Choosing the Right Business Partner

Steve Jorgenson
November 02, 2020

Choosing the Right Business Partner

While having a beer I was listening to a teammate from a recreation sports league tell me about how successful his business was, but that he had one regret. He started the business with a partner. A 50/50 partner who was supposed to do the same things as the other partner and each would share equally in the company’s profits. 

Their relationship eventually fell apart as my teammate said he was increasingly frustrated that half of the company’s profits were going to someone who was hardly working at all. They were legally entangled for some time because of the business relationship and the company that was once bringing in 7 figures a year in revenue eventually dissolved. 

My teammate  was correct in regretting forming a 50/50 partnership with someone who brought the same skill set and responsibilities into the company. However, he was wrong about the benefits of strategically using partnerships to build a company. He gave up half of the equity in the business for someone who did not bring in any additional value. A huge mistake that many entrepreneurs make. 

Partners must always be evaluated closely and brought into an organization strategically. For any entrepreneur, there are a few things you should do when trying to leverage partnerships as a business owner:

  • Bring in skills that make up for your shortcomings–Self-awareness is what separates successful entrepreneurs from unsuccessful ones. You should look for partnerships where they have skills, abilities, or assets to the business that you are lacking.
  • Minimize the equity you give to any partner–Many entrepreneurs believe that every partner deserves an equal share of the business. That could not be further from the truth. You want to retain as much equity you can in your business while getting the most value out of that partnership. 
  • Clearly define each partners responsibilities–Partnerships work best when both partners have a specific role with specific responsibilities to the business. Without everyone having specific tasks, nobody can hold anybody else accountable for what has and hasn’t been done. 

Every company on the New York Stock Exchange has leveraged any number of partnerships to get their businesses to that level of success. My teammate was correct in regretting his choice of partner before. They did not bring in additional skills that he didn’t have, they received half of the business’ equity, and neither partner had any clearly defined roles or responsibilities to the business. Partnerships are great for entrepreneurs to get their businesses running efficiently and poised for growth–just as long as you get a great value for that relationship.

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