Picking a Business Partner

Thinking of taking on a business partner?

Stop! Don’t do anything until you answer the following question—and be sure to answer it honestly: Why do you want a partner?

If it’s because you need new capital or because you’re overworked and you want someone to lighten your load or you’re just lonely and you want someone else in the office—then scrap the idea immediately. Those are not good reasons to take on a partner. In fact, if you proceed, you’ll probably regret the move.

If, on the other hand, you want someone with a complementary specialty or someone to share (note, we said share) your workload and the risks of business—in short, a person who can become a teammate—then you’re on the right track. Things to check out before you decide on a partner:

Do you and the candidate have compatible business goals? If you want to expand into new niche areas while he or she is quite happy with where the business is right now, either rethink your priorities or scratch that candidate. And even if you agree on growth, do you see eye to eye on what direction that growth will take?

Are you in agreement on how much risk the partnership is willing to take? If your prospective partner is risk-averse and you thrive on risk, then you have the makings of serious disagreements.

Take time to get to know the other person—personality, life-style, health and age considerations and long-term retirement plans. Everything should be on the table.

Be especially careful if the candidate is a personal friend because you might be tempted to be too casual about certain agreements, whereas with a stranger you probably would formalize them. Remember, you’re not taking on a drinking buddy; this person is a business partner, and formal, written understandings are prudent.

Have an independent lawyer draw up the contract. It should include details such as job responsibilities, distribution of profits and losses and buy-sell and business continuation provisions.

One sticky area partners often face is what to do when they disagree and there is no hope of a compromise. One solution: Each partner holds a 49% interest in the business, with the remaining 2% going to a mutually agreed-on person who can break the deadlock.

The Success of Failure

Don’t be quick to fire a manager just because his or her pet project failed.

Before writing off the manager, ask: Did he or she conceive of the project? Was it innovative? Did it receive adequate support from the organization? Was it too advanced for your conservative company?

In other words, try to put the failure in perspective, recognizing that, in today’s technology-based business world, innovation and risk-taking count more in the long run than playing it safe.

Even more important: Motivated and innovative managers not only learn from early failure, but it often inspires them to try even harder.

Worth remembering: Before Sam Walton launched Wal-Mart, his first venture failed. Other early failures included Jack Welch of General Electric, Bernard Marcus of the Home Depot and Ed Artzt of Procter & Gamble.