While flipping channels, I ran across an episode of City Confidential, a show that takes viewers on a trip to an American city while recounting a murder there. This particular episode involved two business partners - one was convicted of killing the other. The murder victim was apparently exceptionally hard working and capable, and was abandoning the shared business due to the poor performance and lack of effort on the part of the other owner. The slacker parter, seeing that the business was already in trouble and would certainly fail without the other’s contributions, was found to have killed him - apparently to take advantage of a hefty “key man” insurance policy that would have paid the firm’s debts and left the remaining partner well-capitalized and in full control. While few business partnerships will lead to murder, lots of them do generate hard feelings when the partners seem to have different expectations for their effort and performance. Nowhere is that more true than with Web businesses.
The dynamic nature of Web businesses mean that they are often formed quickly in response to a perceived market opportunity. Frequently, these businesses are launched by multiple partners or shareholders, each of whom may bring some particular strength or expertise to the enterprise. The Web also makes it possible for founders to be in different locations - a huge advantage in combining skills, but also potentially problematic. Partners who are geographically separated may communicate far less than local partners, and don’t have the opportunity for informal bonding. In addition, even determining what a partner is doing or how much effort he is putting forth can be difficult.
At WebmasterWorld, I’ve occasionally responded to forum members seeking advice in setting up a new venture. After seeing the partner murder story, I was motivated to do the same here.
I’ve been part of both in-person and virtual startups involving multiple partners, and the potential pitfalls are actually quite similar. (I’ll use the term “partner” even though sometimes “fellow shareholder” might be more accurate from a legal standpoint.) I’ve seen some go very well, and others not so well. Based on my own direct experience, as well as what I’ve observerd in other startups, here are a few ways to avoid wanting to bump off your partner(s).
Partner With Quality People. Love is blind, and so is new business enthusiasm. Just as individuals sometimes overlook flaws in the people they marry, or assume they’ll change the other person, so do entrepreneurs. Nothing is more important than choosing partners who have a track record of positive accomplishment and have demonstrated integrity over time. Markets change, business needs change, but a solid individual will remain an asset throughout. Conversely, if you have reservations about an individual or his background, or are unable to determine much about the person’s history, don’t get involved in a business relationship. Do some reference checking with past employers or business partners to avoid surprises.
Clearly Define Roles and Expectations. In the enthusiasm surrounding a startup, often partners plunge in with only a vague idea of who will be doing what. When things get rolling, it may turn out that one partner had a greatly differing idea of what she would be doing, or how much effort would be required. I saw one such partnership blow up when one of the founders of a bakery/restaurant realized she would have to get up at 2 AM every day to begin making product. (Of course, even clear role definition doesn’t eliminate the possibility that a partner will be unwilling to fulfill that role after a period of time.)
Establish Milestones and Tangible Performance Indicators. If a partner is expected to complete specific tasks as part of the startup process, define these. Set dates for completion, and state how completion will be measured. The more specific you can be, the better. (The partner murder case I mentioned earlier started when one partner was working long hours and creating most of the value in the business while the other spent most of his time sitting around and chatting up the female employees.)
Decide What Happens If a Partner Can’t, or Won’t, Meet His Obligations. Setting out expectations is great, but you also need to decide what happens if these expectations aren’t met. Will ownership be reduced? Will compensation be cut? Since often “sweat equity” is a big component of these startups, it may be that adjustment of ownership shares is the only solution.
Have a Lawyer Create Your Documents. “Handshake” partnerships are the worst when the go sour - with nothing legally defined, the partners who are creating value may end up sharing that value with those who aren’t contributing. While “do it yourself” agreements are better than nothing, investing a few dollars in a lawyer who understands the laws in your state is well worth it.
Define How Partners Exit The Business. Sometimes partners may exit the business tacitly, by ceasing their efforts. In other cases, a partner may need to exit because of other circumstances - health problems, family issues, etc. Regardless, the agreement needs to define what will happen under these circumstances. Will the partner forfeit all rights of ownership? Will compensation be due? How will time affect this determination? Clearly, a partner who has worked on the business for a year will have contributed more sweat equity than one who stops working after a few weeks.
Communicate! Some partnership problems result from festering issues. One partner thinks another isn’t working hard enough, is taking the wrong approach, etc. Instead of addressing the issue head-on with the other partner, he stews about it, complains to other partners or team members, and in general does nothing to solve the underlying problem. Not all issues can be resolved by communication, but it is always worth the effort to try.
These thoughts are in no way a complete guide to starting a small business or a virtual partnership. But, if you are contemplating such an involvement, consider these points carefully. It’s infinitely easier to solve problems before a venture starts than when it is well underway. I’ve been involved in negotiations to straighten out messes created by poor partnership arrangements, and I can assure you they are no fun at all. Get everyone to agree on terms while enthusiasm is high and while relations are cordial, and you’ll avoid those murderous thoughts later.
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