18 Jan 5 Signs You Have the Wrong Business Partner

When starting a business, one key threshold question is whether you want to go solo or start with partners. Assessing your own personality and strengths helps you determine the best route. Many go forward with founding partners, others add partners who contribute important services and then of course investors can become your partners. Sometimes too late a founder realizes he has connected with the wrong people to really build a success and enjoy the ride as well. I believe one of the top 3 reasons businesses fail is making bad partner choices. Here are five signs you have probably not chosen the right people with whom to share entrepreneurship:

1. But I thought that… If you didn’t have a clear written understanding of who is responsible for what and whose strengths will be utilized in which ways, misunderstandings often develop down the road. So often in a breakup one partner says he or she thought the arrangement was going to be much different than it actually materialized. Be up front in the up front, and warning: if there are more than minor difficulties coming to an agreement going in, it is probably a sign of trouble ahead.

2. Hiring could have done the job… Often equity is handed to individuals providing services to a company when cash simply is not available. Suddenly a founder finds herself with a 10% owner who helped build a website or set up online payments when most businesses would have simply paid for the service in cash. That partner now has rights and significant potential upside (like the Facebook office muralist who had $200 million in company stock when it went public). If you do grant equity in these situations, ideally try to have the ability to buy out the service provider down the road.

3. Rainmaker with their own agenda… It is common to offer equity as an incentive to someone who is bringing revenue into the business as a salesperson or business development executive. Sometimes that new partner decides to move on to another company, taking their “incentive” with them. They may even take business out your door. Again, make sure there is a buyout arrangement, and if possible a non-compete restricting their ability to work across the street for some period of time if permitted in your state.

4. I don’t care if I will get the same benefit… Life circumstances often intervene whether health-related, personal issues, child-rearing and the like. This can lead one partner to desire a reduced or adjusted schedule or commitment for some period. A partner that will not accept this flexibility and attempts to require you to give 100% of yourself 100% of the time may not be ideal. If you are seeking the adjustment, remind them that you will do the same for them if life issues affect them in the future. If you are aware of these potential circumstances when you start the business, try to provide for it in your initial agreement.

5. I have to let you go… When one partner (often an investor) has the right to force a founder to leave the company, be careful. Often these are incorporated in “termination for cause” provisions in employment agreements which normally seem innocuous and require criminal activity or the like. But sometimes the list of “cause” includes broader provisions such as “actions materially deleterious to the company” or other items which could inadvertently incorporate things like a DUI. These “for cause” terminations, unfortunately, often result in nasty corporate divorce lawsuits.

Know both your partner and your deal before you begin to significantly increase the chance that you will have a successful partnership.