How To Start > Business

What Nobody Tells You About Having a Business Partner

how to avoid bad business partners, and thrive with the right partner instead

By Benjamin Davis
Contributor, How-To-Start.org
Having a Business Partner

If you’re considering going into business with someone, your partnership with that person is going to be the defining feature of the business, for better or worse.

You’re going to look back in either the months or years ahead and say “wow, I couldn’t have done this alone” OR it will have been a complete disaster, and you’re going to regret every minute of it.

The first thing I would say about the general advice that you read on this topic, is that it seems to be quite ‘general’ in nature.

It either tends to focus on the wrong part, or just completely misses what I consider to be the most important part – and that’s what I’m going to write about here.

By the end of this article, you’ll have some ideas on partnership that you might not have considered before.

Hopefully you’ll also have some clarity on whether going into partnership would be – for you – a great idea, or whether it might be a terrible mistake.

I think there are right reasons and wrong reasons for going into partnership.

Let’s set aside for a moment the question of whether or not the person you’re considering partnering with is the right person for you, and let’s talk just for a second about you, and your reasons.

Because, in my opinion, there are only two options for ‘the right reason’ when it comes to your own motivation, and they are something like this;

  • that you’re aware of your own limitations and weaknesses, and your potential business partner can contribute in ways that balance those, OR;
  • you have an extreme strength in one area, but are totally disinterested by the other areas that are needed to make a business work.

Those are the two headline reasons.

If your reason is the second one – that you have an extreme strength but a complete disinterest in other areas – that’s great, because it’s probably the easiest ‘flow’ to get into.

If you’re that type of person, you can easily just do what you’re good at, and you don’t really care about the rest of it.

But here’s where it gets a little complex, and I think here is also where the root of all evil lies when it comes to business partnerships going bad.

Let’s assume your reason is that you have limitations or weaknesses that you feel your potential business partner will balance out, or will complement.

Here’s the problem.

If those limitations and weaknesses are of a personal nature – and I suggest that they almost always are, whether you know it or not - (that is, they relate to your own mentality, your own emotions, your own insecurities), you’re not actually getting into a business partnership – you’re getting into a short term LIFE partnership.

And I of course don’t mean that in a romantic way, I just mean to suggest that, what you call a business partnership, isn’t really what it says on the box…

…instead, it’s a personal relationship with a common goal of commercial gain.

So along those lines, consider this…

…imagine for a moment that you’re a really good sales person, and you meet an inventor who’s invented a product that you both think is great.

idea of a business partnership

Over a series of conversations and a few bottles of wine, the idea of a business partnership is floated.

And it seems like a match made in heaven.

The product is good, but he said he’s really not a good sales person.

But both of you think that you would be great at selling this newly invented product.

So you both decide to go into business together.

You go together to see a lawyer, because that’s what you both think is the right thing to do, and the lawyer helps you get a contract together saying who’s responsible for what and how the meetings will run and who will sign the checks, and all of the other housekeeping things.

And it’s all good. You’re off to a great start. And everybody is happy.

You go out and spend a month or two making calls and selling your widgets.

You develop some contacts, you make some pitches, you go back for follow up meetings, you close a few deals, and things are going truly well.

The company is already showing some early profits, and you’re both drawing a salary – but at the same time you both also know that it’s just the tip of the iceberg, and there’s SO much untapped potential.

So there’s a shared sense of excitement and elation, and it really keeps you moving.

So you go back to Mr Inventor at your monthly directors meeting, and you say to him
“Mr Inventor, I think we need to have 10,000 units of stock so that I can go and sell to these two big accounts – because without stock we can’t supply them and that would blow our chances with them”.

Mr Inventor doesn’t jump at the idea, and even pushes back a little – he’s polite, but he does push back – he says “there are still 2,000 more small clients we haven’t talked to, we should go there first, because it makes more sense to keep doing what we’re doing – its working well”.

And - you don’t really want to have an argument, and also - you can see the sense in what he’s saying.

So you agree that those 2,000 small prospects should be visited first, before spending all the free cash on hand on a huge order of stock – which can be avoided.

But the next week is a bit slow.

You don’t really feel that great – and you take a day off.

And during the rest of the week, you actually visit HALF as many prospects as you typically would have.

not feeling good

So, let’s pause and understand what’s happened here.

Both you and Mr Inventor are now having your real ‘inner selves’ revealed for the first time in this equation.

Many months ago, when Mr Inventor said to you “hey I’m not good at selling”, what he actually meant was “I’m a little insecure in many ways, and that stops me from doing things that I would actually benefit from doing”.

But you weren’t looking for the meaning behind his words back then, so you didn’t pick up on it at the time.

And, now, because of his insecurity, which he interpreted as ‘not being good at sales’, he doesn’t have the appetite for the risk that would in all likelihood propel the company to the next level.

In fact, just getting to the point that you’re at has been FAR more risk and uncertainty than he’s had to deal with in the last 6 years – so in many ways, its something of a miracle that he’s still hanging on.

And then when you dropped the bombshell about wanting to go and risk everything on 10,000 units of stock, he actually started to view you in a different light.

In a small way, you started to become the guy that wants to threaten everything that he has.

And that doesn’t feel very good for him.

But he wasn’t really paying attention to what happened, and doesn’t really understand that he feels that way – certainly not enough to express it to you.

Now, lets contrast that with your real self - your inner self.

Because you’re a good sales person, there’s a good chance that you also thrive on risk and love a good challenge.

And in fact – not only do you have quite an appetite for risk, it turns out that risk is completely essential to keep you motivated and interested.

So when the risk evaporated, things got boring.

A switch was flipped somewhere inside your brain, and you started to lose interest.

It doesn’t take a genius to predict that over the course of a few more meetings and even more pushback from Mr Inventor, you’ll eventually lose all interest in the business.

Resentment will start to build on both sides, and the ultimate end will arrive.

Hopefully it all ends amicably – which it can, if you both have a conversation as soon as possible – but chances are that by the time either of you realize what’s happening, it’s beyond recovery.

The Problem with Expectations

What I’ve set out in that example is a scene that plays out every single day, right across the world, wherever people are doing business.

They discover things about their own character and DNA – or the other persons – along the way, and it turns out that things aren’t as they expected or hoped.

And it’s that gap between expectation and reality that they really have trouble with.

But, even MORE unfortunately, I suspect that in most cases, the discovery and the diagnosis of the underlying issue is never actually made.

The symptoms are there, as it was with Mr Inventor describing himself as ‘not very good at sales’ and pushing back on a big order of stock, but the actual understanding of the driving mechanism is just not there.

If that understanding was there, on his part at least, he could deal with it.

And that’s why I say that the mainstream generalist advice of ‘have a contract, business is business, keep your personal life out of it’ etc simply doesn’t work.

Because everything you do, and every element of your conduct is driven by what’s going on inside your head.

And suggesting that the key to a successful business partnership is a good contract is exactly as stupid as suggesting that if you have a pre-nup, your marriage has a better chance of working out.

That’s just not correct.

It’s the PEOPLE that matter, not the paperwork.

The Key That Unlocks the Door

I contend that the real key to success in any partnership – business or otherwise – is to understand yourself and understand your own reasons.

If you don’t know what’s truly at the core of what you perceive as your weaknesses or limitations, you cannot operate a business in a way that gets the best outcome – and you’d be damn well lucky if it doesn’t all end in tears.

So that’s the first part of it – making sure YOU’RE going into it for the right reasons, and making sure that you truly understand what’s at play.

The degree to which the business is successful is also the degree to which your partnership will be under pressure.

That’s true at both ends of the spectrum of success.

When the business is new, and has zero revenue, and then when the initial honeymoon period between the two of you is over, the pressure and the potential for issues to arise is very high.

The pressure continues to build as either one (or both!) of you wake up to some realities that simply are not as you’d expected.

So, then as you navigate through that stage, there’s an inverse degree of pressure – something like an upside-down bell curve that represents the pressure – in the middle, things are ticking along, you’re both drawing a good salary, there’s a profit distribution a few times a year, and for the most part, everything is good.

BUT – it won’t stay like that – because if you’ve developed the business to that point, chances are that the framework you had in place to get to that point will not be the same approach that gets you to 10x wherever you are at that point.

As you begin to transition towards the other end of the spectrum of success – where you’ve passed the initial danger zone, and you’ve passed the comfortable and easy-going zone – you’re right back at the point where things need to change again in order for growth to continue.

In some industries, that second wave of change is not optional – it’s a basic requirement to continue in business.

So the same pressure returns to both sides of the partnership as was there in the beginning.

You’re back to the tug of war in your own mind about your expectations versus the reality, and also the amount of risk and discomfort that you’re willing to live with for the sake of growth.

Then you’re balancing all of that with the same set of concerns on your partners side, albeit they will have a different view on at least some of those things.

So that’s when things get even more interesting.

I would contend that if you get through that initial stress of getting from ‘zero to ten’ and building some momentum, the two of you probably have things worked out well enough to be able to handle the next phase of going from ‘ten to fifty’.

How To Avoid Bad Business Partners

Assuming you’ve judged your OWN reason for wanting to get into business as being the right reason, and assuming that you have been honest with yourself and you understand what lies within, it’s time to turn your mind to your potential business partner.

You need to judge them in several ways.

how to avoid bad business partners

First, you need to judge their intent.

Then you need to judge their mental stability, and their honesty with themselves.

Judging their intent is the most important part, because it’s more complex than it sounds.

Their ‘face value’ is not always a reliable indicator of who they really are.

It’s highly unlikely that you’d be considering going into business with someone who has declared their intent, from the beginning, to steal all the money from the company account and disappear to Mexico.

So when you’re judging intent, what you’re really judging is not their intent as it stands today, but you’re thinking about whether their intent is likely to remain good and pure into the future.

And that’s challenging – there’s no single reference guide that can reliably say “if x, y and z are ok then it’s all good”, because it’s just not like that – everyone is different.

It really is an exercise of raw judgement at its purest, and it’s a judgement that only you can make.

You need to consider what type of person they are, and how they would be likely to act in difficult times.

It’s all good when things are going well – but when the going gets tough, that’s when people really revert to their raw character.

Three Things That Reveal Character

The three things that reveal true character are time, money, and alcohol.

Money is obviously a factor in any business.

Time will pass.

And alcohol might be part of business social life.

It won’t be long before their character is revealed.

Don’t ignore the signs that slap you in the face.

It’s difficult for someone to conceal their character if they talk for long enough.

You should listen to how they frame their thoughts. Are they honest with themselves? Or are they even slightly deluding themselves?

You’re judging their ability to understand themselves in the way that I talked about you understanding yourself in the first part.

You’re also judging their ability to cope with things when it’s all going badly, or equally, when it’s all going very well.

And the easiest place you can look for clues overall about their tendencies when it comes to things like this, is their life in general.

If it’s a complete disaster, chances are that they have made a series of bad decisions.

If bad decisions have been their habit, you might not benefit by partnering with them.

On the other hand, if their life is either “ok” or even if it’s exceptionally great, then they may be someone who is on a steady heading.

You might look to other parts of their life for clues on how they view the world and how they treat others.

Tip: A good business partner holds himself ultimately responsible for everything that happens. When you listen to someone talk for long enough, you can detect if they usually blame others, or if they take ownership of their actions and outcomes.

Getting Uncomfortable for Fun and Profit

A good way of making judgements about someone is to have a conversation with the stated aim of each of you making the other as uncomfortable as you can.

You can do that by asking questions like;

  • What do you know about me today that you dislike, and why?
  • What could you really resent about me in 5 years time?
  • Tell me about a time when I did something that you thought was completely wrong, and why?

These are good questions to ask, and it’s a good conversation to have.

The concept of ‘having a conflict’ gets a bad rap.

People tend to take the view that conflict is bad, and should be avoided.

It’s not too hard to understand where that view comes from – most of us are raised in a way that teaches us to get along with others by way of give and take, and that not backing down or being disagreeable is a bad thing.

That’s a fine idea in theory – except that the underlying premise is that if you’re just a nice and agreeable guy, there will be no conflict.

And nothing could be further from the truth.

Maybe when you’re a child that’s true – but after you’ve lived a little bit of life, you’ve got a delicate and super-complex story in your mind about how the world is, why it’s that way, what you should and shouldn’t do, what others should and shouldn’t do.

And that’s not a problem – it’s just a fact.

But, when you run into someone who presents an idea that goes against any element of that complex construct in your mind, then in that very moment, conflict happens.

Conflict becomes true. Conflict exists.

Conflict is not a bad thing.

You don’t go to the naughty corner if you have conflict.

Conflict IS THERE.

Your job is to deal with it.

Tip: Instead of waiting for conflict to appear in a partnership, or skirting around it and hoping that it doesn’t appear, or hoping that it’s not a problem, you should actively seek it out.

A Date with Discomfort

When I had a business partner, we held a weekly appointment that I called “The Hour of Conflict”.

Some people schedule an hour of brainstorming, or an hour of sales calls. We had a scheduled hour of conflict.

During that hour (which rarely ever lasted a whole hour) we would come together and intentionally talk about anything we can think of that might give rise to a conflict between us.

The conversation usually starts by asking the other “what is the thing that I’ve done or said in the last week that is most likely to cause resentment for you, in its current shape”, and the conversation went on from there.

Just by being aware of how the other person is perceiving you, and how you’re wrong about them, you can starve the flames of trouble.

Hide At Your Peril

Conflict is only a problem to the extent that it’s hidden, ignored, and supressed.

By hiding it and supressing it, you’re pouring on it the fuel that it needs to turn into resentment.

Once resentment builds, it’s really hard to claw back that territory.

The Easy Part

The simple part of a business partnership is the mechanics of operating the business itself, and how the partnership will be structured around that.

Unfortunately, I think that most people considering a business partnership focus so much on just this ‘housekeeping’ component that they completely neglect the first two areas that I’ve set out in this article.

And I think that’s a mistake the paves the way for selecting a bad partner.

I won’t write on the topic of operating the business – I think there are plenty of great resources that focus solely on this.

I don’t need to repeat what’s been written a million times.

Broadly speaking, however – there are two elements.

One is the operational partnership – where you do one task and they do another task, where perhaps you are responsible for running one side of the business (sales) and they’re responsible for another (manufacturing).

Most people can naturally understand the division of the operating partnership roles.

The other element is the strategic element.

Developing ideas, developing plans, developing strategy, and deciding the best way to execute on those.

Both of those elements will be there in every partnership – but the degree to which they cross over or coexist really depends on the nature of the business.

If you’re going into business with a guy to start a lawn mowing business together, and he’ll cover the north and the east, and you’ll cover the south and the west, then you’ll both be 99% operational and 1% strategic.

But, if for example you were one of the guys that teamed up to start a company like Uber, it would be almost exactly the opposite.

None of the founding partners would spend a great deal of time on operations, but each would need to spend time working on strategic matters.

So, ‘it depends’…

It really does depend on your business model and your industry as to how to structure the operating and strategy split, and how you divide the responsibilities.

Any attempt to generalize that in an article will do you no good.

You cannot escape the need to sit down together and work through that.

The good news, however, is that it’s probably the easiest part of going into business with someone!

Really?

You could be forgiven for reading this article and saying “wow, this guy is WAY over complicating this stuff”.

And maybe I am.

It’s possible that you’re a guy with a business idea, and you know a guy who has some cash to get things started, and the two of you decide to get together and ‘make it happen’.

And you might do that, and it might just naturally go well.

There’s certainly a chance that it could all go well.

But, once the basics are in place (that is, there is a plan, there is skill to execute on the plan, and there is cash to back it up), you’re still going to run into the issues of being human that I’ve outline here.

And you’re much better off dealing with those pre-emptively.

Let’s Do Nothing of Value!

The act of two people pairing together – one with an idea, the other with some cash – is the lowest form of partnership problem solving.

Both are certainly essential components of starting a business.

But I contend that if there was a Maslow’s Hierarchy of needs for a business partnership, those two things would be WAY down the bottom.

Piled upon them would be a whole bunch of other things, including the things I discussed in this article.

Contracts good housekeeping has its place.

But nothing matters as much as the people in the equation.

If you are going into a partnership, and either party either has bad intent at the outset, or develops bad intent somewhere along the way, it cannot possibly end well.

The only ones who win from ‘iron clad contracts’ are the lawyers, and I don’t think paying lawyers is anyone’s dream.

If you get the people part right, everybody wins – and that’s the exact point of a partnership.

The Bottom Line Paragraph

Success in a business partnership requires exactly the same ingredients as being successful in any relationship:
  • self-awareness
  • honesty – especially if its brutal
  • communication
  • and maybe even a little bit of trust.

And if all of that hasn’t scared you away, go for it – spend some time thinking these things over, and make the best decision you can make with the facts as they are at the time, and you’ll regret nothing.

You can write to me with your questions, comments, and feedback through the box below.

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