When Choosing Partners, Choose Wisely

If the goal of being in business is to make money, then the goal of being in a partnership is to share the load and reduce the risk of your new venture - and make money. You will want to keep those goals in mind as you and your partners answer some tough, pre-startup questions.

Character, Character, Character

In the commercial banking world of yore, bankers decided about loan approvals based on the "Three C's". Character, character, character. Is this person morally and ethically committed to the business, the people who are employed there and the community? Do they have the moral fiber necessary to "tough it out" when times are bad? Do they have the courage to make the most difficult calls and sometimes to do with less so that others in the organization can take care of their families?

Looking at the number of corporate bankruptcies and the increase in failed loans over the past two decades seems to indicate that some commercial banking institutions - and their customers - may have strayed a bit from this fundamental approach in search for growth. But you should not. It is not enough that the three of you share the same goals, it is more important that you share the same values and ethics. How you reach those goals is a very different matter than whether you do. You had better know ahead of time if you are all 'straight arrows' or some of you are willing to cut corners when and where you feel it necessary. Sure, business is a rough-and-tumble world, but the newspapers and television reports are full of executives who don't mind cutting ethical corners to make a buck. Is this the type of fame you and you partners had in mind when it came to the "fame and fortune" goal discussion?

So, Who Is The Boss?

Every successful venture has a leader. The one person who makes the tough call, whose decision is final. One of the toughest calls to make is to decide who gets to make the tough calls. Figure this one out first. And then live with it until the markets - capital or commerce - tell you different. Make sure you have a mechanism in place to change the roles if necessary, either a shareholder agreement or one in the corporate by-laws.

Complementary Skills

You and your partners will need skills and expertise which cover the key functions of your enterprise-to-be, but which don't overlap. For example, one of you is a top salesperson, the other a production engineer and former plant manager and the third has strong administrative experience. Whatever the business of your venture, if you had to prioritize (and you do) what are the most important functions that have to be covered to deliver your product or service, the answer should be the ones that you and your partners possess. Another way of looking at this: you are each giving up equity in the new venture to one another, make sure you don't have to hire someone to handle necessary managerial functions.

Personal Relationship

You are about to embark on a venture which has some of the dimensions and intensity of a marriage or other long-term personal relationship. It pays to know your partners well and, probably over a period of time. In fact, it makes perfect sense to know if each other's spouse or life partner also are "on board" this entrepreneurial endeavor. The time commitment and added stresses of entrepreneurship should not be taken lightly.

These are some of the tough question areas you need to investigate before starting a company with new partners. Above all, take your time in putting together a partnership. You expect this enterprise to last for a while and a little bit of extra time now can increase your chances for success.