverage and competitive advantages.

    My advise, always clearly codify in writing/email all the intentions of all discussion leading up to any potential business relationship.

    Be clear what you are and what you are not!

  • Kathy V

    I always recommend people sit down with an excellent experienced “business” minded attorney that can lay out each of the decisions that should be made upfront and put in writing. This works well for the informed and uninformed business person. If one partner refuses to agree to negotiate the terms for an important provision, that pretty much says it all. Too many people like to “save” money by not having a proper partnership agreement because they are in a blissful happy place in the beginning. That is short-sighted and expensive in the end. btw, I’m not an attorney but I’m glad I know good ones.

  • I second Dan Hoefflin. I’ll also add, I had a lot of girlfriends before I married my spouse. It was worth the wait.

  • On the flip side, limited partners/co-founders with the right motivation and direction can give the start-up critical early stage momentum and provide the company with resources that an individual cannot hope to make use of flying solo. Your point is well taken, people’s motivations change, greed sets, things happen that change the level of commitment but look at some of the success stories:
    HP
    Yahoo!
    Twitter
    Facebook
    MSFT
    Oracle
    Apple

    As an idea guy I know the importance (from a long series of failures) of adding the right people to the mix to support my vision. I guess ultimately a little luck goes a long way too:)

    In your example Dave, without that partner, even though it did not work out in the long term for that record company play, it did give you some short term success that, it might argued, setup your long term success.

    michael

  • Eli Elliott

    Even with a good choice, your chemistry changes over time “for better or for worse”. And the unconscious (and false) assumptions you initially make about your partner may undermine your relationship when reality sets in.

  • Dave,

    I’m surprised that you interpreted this situation as evidence of the calamity of bringing on a business partner.

    Many businesses cannot survive in today’s entrepreneurial environment without a team. Indeed, most investors, not unlike yourself, will dismiss investment opportunities where the team slide of the investment deck consists of one photo and a single brief bio.

    I interpret your story as proof of the need for communication and written (and signed) clarity in the partnership expectations. As you mentioned, there wasn’t a partnership agreement. But a lack of an agreement doesn’t diminish the value of a business partnership any more than a receipt-less transaction at a swap meet devalues the ad hoc marketplace itself or the goods and services offered at such events.

  • I agree with Dan’s comment. One of the leading causes of company break-ups, joint venture failures, alliance failures, disappointments with distributors, and even marriage is a fundamental lack of a formal selection process and proven criteria. Elements of compatibility, commitment, discipline, willingness, skills, knowledge and desire are all critical.

    A “company” consists of several people who exhibit these shared qualities and who are linked together through shared values, agreement and contract.

    One of the major failings of entrepreneurs is their inability to partner and to know how to select a partner – being it a consultant, an advisor, board member, service provider, business partner or down-line distributor.

    The unfortunate experience that Dave shares is one that occurs too often, and stands in the way greater growth. The wrong choice leaves such a bad taste that many are unable to move forward. To echo Dan “the right choice is a continuous blessing, the wrong choice, a curse”.

    BTW – full discloser: “partner selection” is one of our core strengths, and our system has been successfully implemented by many of the F500.

  • Having been a partner or others for over 40 years I believe myself an authority on the subject. David is correct, the energies of partners ebb and flow at different times. This can be the a strong point as well as a weakness of any partnership. The safeguard to any business partnership is to twofold in my mind. Create an environment of complete truthfulness (tactfully if possible). Finally, attempt to have a true servant spirit as it relates to your other partners. At times that servant spirit might be taken advantage of but true partners can last a long time on the food of truth and trust.

  • Dan Hoefflin

    Choosing a good partner is somewhat like choosing a good spouse. Take your time, think it through, don’t simply act out of emotion, compatibility is key. The right choice is a continuous blessing. The wrong choice is a curse.

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