A reader asked me a good question last week: why don’t you like partnerships? A valid question, and since I’m so big on teaching how I do business, I decided to explain it fully instead of simply answering a comment that a few people might see.
A partnership is like a marriage in many ways. Immediately abandoning any attempt to avoid the obvious, 50% of Americans can’t pick a spouse to weather the storms (or the weekend), so don’t expect any better outcomes in a partnership.
There are many bad reasons to form a partnership, but there are a few valid reasons. The problem lies in the formation of a legal entity to accomplish a common goal because, like marriages, the people involved are often unequally yolked. One of the members of my mastermind group said it this way recently, “I spent as much time working on the partnership relationship than I was doing actual work.”
That directly relates to my constant brain state expecting to be interrupted when I was on a team, as many hours were spent with interpersonal relationships – building and repairing because people are individuals. What happens when individuals are legally bound to share profits and one of them goes off the range?
The list of things that go wrong in partnerships is long, and it’s sometimes referred to as “the D’s.” Divorce, dementia, drugs, disagreement, death, disaster, disability, etc. One partner has many influences on their life that brings garbage into the business, which makes the whole idea of partnerships very risky.
If one person is the business-minded partner and the other spends frivolously or feels mistreated because they what feels like all of the labor while the other “just emails people and travels to conferences.”
the alternatives
You can work with another person who also owns a business and form an agreement between the two companies, referred to as a joint venture. One person can own the business and the other can be a contractor or employee who benefits from an agreement of profit-sharing, which is financially the same as ownership without the mess if things sour.
You can create a commission or affiliate network among the interested parties. This is the loosest form of partnership, and also the easiest to set up. Commissions would be a percentage of sales (be sure it’s reasonable after expenses, so don’t make commission 50% if you pay a lot up front for hosting or your mail list service). Affiliates are people who get paid for making a sale… so that would be ideal for a sales and marketing expert you don’t need to partner with.
It’s kind of funny, but since I started writing this post, I have heard at least three different sources warn about partnerships. Do some of them work? Sure. Copyblogger (now Rainmaker) is still wildly successful and a lot of doctors and lawyers and some accountants have successful partnerships, but those industries are the only consistent winners of this model.
It’s only prudent to be prudent when considering tying yourself to someone else where your money, reputation, livelihood, sanity, and much more are wrapped up in.
Thanks for answering my question! Good points.
Jesse (long time!) good advice for the most part.
I think that shares and vesting and stuff can be done, but the apparatus is unnatural and there is risk (the D’s). The rule is that someone is the majority owner – the 51% owner. With that agreed to, then things can go forward without ambiguity.