How to pick the right business partner

Ever consider buying a house with a friend to flip? Starting a hobby or full-time business with a colleague?  Co-coaching a children’s sports team with a neighbor? We often are presented with opportunities to partner with someone whether it be a formal business venture or something a little more recreational. No matter what you want to do, who you do it with is as important as what you are doing. After all, in some partnerships, you spend more time with your partner than your spouse. So, how do you chose wisely?

I have had good, bad and indifferent partners. I left one partnership after a month because it was a bad fit. We had another partner leave us before we even launched after making the unreasonable request for him to actually work. I had one partner who was almost a complete stranger who ended up becoming a great mentor.  A friend of a friend once had a partner who refused to obtain key-man life insurance for fear his partners would kill him for the money (I am told, in the part of the world where this partner grew up, this is not an unusual occurance). In other words, I am learning, through a lot of mistakes, on what makes a good partner. Here are few things I have learned (painfully):

1. Think twice about partnering with anyone. Think three times about partnering with a friend. Colleagues tend to show you more deference and respect in a partnership than your buddy who you got plastered with during a stag in 2003. Most partnerships need to have some professional distance- both in how you respect the other’s opinions and spending time apart after hours. It is harder to maintain that distance if you partner with a good friend especially if…
2. How your partner runs their personal lives says a lot about how they will approach the partnership so observe carefully. We (not the royal we) once had a partner that was terrible with finances in his personal life. We quickly learned not to trust him with any financial decisions. You obviously need to partner for skill-set but also observe how a partner or potential partner runs their lives- are they good with money, do they deal with their own personal issues constructively (trouble at home equals trouble at work), are they healthy body, mind and spirit? I had to paper over many corporate divorces as a lawyer- typically, what does lots of partnerships in begins as personal issue spilling over into the business (substance abuse issues, money issues at home, marriages falling apart) so watch your partner’s behavior in their personal lives.
3. Have the “what do you want out of this?” conversations before you partner. At some point during the dating cycle, you typically give out a direct or indirect indication of what you want  (”I want something long term” or “no names in the morning please…”) and, if the person you are dating wants the same thing, you continue dating.  Same thing with a partnership. You both have to want the same end-goal. You can’t have one partner wanting to build a leisure business and the other one wanting to go public with the business. With such differing goals, it will not end well.
4. Everyone has to have skin in the game. Some people may disagree with me on this but every partner has to put some money in. It is not enough to say: “my contribution to the business is my contacts or skill set in and I have no money to put in.” It doesn’t have to be $50,000 or some large amount. It has to be, relatively speaking to each partner, enough that if the business fails it hurts everyone’s wallets.  When people put no money in, there is no real sense of loss so how motivated will a partner be when you hit the first bump in the road? If you have no money in, you can always take your contacts or skills elsewhere when trouble arises. The aversion of a lost investment is a great motivator in business.
5. There must only be one chef in the kitchen/partner with someone who has a different personality than you. This typically becomes an issue when type A personalities get together on something. Everyone wants to be the boss but everyone can’t be the boss. So, you have to make sure you partner with someone who is ok with one of you being Batman and one of you being Robin (if you have a large group, find yourself a “glue” person to keep the entire thing from flying apart). Similarly, too much of a good thing can be bad. If you are outgoing, find a more wallflower-ish personality. It will keep everyone sane and certain personalities tend to gravitate towards certain functional roles (most super outgoing people go into sales and marketing over, say, accounting) so you end up with skill-set balance as well.

You will probably notice I did not concentrate on skill set. Conventionally, in every business, you want someone who understands the technical end of the business well, someone who can sell it and someone who can build the business. But, if you have worked in a toxic work environment, you know no amount of talent will make up for the fact no one is motivated to help the group succeed. Thus, start with the soft stuff first since you can always buy the skill-set later on. Good luck.