Business Partner Considerations to Make [Before It's Too Late]

May 08, 2023

Suppose you are considering a potential candidate to be your business partner. You have recognized that the person is great at what they do. However, despite being highly skilled, the person has a few interpersonal flaws. Maybe too much ego. Maybe they’re annoying. Maybe there is room for improvement in how they treat others. Maybe they party too much. Basically, there are glaring imperfections that give you pause. And while you would very much like to bring on the person as a partner, you are concerned that some of their deficiencies might become a liability down the road. What should you do? In this article, I am going to give you three ways to approach this scenario. I am also going to provide you with a valuable strategy to protect both you and your business, should you decide to enter into a partnership.

A while back, I discussed how entrepreneurs sometimes have to be a bit more pessimistic in their approach to making business decisions. Sometimes you have to begin by thinking about the worst possible scenario. The reality is that many business partnerships fail within the first few years. This is common. Another thing: Your gut instinct can be tricky because it is not always reliable. Sometimes the people you thought would be ideal business partners end up becoming toxic. In other instances, the partner may not be the perfect fit from a behavioral standpoint, but they are an integral part of business growth and development.

So how do you decide? Particularly if your instinct is sending mixed signals. Do you take a risk with an imperfect business partner? Because someone who seems perfect in the beginning can bring your business down if conflict ever arises. The following are a few options to consider:

1. Use Your Best Judgement

You can attempt to use your best judgement, or simply go with your gut instinct. There are always risks when it comes to entrepreneurship in general. But if there are too many red flags up front, consider going in another direction by choosing a different business partner before it's too late.

2. Strategically Limit Interactions

You can bring on the partner, but set it up so that each of you are able to work independently most of the time. If you can set it up so that most of the work is performed remotely, the partnership might work because there would be limited interaction.

3. Hire the Person as a Contractor

Option three is to forego any possibility of a business partnership and instead hire the person as a contractor. However, this might be tough if you are in the seed stage where the company does not yet have the budget for independent contractors or employees.

Now, suppose you have weighed all three options. You have looked at the pros and cons. And you have ultimately decided that the person is a BEAST at what they do and you are willing to take a risk. Before bringing on the partner, there is a strategy that can be used to offer some level of protection for both you and your business.

The strategy is to gradually bring on the partner through an incentivized ownership structure. In this scenario, you are going to create a series of milestones that the potential partner must hit in order to gain ownership into the company over time. So, if they hit a milestone at 6 months, then a year, then 3 years, for example, they end up owning between 5 and 15 percent of the company [or whatever amount you decide].

Each milestone would be based on whatever contingency you set. It can be performance based, certainly. But it can also include things like behavioral contingencies. For example, if a famous person does something questionable, the sponsor always has it in writing that they can disassociate from anything they deem to be toxic. So once again, when choosing a business partner, you unfortunately have to first think about everything that can go wrong. This article provided three considerations that should be made when evaluating a potential business partner, along with a prudent strategy to protect both you and your business from financial ruin.


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