I can’t tell you how many folks I’ve met who relay nightmarish stories regarding the partnerships they entered into when going into business. Partnerships usually start with blissful ideas of taking on the world with your new business idea (gym, studio, etc) with your best friend, cousin or your favorite workout partner…and unfortunately the typical ending involves hard feelings and a severed relationship, and in some cases even a lawsuit.
Now don’t get me wrong, good partnerships can and do exist. But they are not the norm. The reality is that partnerships often end very very badly. In fact there is good reason to seriously evaluate your relationship with the person you are considering partnering with, because odds are it won’t be the same at the end of your journey together as when you start out.
Let’s consider the top 2 reasons why most folks go into business with a partner (or heaven forbid multiple partners) and some measures to take to protect you both from a potential falling out. We’ll also look at what you might choose to do as an alternative to taking on a partner.
1) Financial considerations
Starting a business with a partner often allows the business to start with more capital. If both partners are putting in a sum of money it means there’s more money to work with than if just one person starts alone. This can mean the ability to purchase more equipment, inventory, be able to show sufficient assets to secure a lease, etc. and therefore the difference between starting the business or not.
Here’s the deal. If your only reasoning for going into business with another person is financial you are likely far better off trying to secure a loan…maybe even from this same person. They earn a return on their money and you are free to build and run your business as you see fit. And as long as you make your loan payments your relationship will likely remain unchanged.
2) Shared work load
Often there is the idea that the workload of the business will be shared equally by both partners. This is something to be very careful with. It may be assumed this will be the case, but often one of the primary reasons partnerships go sour is due to differing expectations on what constitutes “equal workload”. It is important to delineate roles and responsibilities up front. Is one individual going to be doing all of the coaching while the other takes care of backend items like the website and blog, maintaining the books, paying bills, etc? You can save a lot of headache in the beginning by outlining each partner’s responsibilities and job description and putting them in writing.
It is also important for both parties to discuss expectations with the performance of the business. Many folks new to business begin with the notion that their “winning idea” is going to take off right out of the gate and the money will begin pouring in right from the outset. Reality check: 80% of new businesses fail in the first year and 90% of those that make it through the first year fail by year 5. Of course each situation is different, but in most cases new entrepreneurs have loftier ideas about how quickly their business will take off than is actually the case.
Put it all in writing:
1) What are each person’s responsibilities/job description? Who is measuring the performance of each partner and what if one partner is underperforming?
2) What is each person contributing financially?
3) What steps will be taken if one individual wants out of the partnership/business? Will there be any provisions for compensating an early departing partner for their initial financial contribution?
4) At what intervals will you sit down and evaluate the performance of the business to determine if you are on the path you intended?
5) Who are the partners? What role will the spouses of the partners be playing? (this is a tricky one, because often a partner’s spouse will wiggle in and try to be another voice…for good or ill)
6) How will you raise capital if you don’t have enough between you? What is each person’s comfort level with taking on debt?
An alternative to the shared workload partner scenario is to simply outsource all of the business tasks that aren’t your strengths. This will allow you to do what you are good at (coaching, teaching, etc) and not overburden you with administrative tasks. This may require more upfront capital, but in the end you are the one driving the boat and your business will thrive (or not) based on your efforts alone.
I have seen many microgyms with multiple partner scenarios where each and every partner is frustrated. It made sense in the beginning for a group of 4 or 6 folks to each put $15K in the business (shared financial burden), but then a year or two down the road you find it’s nearly impossible to come to any consensus about any aspect of the business and 1 or 2 folks feel like they are doing all of the work. Making decisions by committee can take forever and may result in decisions you don’t like or agree with and the more partners involved the more complicated and potentially frustrating. It may seem the easy road in the beginning to share the financial burden of starting a business with multiple people, but in the end many find it to become the bumpier, rockier road.
Depending on individual circumstances there will be many more items to delineate in writing. Be sure to bring up every possible contingency and lay everything out on the table before you open your business together. (A good lawyer can help with this and potentially save your relationships!) You may find early on that you prospective partner(s) has completely different ideas about what their role in the business will be. Hash all this out early on and you both will be happier. Who knows, you may decide to just go it alone.
Oh one more thing…modeling your business ahead of time can help give you and your partners a clear, realistic path for your business to take!