I have chosen the wrong business partners… and not just once. Many times. Each time I have done so, I have been burned. Badly. And each time I have chosen the right partners, I have succeeded. But whenever I’ve failed, everyone has accepted the outcome and moved on to try something else. A business partnership is like a marriage, and as in marriage, most fights start over money… only now, your children are both the business itself and its employees.
The Wrong Active Partners:
- The ones who aren’t that interested in the business itself and believe they are doing you a favor by being involved
- The know-it-alls who don’t listen to an outsider’s perspective
- The ones who have done shady things in business to others… and you know all about their sorry history (They will make you their next victim too. It’s like dating a person you know is/was a cheater. He will likely cheat on you in the end.)
- The ones who are disconnected from reality because of substance abuse (They are actively using, and they will not accept help.)
- The ones who are really hard up for money and are not in a position to be starting a new business (When the money starts flowing in, they will have to choose between feeding their family or allowing the business to grow. You don’t want to partner with somebody in that impossible position because you know in advance that their choice will not benefit you.)
- The ones with whom you don’t get along before the business even starts (Such a dysfunctional relationship won’t get any better. It will only get worse.)
- The ones you don’t respect
The Wrong Silent Partners
- The ones who can’t afford to lose their investment if the project fails
- The ones who are friends/family now but will walk away from the friendship if the project fails
- The ones who want to be involved in running the business day-to-day
This list of the characteristics of potential bad partners only scratches the surface. I’ve experienced negative short-and-long–term setbacks with each type of partner, usually leading to hefty legal bills that could have been avoided. Such experiences have also left me feeling down and depressed. After these business miscarriages, I have sometimes made additional poor decisions that compound the failure. Warren Buffet often talks about not having to be right all the time as long as you’re right more often than not—and when you’re right, you should be right big, and when you’re wrong, you need to move on…quickly. I have learned this lesson the hard way, but ultimately, after each such failure in judgment and the subsequent fallout of my compound mistakes, I rebuilt and bounced back…by being right big. You can’t win games you don’t play, and you can’t succeed if you are too afraid to try.
So how does my experience help you pick your partners? I’m going to talk about choosing the right silent partners/investors first.
The Right Silent Partners:
- Believe in what you want to do/accomplish
- Are not scared off by the big questions: What if the business fails? How will I get my money back?
- Are both unafraid of the risk and genuinely want to see you succeed
- Have some business experience and or resources that could tangentially benefit the business (One of my partners is a realtor who has a lot of experience in negotiating leases/purchases, and he has helped numerous times with landlord negotiations. Some of my other silent partners are attorneys, who will review documents that fall within their field of expertise, thus ensuring that we’re jointly comfortable with the situation.)
- Are willing to sign legal documents (operating agreements/partnership agreements) outlining each party’s responsibilities, including decision making, thresholds for purchases/liabilities undertaken by the company, and expectations
- Understand that business often doesn’t make money right away, and, in fact, realize that money may sometimes have to be reinvested into the business to enable it to survive long enough to become profitable
I have been fortunate in my career to link up with a group of silent partners/investors across my entire franchise portfolio, including a laundromat and my real estate ventures. The people I have linked up with are all the right silent partners. They have supported me when I’ve asked for help, whether we’ve been successful or not, and they have offered their respective expertise when I’ve approached them for assistance. As in any marriage, you need to get to know the potential partners over time before you begin working together formally, and when you do finally decide to say, “I do,” be sure to visit a business attorney who can draft an operating/investment/partnership agreement that protects both you and those silent partners who are interested in the business. Partnership/operating agreements themselves will certainly come up in the future in this blog as a topic.
Finding the right operational partners (where there is joint control, or where you are a silent partner) is probably the most challenging part of joint business ventures.
The Right Active Partners
I can’t really give you a full list of the right qualities because different situations require different traits/types of partners. Instead, let me offer a few brief comments based on my experience with successful ventures with the “right active partners.”
In my music business, my partner is considerably older than I am. He was already financially set before I came into the picture, and so he was neither as motivated as I was to make money, nor as driven to grow and try new things. In fact, he’s much more reserved in many ways than I am. But he has one important strength that I don’t have. He has a unique set of people skills that are hard to emulate. He’s a bit of a jokester and prankster, and those who love him are incredibly loyal to him…even when things don’t go right. This is one of the things I most respect about him—his unique ability to forge lifelong relationships after simple and short conversations. Maya Angelou wrote, “People will forget what you’ve said, people will forget what you did, but people will never forget how you made them feel.” As he builds this bond with customers, he makes them feel important, valued, and safe. Why do they respond to him the way they do? Because all those things are true. He is genuine in the way he interacts with people…even with people who are difficult. So while we don’t necessarily—or always—agree on everything when it comes to expansion, staffing, or how we budget and spend money, I know he has the store’s best interests at heart when dealing with each and every customer who walks in the door. Or who calls. Or who emails. He has taught me the value of honesty and a genuine love of people, and this lesson is more valuable than anything I have learned in any of my other businesses. Here is one other lesson I have learned from my partner in the music store: If it were to close tomorrow and we went into another line of work, many of those customers would find a way to do business with us in our new line of work. Those relationships—and people in general—are much more important to long-term success in small business than the product or service we are selling.
I have two other active partners in real estate. Both are incredibly intelligent guys and successful in their own right. One partner is very cautious. On the other hand, I’m rather cavalier. The third partner is a little bit like a pendulum—he goes back and forth. These differences, however, prove to be an advantage. Our personalities create a partnership that is a well-balanced totality—a clear case of the whole being greater than the sum of the parts. We all have the same big-picture goal—to buy and manage more real estate and make solid returns for both our investors and ourselves. Our ultimate agenda, in other words, is aligned with our investors’. It is, in fact, a symbiotic relationship: Our returns are dictated by our own performance. When they do well, our reward is that we do well. Inside our company, there are often debates or struggles, usually initiated by me about why things haven’t happened quickly enough. These guys are not afraid to pause and consider all of the options before we make any final decisions. Often, we make the decision I’ve advocated, but occasionally, we don’t. (And if I were a better partner, I would raise less of a stink about it, but for better or worse, they knew humility was not my strong suit when they partnered with me!) Either way, because we really do want the same things, and because we have begun creating processes that enable us to resolve disagreements, our partnership survives and slowly grows. None of my partners are lazy. Not by any means. And They are good partners to have.
So while I said I can’t give a complete list, here are a few takeaways for good active partners . They:
- Are honest
- Are hardworking & not afraid to try new things if they have some guidance
- Don’t rush into opportunities without understanding potential outcomes (Think of a game of chess.)
- Are good at building relationships with customers & vendors/suppliers
- Are financially solid (In the case of angel investors, they are honest and will not steal. I have seen this scenario play out time and time again: Good people work hard and well together, but if the business isn’t successful quickly enough, instead of asking for help, the partners steal to get by.)
- May not agree with you 100% of the time, but when that happens, the discussions can still remain civil
Partnerships can be a tricky thing to navigate—much like a marriage. But when it’s good, it can be great.
I will continue some more technical aspects of partnerships in my next post!