Many of us may have heard the stories of how businesses fail due to bad partnerships. It can happen to any party, with family members, long-time friends or investors included.
A recent case that I’ve heard about was a young aspiring entrepreneur who wanted to create a new business and found an investor cum business partner.
Unfortunately, she found that the business partner had a hidden agenda after a few months. She was also slow to spot that the partnership agreement that signed had specific terms that were unfair to her.
After a series of arguments and disagreements, even after bringing this dispute for a legal solution, she broke up with the partner and incurred huge losses. This incident not only made her almost fall into financial ruin and bankruptcy but also damaged both her own reputation and her company’s image.
Going into a business partnership is a good idea and it’s a logical thing to do as it will help to speed up business growth. But what you should concern is how do you choose your business partner or start a business with potential partner wisely.
Do you need to know your potential business partner very well before you dive into a partnership? Not exactly. But…
You can do business with a potential partner as long as you know his background, what he needs and what he is looking for. In other words, you can go into a partnership with a person that you may not know as a person, but you have enough information about the person.
In fact, I just went into a partnership with somebody that I only met for the second time. But I know exactly why he wants this partnership, what is his objective, and what we can leverage from each other.
Not only that, you are able to work with the potential partner because of someone you trust had recommended them to you, and you trust the person’s judgement.
You And Your Partners Should Have Similar Values
You may not know your business partners very well, but that’s okay. What’s more important is that you and your partners have similar core values, such as integrity, transparency, ethics, etc.
In other words, what do you and your partners believe in? It doesn’t mean that you must have the same exact values as your partners, but similar values that would allow both of you to achieve your mutual goals.
For example, do you and your partners believe that every business must take care of the customer? Or is integrity more important than commercial reasons? If he thinks that making a profit is important or more urgent, but you think reinvesting in culture and growth is more important, what happens then? This is why it is important that the two of you share similar values before venturing into business.
Understand Your Business Partner’s Motives
The partner who comes into the business must tell you clearly what he wants this partnership. The motives must be clear, he must tell you what he wants out of this very clearly. And you must also ask for possible ulterior motives.
Before you dive into business with someone, you should be aware of their portfolio such as:
- What businesses or projects do they have?
- Where do their priorities lie?
- What other venture could this partnership with you potentially be for?
For example, this venture that you put your heart and soul into could be the last thing on their minds. Or maybe you want to build it into a business empire, but they just want to build it for a quick exit. In other words, you have different goals with the partner, and it may affect the path of creating a sustainable business that you’re desired.
Moreover, what the potential partners have their hands in will give you a lot of insights into where they may potentially be looking to head.
Choose A Partner Who Can Bring You Value
It’s very important that you must understand your potential partner’s values that you don’t have, be it the financial investment, skill, experience or network. The keyword is to leverage.
Leveraging your partner’s skills and resources will help you and your business to unlock new opportunities. It’s crucial if you want to succeed in the business world.
When choosing a partner, we need to be clear about which part should the person contribute to the business as this will foster the interdependency.
There is no better approach to solving challenges than the famous saying “two heads are better than one.” In today’s fast-paced environment, a “go-it-alone” approach may not the best strategy for growth.
An Agreement Is A Necessity In Any Business Partnership
You need to enter into what is known as a partnership agreement or shareholder agreement before making the relationship official. The purpose of signing an agreement is to protect yourself and your business.
Remember, you have to think about the worst-case scenario that will happen in the future so that you’ll have a plan to deal with the unexpected circumstances. More importantly, a partnership agreement will help you to avoid losses if any dispute arises.
But what key elements should you include in the agreement?
- How to allocate the ownership percentage of the business? Based on contributions? What kind of contributions (cash investment and working time)?
- What should you and your partner do or what should not do?
- How to distribute the profits and losses among the partners?
- How are decisions made? What matters must be voted on, and what percentage of the partners must agree to any action?
- What happens if one partner leaves, dies, or terminated?
- How to resolve disputes? What happens if you and your partners reach a point where you can’t agree? What is the exit clause?
Spend money to hire a good company secretary to draft the agreement and ensure you fully understand all the terms of the agreement. What you pay is worth to prevent you from getting into trouble.
It’s easy to be blinded by the excitement surrounding an idea at the beginning of a working relationship, but it’s not easy to keep the business running for the long term if you’re not choosing partners wisely. Not only that, it will probably damage the business and the brand that you’re trying to build.