Avoid These 7 Partnership Killers - Mr. Brad Sugars: Startup Basics
Pitfalls abound when entrepreneurs decide to become partners. Know what they are ahead of time so you can set up guidelines that allow people to walk away if things go wrong.
From powerhouse financiers like Kohlberg Kravis Roberts to retailers like Baskin-Robbins to IT pioneers like Hewlett-Packard, business partnerships have been an important part of entrepreneurship and startup success. The reasons are simple: complementary skill sets, shared equipment or expenses, and the idea that one person with “hard” money capital can create synergy with the intellectual capital of another person so both can profit from their venture.
In theory, a partnership is a great way to start in business. In my experience, however, it’s not always the best way for the typical entrepreneur to organize a business.
The tough thing about most partnerships is that they are just like marriages, and if you know anything about those statistics, you know half of all marriages don’t survive. Making a marriage work involves handling a volatile mix of partnership issues: ego, money, stress, monthly overhead and day-to-day expenses. Throw in some employees you must manage, and you have a good idea of the work required to make a business partnership successful.
If you’re thinking about a partnership, consider the following list and avoid the potential pitfalls:
1. Sharing capital instead of expenses: Whenever you share your own capital–be it money, resources, information or property–you automatically give away your enterprise ability. In a perfect world, the person you are partnering with is upright, full of integrity, and not at all tempted to take this gift and run with it as his own. However, the world’s not perfect. So be careful. Instead, work out an arrangement where expenses are shared in an “associative” arrangement. It also makes it easier to walk away if things go wrong.
