Do you really need a Business Partner?
2022/01/05 6:00 AM
I have had many partners over the past 20+ years… some good and some horrendous. I have spoken on many investor tele-summits and wanted to recap a few main points for you in case you missed out……and hopefully I can help you avoid all the yucky stuff.So many entrepreneurs assume that business will be easier if there is a partner to share the “burden” with. What they fail to look at, is the reasons they are hoping someone will be there for them. All things considered, it sounds fun to have a partner right?
So the BIG question to ask yourself, is “Why are you looking for a partner rather than an employee?”
- Are you hoping to have a partner in crime to toss ideas around with?
- Are you looking for someone who is better at something that you think you are?
- Are you looking for someone to keep you company?
- Or, are you looking for a financial partner?
The bottom line, is that partners usually take a portion of the business…..and keep it forever. Sometimes we can easily fill the “void” with an employee who will happily do their JOB and not expect any shares in exchange. This is actually the ideal choice for a company unless they are seeking capital. Having a slew of employees will get you the relief you are looking for at a much lower overall “end game” cost.
But, if you do need someone to invest in your company to bring in more working capital – and you are giving up some equity (most likely) – one major piece of advice I can offer is to be sure to have it VEST over time (possibly quarterly) and do not give it all up at once to make the deal seem more attractive. I lost a big portion of my handbag company to a “partner” who got 20% up front and then quit a year later and then I had no shares left to get a new partner. This left me in a very difficult position. You want to be sure to make them earn it each quarter. A good attorney can help you structure a deal like this. In my opinion, any rational investor will be proud that you are taking care of yourself in the deal. If you think about it from their point of view, if you let them walk all over you, that doesn’t bode well for how you run your company and make decisions. Don’t be afraid to stand up for yourself.
A good attorney will also advise you to have a very clear working agreement, and that the investor/partner has specific goals to hit before getting their vesting shares each quarter. They can be any kind of goals – financial, developmental, creative etc… it obviously all depends on the company needs. If you are not sure of each personas exact duties and how that will play out over time, your agreement can state that the goals can be
re-accessed each quarter or every 6 months and duties reassigned. You might find that someone becomes proficient at something new and needs a new job…..everything is up for negotiation. Just be sure to be clear on what constitutes enough to earn the shares.
re-accessed each quarter or every 6 months and duties reassigned. You might find that someone becomes proficient at something new and needs a new job…..everything is up for negotiation. Just be sure to be clear on what constitutes enough to earn the shares.
The most important thing you can do for yourself in making a deal like this, is to have a lawyer who represents you separately from your business. Your trusted “company” lawyer will not (legally and morally cannot as far as I understand) have YOUR best interest at heart. They are required to make the best deal for the company. I cannot stress how important this one step is. Your own attorney will see to your best interests and make sure a fair deal is worked out.
One last thought: If you have a trademark and it is currently in the name of the (your) company, I suggest re-filing the Trademark and reassign it to your own personal name BEFORE doing anything and then license it to the company. This way you can retain the rights to the Trademark. If the company owns it and you get ousted, or end up closing it, the Trademark may possibly never be able to be used by you again. This is just some extra protection that I strongly advise – again, not an attorney and you can ask yours – just my opinion since I lost the rights to my own name, I want to help you protect yours.
For more thoughts you can read this next blog on How Investors can ruin your business.
Love to know your thoughts on partners – please share with me below.
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There are 2 comments
Lorea S. says:Sarah,
I have a biz friend that is dealing the ins and outs of a “partnership” and for some of the exact reasons you listed. This is some really good advise that you gave and I’m going to forward this to her…..I learned a lot for myself as well even though I don’t have and really do try to steer away from partnerships if at all possible. Thanks!
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