Do you need a business partner?
Nearly every entrepreneur at some point in their lifetime has a business partner. I was giving it some thought while driving today and decided to write my views of this sometimes controversial subject down.
1) A 50/50 business partnership should result in more than double profits. (Ok, you can’t really predict this.)
or
2) A business partner should serve a specific and needed function.
3) Low level tasks do not require a business partner. For example, a web designer should be an employee, not a partner. However, a highly skilled & competent programmer may be better as a partner than an employee.
These are basics. Many people new to running their own business want to jump in with a partner right from the beginning. There is no shortages of complaints and stories from owners unsatisfied with their partners performance. This is not unreasonable, if someone has control of half of your company they must be bringing a great deal of value with them.
Here are some specific things you should be looking for as it relates to small internet businesses:
1) Capital — not so important in the beginning. If you give someone 50% for $10,000 , if the time comes that you need to bring in VC money you will be looking at a complete loss of company control with just 1%.
2) Geographic location — Both the east coast an west coast are hot spots for internet business. Just the same, if you live outside the US a partner anywhere inside the US can bring great benefits.
3) Skillset — To me, a good internet business is made up of two backbones — marketing and programming. Succeed at both and you can move mountains. Like I said above, who the hell cares if someone can whip up html pages. Pay them a couple hundred bucks for some templates and move on. If you are a great programmer find a great marketer and vice versa.
4) Drive — They have to want to do it, and if they want to do it any less than you it just is not going to last.
In a business magazine or book I read this great advice: Partner on projects, not companies. With online business I believe this advice is worth its weight in gold.
You can partner with someone to develop a CMS, specialized metrics software, and so on, but you do not have to run the entire business together. Then, each partner can put in however much time, effort, capital, and knowledge and reap their own rewards appropriately.
I like this approach a lot. When a business partner is truely an entrepreneur they are going to be moving on to other things. If you partner on a project then there is no need to worry who will be answer support e-mails 3 years from now or filing the tax returns.
Business partners are not always needed. The most important lesson: never let them slow you down.
Another timely post.
One alternative to giving true ownership to a partner could be a profit share at an agreed percentage of profit with an (optional) guaranteed base. This effectively limits exposure for both parties without limiting opportunity. It also provides an easy dissolution if you find the business changes or did not work as envisioned.
It could be a viable intermediate step for someone looking to grow the business without risking control.
Comment by Eric — March 29, 2007 @ 8:11 am
One of the most important, yet most often overlooked parts is how to disolve the partnership. We all have lots of irons in the fire. What do you do when one partner no longer wants to work on the project?
Work that out ahead of time.
Comment by carl — March 29, 2007 @ 9:24 am
I agree totally with Carl. An exit strategy is huge. People grow bored, complacent or lazy.
It is always best to determine what happens in the event of a break-up when there is no assets to argue about. Once you have built something, then it is likely that parting on anything other than negative terms is unlikely.
I also disagree with Andrews math on point #1. Just because you have given up 50% early on, if you take investment later, and those investors take 50%, you should be left with 25%, not 1%. Also, for most internet based marketing/affiliate ideas you are probably not going to attract VC money.
Comment by Diorex — March 29, 2007 @ 2:10 pm
This sums it up 99%:
“Partner on projects, not companies.”
That 1% is for the partners who just CLICK and make it work awesome but for the rest of us your advice is 100% solid.
Comment by ToddW — March 29, 2007 @ 6:02 pm
Diorex, what I mean is that 1% is just 1% less, taking you from 50% to 49%, or whatever lower number it ends up being. You have now lost control over your company.
The point is don’t take 50/50 splits lightly, because the first time you need to add a new partner for to bring in new capital, you lose control. Just something to think about.
This post isn’t necessarily focused on internet marketing or affiliate marketing — just online businesses in general.
Comment by Andrew — March 30, 2007 @ 3:20 am
This is a great point and I think that it really sums up some important points. The main point is #2, that business partners should serve a specific function.
I work for a web company that is a free online service/platform for people to meet business partners based on the skills and experience that they need for their business idea. So, I’ve been able to see an awful lot of partnership stories over the last two years.
I’ve seen too many times when two people (family members, friends, etc.) who have the exact same skills, functional experience, and interests try to start a business together. Unfortunately, without different skill sets, these people generally can’t create a lot of synergy and as a result their ventures tend to not do as well as they could.
On the other hand, I’ve seen so many companies where someone finds the correct person to work with (say a web content site, where one partner is a great sales/marketing person and the other is a great web developer). These differences in functional experience and skills are present and as a result, business partnerships of this type are able to be far more successful.
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