The Ideal Partnership
The decision to search out or confirm a business partner can happen at any point in time. Sometimes, businesses require several partners to get off the ground. Others may build a strong business before choosing to expand their horizons. Whatever the reason and no matter the timeline, the methodologies for assessing potential partners are critical to ensuring the ongoing success of a business.
Covering All Legal Bases
First, it’s important to have zero doubts about a potential partner. After all, any worthwhile entrepreneur has bigger problems than whether or not to trust those in their inner circle. Before signing anything, make sure to conduct background checks and spend time calling and interviewing any personal references. Some even recommend that partners know each other for at least a year beforehand.
It’s also recommended that the merging team review worst-case scenarios. It may seem a bit heavy to broach such a topic at the start of what is hopefully a fruitful endeavor. However, it’s always advisable to have one or more backup plans. That way, you cover the necessary details in the event of a worst-case scenario. This conversation will also expose any deficiencies in a potential partner, as most businesses already have such plans in place.
Business Partner Agreements
Finally, it’s imperative that each party fully understand the document that they’re signing prior to penning their name. While this may seem obvious, a budding venture is likely to create buzz and excitement. On a personal level, that can distract from standard operating procedures. For this reason, consider using a separate attorney than the prospective partner(s) attorney. This ensures a high level of integrity from all parties.
For those living in areas that are subject to communal property laws, attorney and CPA Mark J. Kohler recommends that all parties incorporate their spouses into the operating agreement.
Partners Big and Small
Big and small businesses have different motivations about why to partner together. Fifty-four percent of startups that raised $10 million in investments have more than one founder. Often, small businesses partner together to get off the ground.
Big business, like PokerStars’ partnership with the UFC, work together to create more engagement opportunities. In this case, PokerStars and the UFC created a campaign that would attract players and fans. The campaign provided an opportunity to win a trip to Vegas and meet poker and UFC professionals in-person. They even minted an octagon-shaped chip for the event.
Another great example of a big business partnership is Ben & Jerry’s Ice Cream. The company works with a diverse group of franchisees to create new and exciting flavors. To date, they’ve created 54 different flavors with various brands from Jerry Garcia of the Grateful Dead (Cherry Garcia flavor) to their recently debuted Netflix Original Flavors, designed in partnership with the global OTT streaming service Netflix (Netflix & Chill’d flavors).
However, both these examples highlight effective businesses that choose to band together in order to bridge similar demographics. In reality, most businesses that choose to partner together will be smaller startups. Unfortunately, research indicates that up to 80% of these businesses fail. For small-time entrepreneurs, all parties need to have short-term mutual interests, with long-term chops to stick in a business together.
Big Business Meets Small Business
For big business, each party has already built a strong foundation and found a way to make their product or service stand out in the free market. However, small businesses need to balance one another and offer crucial skills that others may lack. They should also actively look for these traits in a business partner.
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For example, consider the retail service The Art of Shaving. This company provides men with quality shave products through mail order. They sought out a partnership with the well-established Gilette, who produces razors. The Art of Shaving, though a small business, was able to offer Gilette a great idea. Gilette was able to offer the Art of Shaving products and manpower that the company desperately needed.
In this case, Gilette’s brand power met with the Art of Shaving’s novel idea. Of course, Gilette wasn’t a small business as the time of their partnership with the Art of Shaving. Still, their business relationship offers a good example of how budding entrepreneurs should see themselves, their services or products, and what to look for in potential partners.