Two young entrepreneurs race to form a company. The best friends have similar skills and networks, trust each other implicitly, and think working together would be cool. They split equity in the venture and agree to share everything else.
The first few months are an adrenalin-filled blur. But cash flow is tight and the first entrepreneur gets a part-time job to pay the bills. The second works full-time on the venture and is slightly resentful he has to carry more of the workload.
When the venture takes off, the second entrepreneur works to midnight and on weekends to keep up. His partner prefers a shorter work day and weekends are sacrosanct. Inevitably, it leads to fights because the hard-working entrepreneur believes that he should be rewarded better.
He wants the partner who work less to leave the business, but as a 50 per cent shareholder, he can’t enforce it. The entrepreneur eventually leaves, keeping a half-share in the business that his hardworking former business partner is building. The venture is now a giant mess.
Welcome to the world of business partners and the tricky art of choosing somebody to be your business “wife” or “husband” -- without the good bits. As in life, few decisions are more important than deciding who you will spend months, years or decades with in a business.
Shareholder agreements and other contracts that define responsibilities and expectations – a bit like a pre-nuptial agreement in a marriage – can help if business divorce happens. But nothing beats choosing the right business partner and knowing how to work with him or her for years.
David Smith, 45, a successful startup entrepreneur and author of the upcoming book, Disrupt Me Now, has long experience in choosing business partners. With Geoff Webber, 52, he runs the Motize.com, a promising startup venture that is disrupting the out-of-home advertising market by displaying signs on cars and working closely with charities.
Smith also runs Catapult Combine, an entrepreneurship educator and connector, and is in partnership in it with Jock Fairweather, a young entrepreneur who founded Little Tokyo Two, a fast-growing workspace and entrepreneurship hub for budding business owners in Brisbane.
ShortPress asked Smith for his best tips in choosing a business partner.
Your business partner should have complementary skills and networks to those you possess.
Diversity is strength
Smith jokes that he would never go into business with somebody like himself. “Your business partner should have complementary skills and networks to those you possess. If you both have the same skills and know the same people, the business will be limited.”
Value the values
The skills might differ, but the core values between business partners should be closely aligned, says Smith. “You need to understand what is important to each person and see if there is a good fit.
“With Motize.com, for example, Geoff and I have a strong interest in helping the charity sector. Having shared values makes it a lot easier to work together and make decisions.”
Take and give
Smith says business partners need to accept that one might contribute more than the other from time to time. “You can’t have rigid rules that say who does what in a startup.
“You have to give and take. Your partner might have other business interests, and provided they are disclosed and there is broad agreement on how much time is contributed, you can manage through them.”
You have to give and take. Your partner might have other business interests, and provided they are disclosed and there is broad agreement on how much time is contributed, you can manage through them.
Skin in the game
Smith is wary of business partners who want an upfront salary, will not invest in the venture, or forego short-term rewards to build a much bigger venture. “Partners must invest something to demonstrate their commitment. It could be their capital, time, reputation, networks or other resources. If the partners make a strong commitment, they are incentivised to make it work.”
Somebody you can disagree with
Fierce debates are inevitable, healthy, and a key part of the venture finding its way or growing in unexpected directions. Smith says business partners need to know they can work with each other in conditions of extreme uncertainty, accept differing views, and find ways to resolve conflict.
“In Motize.com, for example, Geoff and I occasionally have heated discussions about the business. You need that. We also listen to each, respect each other’s opinion and find a way to move forward. If your business partner is too inflexible, the venture will never work.”
Tony Featherstone is a former managing editor of BRW and Shares magazines.