Obviously when developing ideas with someone, the initial inspiration is the fun part. The important factor that most people miss is that next comes an honest
discussion of expectations, roles, and other details of a good pairing.
A business partnership
(BusinessWeek SmallBiz, June/July, 2007) is usually hatched in a state
of inspired optimism when two or more seemingly like-minded individuals
come together with an idea to create a product or service and develop it into a business.
But perhaps not surprisingly, for every partnership agreed upon
formally or informally, there are a number of questions about the best
way to keep it going forward. How should the contributions of each
party be tallied? How does that play into the continued growth and
stake of each person involved? Is the idea man worth as much as the guy
who brings the money?
It is important to define a partnership from the outset and formalize it on paper with a set of parameters that could be referred to when questions or troubles arise.
In their book Beer School, Steve Hindy and Tom Potter, who founded Brooklyn Brewery
in 1987 says,
"One important thing that we did at the beginning was to draw up a partnership agreement
that defined it financially and also defined a buy-sell agreement, in
case one of us wanted out or in case of disputes. Over the years, I saw
many partnerships dissolve into chaos. They had shaken hands at the
beginning, but there was nothing on paper to define what that meant."
To underscore their
point, the pair wrote: "Even a dog can shake hands."
"The Rules of the Game"
Karen Harned, executive director of the small business legal center at
Washington-based trade group National Federation of Independent
Business says, "The advantage of having
a partnership is that it is easy to establish," adding, "I
think what happens often is that you go into business with a friend and
everyone is excited about the prospect of creating a business without
taking a hard look at the realities." Harned says it is essential to
carve time out at the start and create an agreement so that "everyone
knows the rules of the game."
However, Gary Dushnitsky, a professor of management at the Wharton
School, doesn't favor formalizing a partnership agreement too early.
"When I talk to early-stage entrepreneurs and my students, they often
ask if they should have a legal contract [for their partnership]. I
say, you will have a chance to pay legal fees—that will come. But
before that, I say, do what I call the latte strategy: go to a café and
buy a large cup of coffee and have a conversation before you begin to
formally write it down."
According to Dushnitsky, the early stage of the business
relationship is the time to determine what each person can bring to the
partnership in terms of capital, contacts, level of engagement, as well
as to see how each views their commitment to the venture, their vision,
and the time line they see for its development. In other words,
Dushnitsky says, "early on, it is easy to have an honest conversation."
Moreover, it will become apparent rather quickly if the parties are on
the same page to be able to move forward successfully.
"I do think a document is extremely important,"
he says. "But [it's] just like a marriage. You don't [bring] a ring in
one hand and the prenuptial in the other," adds Dushnitsky.
For further reading and to view a slide show of 11 seminal business partnerships that resulted in companies that impact our daily lives, visit http://www.businessweek.com/smallbiz/content/nov2008/sb20081121_208798.htm .