Over the years I have had much experience with the trials and tribulations of forming a company and the impact that this very important yet much overlooked step has on its well-being. My experience comes from forming my own companies (with multiple partners), various M&As, and from working from the VC’s side of the table.
I often equate a business partnership with marriage. One marriage site has their top four reasons for a failed marriage as: poor communication, financial problems, a lack of commitment, and a dramatic change in priorities. These four reasons can be easily translated over to a business partnership. How many marriages last beyond one year or five years these days? We’ve all heard horror stories about a divorced couple fighting over possession of assets. Imagine the difficulty in dividing up a business partnership.
It is common, especially when forming your first company, to think that “everything will just work out” and that any partners that you’re forming with will behave rationally and inline with your desires when necessary. This isn’t always the case. Rather than rushing into a partnership, take the time to fully vet out all concerns, responsibilities, and expectations. Write everything down so that there is never the case of “well you said”.
There are a number of questionnaires available online (which, of course, I cannot find at this time) that all partners should answer and then sit down and discuss. This allows all involved parties to see how well their visions for the company coincide. The questions might include:
- Where will starting capital come from and what assets are you willing to bring in?
- Where is the priority of the company in your life? (An important question in here would be in relation to existing or future marriage and/or children.)
- How will the interests of the company be divided? (It’s not always equal between partners as each partner may not bring equal amounts to the table.)
- How are decisions made and, more importantly, how are disagreements handled? (This is very important in 50/50 partnerships. What happens if you both disagree? And yes, it will happen.)
- Is the goal to build the company and then sell (short term) it or grow it over many years (long term)?
- How do you decide when to throw in the towel? (Planning for success requires that you plan for failures.)
- How does a partner leave the company and what ramifications are there?
Don’t jump head first into a new partnership. The time that you take in the beginning will more than amply pay itself off with the headaches it will prevent later. Take as few chances as possible and understand what you are getting into. Shop around and find an attorney and an accountant that all the partners like. They can be invaluable in helping you over all of the startup hurdles.