In a recent Wall Street Journal article, Chris Myers outlined 3 Principles for Managing a Co-Founder Relationship:
- Seek out complimentary skills
- Clearly define roles
- Work with someone you trust, respect and admire
These principles are well and good, but incomplete. Much can go wrong even when these three principles are followed. Hence, I’d like to add a few more principles to help you better select a partner that will help propel your business forward and not the opposite: a partnership that kills the business.
Take time to get to know your partner before signing on the dotted line
Partnerships are similar to marriages, so take time to get to know the other person before you enter into a partnership with them. It’s not easy to do this in a fast-changing, swiftly-evolving market. But that doesn’t make it any less important. Having a partner or co-founder will be one of the most significant relationships you have in your life – so take time to choose well. Don’t be rushed into a swift decision. Learn to see the other person for who she or he really is. And decide if you can live with them for the long haul.
Build accountability into your relationship
Meet regularly with your partner to go over what s/he was to have accomplished and what you were to have accomplished. Discuss your productivity with your partner. No one else in the organization can hold you or your partner accountable other than you and your partner. So have a process that you use religiously to have mutual accountability.
Sign a Buy Sell Agreement as part of the formation of your partnership
So you have accountability in your partnership. Great! But what do you do when your partner flakes out? What if your partner simply decides they are not going to pull their weight? What if they prove to be incompetent on certain key tasks, even after you have done your due diligence? What if they turn out to behave with incivility and arrogance that damages your employees moral and causes top talent to look elsewhere?
These a tough situations and that’s when you find the existence of a well-written and well-thought-out Shareholder agreement – a.k.a. Buy Sell Agreement (BSA) is critical. The BSA outlines what actions can and cannot be taken given certain circumstances or triggers. What happens when a partner goes through a divorce? Declares bankruptcy? Decides to start working part-time in another business? Becomes difficult to work with to the point where you want out? These and other events should be discussed and covered in the BSA.
Most BSA’s have buyout provisions with a pre-determined formula. Because a partner’s poor behavior often depresses the sales and/or profitability of the business, the buyout provision should not require up-front-cash, but should be flexible enough that if needed, the buy-out of their stock can occur over time.
Do not enter into a partnership or a co-founder relationship without a BSA. Just don’t do it. Could I be anymore clear?
Just because they are a Christian doesn’t mean they have the same values
I understand the Bible talks about being unequally yoked – the concept of two people entering into a significant relationship with different values and how damaging this can be. But just because your potential partner is a Christian doesn’t mean s/he has the same business values that you do. Having Christ as our savior and Lord is the foundation of the relationship, not the total definition of it. Just because your potential partner is a Christian doesn’t mean you’ll have a great partnership. I can tell many stories of partnerships that failed between Christians because one party had radically different values even though both were Christians. For example, I know of one partnership in which one partner borrowed $70,000 personally from the other partner. When the borrower was unable to pay his partner, he simply started another business and never paid his partner back even though his other business was successful. Why? Because the borrower considered it a debt within the first business and did not consider that debt something to be paid out of the second business.
Needless to say, the partner who lent the money felt betrayed – even more so when other Christians who were mutual vendors and customers continued to do business with the borrower, even though it was known he was not paying back his debt. My friend went through deep waters. It was difficult to watch.
My advice: keep the partner relationship at an arm’s length and don’t get too “chummy” with your partner. Keep your business relationship at a business level. Otherwise, it just gets to be so difficult to make the tough choices that you end up not being able to make them without totally severing the relationship all-together.
Risk and reward should be shared equally
A true partner is one who can shoulder the financial risk of the business, not just share in the profits of the company. As part of entering into a partnership, both you and your potential partner should fully disclose your personal finances to each other so that you can both fairly assess if the other can shoulder the financial risk. For example, a partner who has a low credit score can’t co-sign on loans that need to be personally endorsed. Now, while I preach “don’t personally sign for any loans”, sometimes it’s impossible to not do this. A partner who can’t shoulder the financial risk is not a partner at all – they might be an investor or some other type of interested party – but they are not a partner. So they shouldn’t participate in the rewards if they can’t take on the risk.
Conflict resolution is key to a great partnership
Take the time and energy to resolve clash points before they become difficult conflicts. Clearly define your roles and who is responsible for which decisions. Discuss often your values as they relate to your role within the partnership and the organization. And when there is a clash point that cannot be resolved, have in place a pre-determined method of how that clash point is resolved or who has the primary responsibility to make the final decision. Unresolved conflict between partners will kill your business. Count on it. If you find your potential partner cannot resolve conflict with her or her spouse, then don’t get into a partnership with them.
Partnerships can be great if both parties are able and willing to do their part to propel a business forward. But they can be as equally destructive to a business if there are personality clashes, lack of accountability, lack of conflict resolution and/or a lack of shared risk within the partnership. Finding a great partner is not easy and cannot be done swiftly. It takes time and is a process that should not be rushed.