Saturday, July 30, 2005

On partnership

There are many ways to structure your company (we will talk about that in a later issue), so when I say partnership, I am not talking about it in a legal sense. This is more in the business sense. If you are not ready to go it alone, you should consider a partnership. It spreads the risk, but it also complicates things. Partnerships are full of pros and cons, so look at the list below and decide what is important to you. PROS:
  • Emotional support - Starting a business is an difficult, and it is often helpful to have someone understand the challenges you face. You are more likely to be able to stick through the tough times if you have someone who can encourage you and point you towards the vision every once in awhile. It is easier to make the tough decisions when you can share the emotional burden with someone else.
  • Risk sharing- Starting a business is a big risk. You not only have the cost of the business, but also the opportunity cost (we will discuss this later). Financial issues are some of the most difficult because it encompasses your business and your family finances.
  • Starting with needed skills - It is often expensive and difficult to successfully hire someone you need to manage in an area where you lack. C and I together have the combined creative, business and management skills to start a company. I am not sure we could have started this company on our own and hired what the other brings to the table.
  • Financing - With more than one partner, you are likely to have more capital to put into the company. Also you will be able to scale more quickly and grow if you have sufficient capital.

CONS:

  • Permanence - A partnership is like a marriage and should be treated as such. It is quite easy to get into a partnership without knowing the full consequences of your actions, and when it ends, things could be very messy.
  • Conflict - When there are two or three heads of an organization, there is bound to be conflict. If your personalities, vision or ideas diverge, you need to determine how to proceed.
  • Decision making - Who makes the call? Partnerships need to be able to merge the ideas of multiple people into a coherent vision.
  • Personal changes - Your lives will likely take different turns. You and your company needs to weather its own changes as well as those of another person.

Ask yourself these questions before you enter into a partnership?

  • How do you know your partner? How long have you known him/her? Audit your relationship before you start a partnership. C and I are sisters, so not only were we going into a partnership, we were taking our sibling relationship into uncharted territories. There are times when our business affected our sister relationship, but I would not want to have any other partner.
  • Are you expectations and goals aligned? C and I took some time to get on the same page about how quickly we wanted to grow the company and what artistic direction we wanted to take. It was tough to sit down and work through those things, but we came out much better in the long run by setting the right expectations.
  • Do you have a clear and fair division of labor? This is an important part of our success. Our skills are very complementary, and we know exactly what we have to do. This is important since changing roles is difficult. But done right, this could be a major advantage since things will work more in harmony.
  • Are you both equally committed? If not, do you accept the difference in commitment? If one partner has a lower level of commitment or less interest in the business, you will have a major issue going forward. Set very clear expectations about what the obligation is and what happens if one partner does not carry his/her weight. It is hard to negotiate these things when you find you have a problem.
  • Are your personalities compatible? If not, do you know how you will work around potential trouble spots? C and I are extremely different even though we were virtually inseparable growing up. It has taken some time to understand each other, particularly in the area of communication. But as we work together, we are learning to be more efficient in our way of working together.
  • What do your families think about this? Some people get into partnerships and a spouse needs to relocate or there is a family emergency. In a business partnership, you are tying your life to that of another, so be prepared for the extra strings in your life. If you life circumstances change drastically, like you have a third child or your mother gets sick and lives 1000 miles away, you need to be able to work through those issues.
Partnership is a lot like marriage. You need to be ready to stick it out even through the rough spots in order to reap the rewards. And friends or family do you necessarily make the best partners. Often friends are drawn to each other for social reasons, but a good business partner needs to share your vision not just the a favorite restaurant.

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