Part III: 3 Types of Partnerships to Beware!
You and your brother have started a business and you both are going to run the business together. Great! Except for the fact that you have never worked together in a business environment with what may result in incredible financial strain. This is the personal partner dilemma. There are other types of relationship that you may need to be weary of as well.
The Personal Partner
You may decide to start a business with two types of people: business peers or personal partners. ‘Business peer’ means that your relationship with that person grew from a particular business situation or networking event. When business is the foundation of your relationship, it can be easier to transition and develop other business ventures with this person. ‘Personal Partner’ is a person who in a part of your life because of personal relations; i.e. a friend from school, a family member, or even your significant other. Here, you often share friends or family, or even a house apart from the business. The stakes are higher for you two since problems in your business relationship could quickly flood into your other personal relationships. Describing your expectations are crucial for protecting both your personal and business relationship. It may also help to create a completely separate business atmosphere (‘what decisions are made at work stay at work mentality).
The Double CEO
I’ve seen this several times, and even made this mistake myself. At the end of the day there can only be one CEO. Sure, major decisions (such as dissolving the company or adding a new partner) may be unanimous through your operating or partnership agreement, but a majority of your day-to-day decisions must go to a final decision-maker. There may be different names instead of ‘CEO’ for different entities, but it’s a decision-maker who is ultimately responsible for the day-to-day decisions of the company. Having two CEOs creates time delays and arguments, but there are many solutions that you can provide.
If there are several partners, you can create the ability to override decisions of the CEO, but that decision can be together. With only two business owners, you may elect to have a third-party available to dispute the decisions of the CEO. You may also decide to have one of you as CEO for a couple years, with the expectation that you will switch at the two year mark. There may be certain decisions where another Chief Officer will have the final say. Be sure to explore the many ways to make it work while avoiding the problems of two CEOs.
There are companies
The Evasive Partner
Watch out for the Evasive Partner! While you may be able to make it work with a Personal Partner or even lay out the expectations for two CEOs, you are asking for trouble with the Evasive Partner. This person may have great ideas and connections, or even financial resources, but they are not willing to be open and honest about themselves or past dealings. It starts in your gut. When they talk, it seems they are hiding something or perhaps it’s just in the way they phrase things. It may be tempting to overlook your gut because of the possibilities, but do not move forward until you are completely comfortable with that person.
You can’t expect someone to let you in on their personal lives, but their past business dealing should be clearly described. You should be especially weary of possible creditors or past partners who will claim ownership of part of your business. Once you’re tangled in this mess, the only way out is by cutting your losses or litigation.
Signs of the Evasive Partner may be:
- Not willing to disclose past or current information about their businesses
- They’ve left a string of past partners who tried to ‘screw them over’
- Not willing to compromise on certain issues of control
- Shady white van with ‘Business Consulting’ spray painted on the side
- Lots of promises, not much action
- Lots of ideas, only short term execution
- Quick profits with little to no effort!
There are steps you can take to protect yourself while talking with someone who may be an Evasive Partner, such as non-disclosure and confidentiality agreements or trade secrets. There are also ways to determine if you are dealing with an elusive dealer. You will want to beware these Partners at all costs.