By Viktor Andrukhiv, a Ukrainian entrepreneur, co-founder of Fibermix and Savex Minerals
Business success isn’t a one-size-fits-all solution; it’s a mix of various elements. If it seems like everything is going according to plan, but your business is stagnant, perhaps you need to add the missing element, such as the skills of another person. This means you should consider looking for a business partner.
According to Harvard Business Review, nearly 94% of technology company leaders view business partnerships as a vital part of success. From my own experience, I can attest that this approach works. But, be cautious because a poorly planned partnership can result in conflicts, financial burdens, and even business failure.
To steer clear of these pitfalls, it’s crucial to select a business partner thoughtfully and establish clear cooperation rules in writing.
How to Choose a Business Partner
1. Align Your Goals, Ideals, and Motivation Level:
Start by ensuring your business goals align with your partner’s, whether it’s about going global, focusing locally, or working with Asian or European markets. Also, consider personal traits; good communication from the start is crucial, and differences in temperament can lead to misunderstandings.
2. Professional Background and Reputation:
Your first step should be investigating your potential partner’s professional history and business track record. A simple chat may not be enough. Talk to their former employers, managers, and partners, and verify the information.
3. Build Trust:
Before diving into a partnership, meet face-to-face. Discuss the future of your joint venture, visit each other’s businesses, and interact with employees. Communicate openly and honestly. The aim is not to impress, but to ensure both parties clearly understand the situation. At this stage, openly acknowledge weaknesses, talk about how you’d like to manage the business, layout verbal rules, agree on issues, and seek compromises.
Key Tip: Successful business partnerships require everyone to invest in real assets, like money, real estate, and tangible property.
Setting Rules, Protecting Interests, and Signing Important Agreements
This marks the beginning of your collaboration and is a critical phase. At this stage, you need to create and sign two essential documents.
The Articles of Association of the company. These legally define the financial interests of all partners, ensuring everyone’s interests are protected.
Partnership Agreement: This document safeguards your business partnership from potential conflicts. It’s your roadmap, referee, and crash test all in one. Interestingly, many partnerships end during this agreement phase when one partner realizes they can’t meet the requirements.
These documents should address key questions to prevent conflicts:
- Business purpose, mission, and development strategy, including corporate values.
- Financial strategy.
- The roles and responsibilities of partners.
- The process of buying or selling shares in the business.
- Exit strategies.
- Dealing with critical situations such as illness, death, or inheritance.
- Holidays, vacations, and sick leave.
Key Tip: Don’t skimp on lawyers. Every detail in the document and formulation, in the end, will have a significant impact.
Traps of Partnership: How to Avoid Them
- Don’t chase money alone; seek partners who share your vision and are ready to invest time and money. Investors often want passive returns and may become mere creditors awaiting monthly payments, rather than active collaborators.
- Don’t pick partners solely based on empathy or friendship. Just because someone enjoys the same music as you doesn’t mean they’re a reliable business partner. Align your goals with your partners’.
- Start with a clear view. Strong personal motivation can sometimes blind us to the true nature of those around us. Someone showing interest in your business’s success may not be as willing as you to dedicate weekends to adjust the business plan.
- Don’t distribute business shares casually. Sharing with those who don’t fully grasp the value can lead to strategic errors. Forming a partnership is easy; dissolving one is not.
- Look for partners within your team, those you’ve trained. While this might seem contrary to the previous point, if an employee shares your ideals, values the company, and is willing to invest financially, there are no barriers.
- Plan for the future. Outline exit terms from the beginning. Partner departures can be complex and harmful to the business. Don’t ignore this crucial aspect when starting your partnership.
So, the key is in the details. Be thorough in finding the right partnership and precise in creating partnership agreements. This way, your business partnership can be comfortable and potentially successful for your business.