What if you want to start a business that requires something you don’t have? Maybe it’s time, expertise or money. You might consider a partnership.
When considering a partnership, you want to look for someone who has what you don’t have. Starting out with a partner who has the same strengths and weaknesses as you, means something won’t be covered. That’s a recipe for disaster. Generally, the three ingredients that a partnership (or an individual) needs are time, experience, and sometimes money. There’s a fourth ingredient – one that all partners need, and that’s enthusiasm. You absolutely don’t want to start something with someone who is not enthusiastic about the idea.
Before forming a partnership, carefully assess your partner’s personality. Will you be able to get along with this person? How about in cloudy weather? Is the person lazy? Does the person have shoddy ethics? Is the person obstinate? I once saw a bicycle shop almost destroy itself because one partner of the three who owned it suddenly decided that they needed new wall-to-wall carpeting just a few months after starting the store. That would have cost $10,000. I think any objective person would agree that carpeting was not a top priority in that store. It had a painted concrete floor that was just fine. But, he couldn’t be talked out of it, and the partners nearly came to blows. Finally, the two other partners bought this fellow out, at an inflated price that took them years to recover.
In another case, a partner got evicted from his apartment, and decided to live in the inventory storage area, against his partner’s wishes, leaving little room for the business, and violating the local zoning ordinance. This fellow would do things like wake up, and walk out among customers in the showroom at 11am, unshaven and shirtless. Nice partner, eh?
In putting together a performing group, whether it’s a duo, trio or a large band, all the members must have enough interest in the project that you can be absolutely sure they’ll show up at gigs on time. They must also be the sort of people who won’t embarrass the group by showing up drugged or drunk, or say inappropriate things on stage, or when mixing with the audience. You also need entertainers who are in alignment with your group’s philosophies and performance style. Finally, a band member must have ego and emotions sufficiently in check to avoid damaging the band’s potential as a group. All this is necessary, in addition to being an adequately skilled entertainer.
So, if you’re going to consider a partnership, think about all the things that might go wrong with your perspective partners. Do not mention the idea of a partnership to any of your prospects until you are absolutely certain. It is harder to burst their bubble after you’ve created it, than before they know a partnership is possible.
Family members can be the best, or the worst! I think you know what I’m talking about. A grandfather-grandson (or grandmother-granddaughter) partnership can be wonderful with the right people. I’m sure you can think of several successful family performing groups such as the Trapp Family, Jackson Five, and the Haygoods.
The Haygoods
In a retail setting, families can get away with some things that normal employee-employer relationships cannot. For instance, an uncle may own a store, and may have a 14-year-old neice operate the cash register for an hour a day after school. As a partner, she can be paid less than an adult would need and expect. At the same time, she is learning business skills and social interaction.
In another example, you may have a brother on disability with multiple sclerosis. During good times, your brother can help in the shipping department, and really enjoys being useful. Your brother can be a limited partner. During bad times, the brother is not required to come to work. During the good times, you can spend your time on inventory management, but during the bad times, you work in the shipping department.
Of course, arrangements like these are legally fuzzy, so you’ll want to check your local laws first. If you’re working with someone who is receiving government assistance of any kind, you want to carefully check the legalities and limits. For instance, you may discover that a person in a certain situation can earn up to $1,500 per month, but the amount earned must be deducted from disability payments. Or, perhaps someone can earn up to $300 per month without needing to report it. Or, in a more lucrative partnership, your family member, friend – whoever your partner is, may be in a perfect position to blow off government assistance entirely, earning a living from your partnership.
Here’s a look at another common but unfortunate scenario: Let’s say you have a brother who has been in jail twice for drunk driving. He’s unemployed again because he came to work too hung-over. You might think that if you offer this brother of yours a partnership, it will help him. Wrong! You must, absolutely must, consider partners for their strengths, not their weaknesses, if you intend to succeed. And if you don’t succeed, it will not help your brother in the slightest. It will probably make his lack of self-esteem worse.
How many partners should you consider? The minimum number you can get away with. If all you need is someone with repair skill, a good drummer, or someone who can keep the shop open during weekends, then one partner is sufficient. Additional partners means that the profit is split smaller. It also means it is harder to make decisions. Larry Page and Sergei Brin have been very successful with Google. When it came time to make decisions, they had a brief discussion, came to a consensus, and moved forward.
On the other hand, I knew of an organic restaurant that had 17 partners. One of their specialties was waffles. They had one waffle iron, and so customers had to wait up to 45 minutes for their orders in the morning. The 17 of them had a meeting to decide whether they should buy a second $30 waffle iron. The meeting, argument really, ran until after midnight, and they couldn’t come to a decision. In fact, it was weeks before they could all figure out that $30 was a reasonable price to pay for another waffle iron to satisfy their breakfast customers.
Once you’ve sorted out who your partners are going to be, you need to state some things up front. Is one going to be a silent partner? If so, how silent? How will various kinds of decisions be made? For instance, the person who’s just about to book a gig probably shouldn’t have to place a phone call to another partner before the gig can be scheduled. What happens as the business grows? Do you add more partners? Do you hire employees? How do the partners decide on new employees?
All the terms of partnership need to be discussed. More than discussed. You want the major points in writing, and a contract signed by all partners.
The very most important clause in that contract will be an escape hatch for each partner. What happens if the business loses money? What happens if a partner becomes sick or dies? What happens if two partners can’t stand the sight of each other after a while? Escape clauses need to be fluid. For instance, if a partner wants to leave early on, his value in the business is worth far less than after five years. These escape clauses must be manageable, so that it is truly possible to make changes in the partnership as needed. For instance, a very bad escape clause would be that if a partner leaves, the others have to immediately pay her $500,000. If a good escape clause and other such situations are all spelled out in writing ahead of time, all will be well in these eventualities – or at least as well as it can be.
Another consideration in partnerships is your own personality. Take me, for example. I can’t stand having to share my decisions with anyone. I have always had to have full control. I’d make a horrible partner unless I was allowed to run the show one hundred percent.
So, on the opposite end of the partnership spectrum we have sole proprietorship. The individual doesn’t have to defer to anyone before making major decisions. One hundred percent of the profit goes to the individual. That’s huge, even with just two partners. Let’s say that the profit of a business is $60,000 per year. That means that an individual takes home $60,000. But two partners owning the same business would only get $30,000 each.
There’s also an ego component. I love being able to say, “I own this.” For me, it would be miserable to say, “I own a portion of this.”
Getting back to the original question, what if you don’t have the time, experience or money to start a business on your own? And once again, there is a very simple answer. Start something evolutionary. Do you really need a drummer, or just a drum machine? Do you really need someone to keep the shop open in the evenings, or can you just close at 5pm? Start something that you can manage, and let it build as you gain experience, money, whatever you’ve been needing.
