Congratulations! You and a friend have a great idea and are ready to
forge out on your own. And while I wish you well, it’s a fact—many business partnerships
fail.
Here are the top reasons why.
Personality Clashes
It’s to be expected that your personality will differ in some
respects from your partner’s—you’re two different people after all. But are you
aware of these differences, and are you prepared to manage them? Don’t
underestimate how your personality and temperament will influence your attitudes
about business. For example, a more accommodating personality may be prepared
to lower product prices to meet a customer request when the more demanding
personality is prepared to walk away from the deal.
Rather than engaging in unproductive conflict over differences, be prepared
to make allowances for each other’s weaknesses and capitalize on each other’s strengths. And if you're not sure what those are, consider the benefits of taking a reliable personality assessment, such as the Myers-Briggs Type Indicator®, and discussing
the results with your partner. Remember, there is no right or wrong here. The
point is to know, in advance, how each of you tends to view the world, approach
problems, and handle conflict before it matters.
Differing Visions
for the Business
One of you hopes to launch the business to change the world and
profoundly impact lives while making a “decent” living. The other wants to make
a ton of money, period. As a result, you won’t approach business the same way, meaning you
won’t approach opportunities the same way, you won’t approach challenges the
same way, and you won’t approach growth strategy the same way.
For example, your friend is prepared to do some work for free or at
cost, and you’re completely opposed to that. Or, you’re adamant about supporting
local businesses, but your friend wants to purchase supplies from cheaper vendors
overseas.
You and your partner won’t need to have exactly the same vision to go
into business together, but you’ll need to be aware of any major differences at
the start to avoid disappointment and problems down the road.
Ego Overload
You started your own business so you wouldn’t have a boss, and it’s
only natural that you don’t expect to be “bossed” around. But you and your
business partner are responsible to each other—one of you just can’t do
whatever he pleases without the other’s consent. On the other hand, a business
venture will require lots of decision-making, and each of you must have some
degree of autonomy or nothing will ever get done. (Plus, you’ll hate it.)
So, be smart and discuss at the start how decisions will be made.
What decisions can be made without the other’s agreement? What decisions will
require input from both? Will you schedule regular meetings to check in with each
other, or will you meet as things come up? Is one of you “more in charge” than
the other? If so, in what areas of the business, and how will you keep each
other informed and accountable?
Filthy Lucre
Your business is turning a profit, yahoo! Well, I hope your business realizes profits. And when
it does, how will they be split? Actually, let’s back that up a bit. Do you and
your friend/ business partner even agree on the meaning of the word “profit?” Uh
oh. Now’s a good time to find an accountant, then, and make
sure you and your partner are on the same page about when the business is
ready to start paying you and in what amount.
While you’re at it, make sure you agree on whether payment will take
the form of a salary or an owner "draw." Each decision has
tax consequences of which you’ll need to be aware (another reason to find a
good accountant, by the way.)
And no matter what, before going into business with a friend, make
sure you know the answer to this question:
What Will Happen If
One of You Wants to Quit?
Do you already know how you’ll dissolve the partnership? Doing this
properly is going to require more than one partner saying, “I’m tired/bored/moving
across the country. You can stop paying me now.” As partners you have legal
obligations to each other and to the business, and you’ll want to make sure
that all the details of this significant step are handled correctly.
And finally …
Don’t Forget the
Basics …
Yes, you’re friends and trust each other, but you’ll still want to get
a partnership agreement in writing. Sites
like Nolo and legalzoom can provide a
template for a small fee, but it can’t hurt to have the document reviewed by a lawyer
as well. (Since you’ve already put the document together, this service
shouldn’t be too costly.)
You can have a brilliant idea, plenty of funding, fantastic vendors,
and customers eager for your product, but your business could still fail if the
relationship between you and your friend/partner isn’t in tip-top shape. So start the serious conversations now, and you’ll avoid some
serious problems later.
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