Choosing the right kind of business partner…

April 16, 2007

This is a follow-up post to a prior discussion on partnerships in The Beauty of Partnership

Choosing a business partner can be the most important decision you can make for your start-up, since it truly is a long-term relationship that is hard to get out of if things turn South. Many people say it’s like a marriage of sorts, and I would have to agree. You share the ups and downs and all the financial responsibilities and ownership with your business partner, and if you pick the wrong partner, it will be a rocky ride.

Seth and I have been working together since leaving Citigroup in June, and it’s been fun and tumultuous. In the midst, we attempted to bring on two additional partners (one at a time) and saw the negotiations deteriorate in final stages. We were incredibly disappointed with these developments, since we put a tremendous amount of time, energy, and money into making these deals happen. However, in retrospect, this was the best thing that could have happened for our business.

So why take the risk of bringing on another partner to help run the business? We took the risk because we thought that with another (and older) partner, we would be in a better position to raise money from outside investors, establish credibility with potential business partners, and have the guidance from somebody who had been through the start-up mill before, all leading to a higher valuation for our company. We thought that these benefits would outweigh the risks if we chose carefully.

So if you decide the risk is worth it, how do you choose such an individual? This answer is not simple. It’s hard to know if a good friend would make a good business partner. However, I believe you have the best chances of picking a good business partner if it’s somebody you already know and trust. But a business partner cannot be just any friend. This is not a friend who you used to get drunk or play sports with in college. It is a friend who has the same work ethic as you do. More importantly, this is a friend who has no qualms about telling you when you’ve messed up. This honesty and openness, critical in any business relationship, is often found in very close friendships; all the groundwork for a successful partnership already exists. This is why I believe that a close friend who meets these criteria has the potential to be a better business partner than anybody you might find elsewhere.

Bottom Line: Choose any partner carefully. You’re giving up a lot (equity/control), so make sure you’re getting a lot in return. If there is a pre-existing relationship, all the better. Make sure there is a sufficient level of trust, openness and honesty. It is also critical that all partners share the same vision for the company and a similar work ethic to help the company achieve its long-term goals. Without these critical aspects, the partnership will deteriorate more quickly than a Las Vegas Marriage. I do not claim to have the answer on this topic ans would to love to hear your feedback on this subject, so please feel free to share you comments and experiences.
JT

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