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How to salvage a flawed business partnership By Louise Witt
Answer Central
http://www.JewishWorldReview.com |
(KRT)
Q. I am planning to start my own business with a partner. I have 50
percent of the cash and 50 percent of the know-how. My partner has
the other 50 percent of the know-how that I need to succeed in the
business, but he is reluctant to contribute 50 percent of the cash
due to his concerns about risk. What should I do?
—Eric S.
A. Well, Eric, you should consider the fact that your business
partner is unwilling to risk his money because he either doesn't
have confidence in the business plan or he doesn't have confidence
in you. Either way this may be enough information to motivate you to
find another business partner. Starting a company is hard enough
without being in business with someone who doesn't fully believe in
the venture.
"You shouldn't be in business with that guy; that's the short
answer," says Bob Borghese, a senior lecturer at The Wharton School
of the University of Pennsylvania and a lawyer who counsels
entrepreneurs. "If he's not willing to make a commitment, then you
don't want to be in business with him. To me, it's a red flag; this
person doesn't have the risk profile of someone who is going to be a
successful entrepreneur."
Before you decide to go into business with anyone, Borghese says it
is important for you to assess your prospective partner's strengths
and weaknesses. Remember that when you start a company, you're not
only investing your money, but also your time and energy. With all
that at stake, you want to make sure you're going into business with
someone who will be a true partner and do all that he can do to make
sure your venture is successful. "Basically, you want to know
whether you can trust them," Borghese says.
Martin Snider, author of ``Compatibility Breeds Success: How to
Manage Your Relationship with Your Business Partner'' (Praeger
Publishers, $49.95), agrees that your prospective partner's
reluctance to risk his money in your startup shows a lack of trust -
not a good sign. Snider says entrepreneurs should think of a
business partnership as they would a marriage.
Snider, who is also a family therapist and an organizational
business consultant in Waban, Mass., says a successful business
partnership requires that partners are willing to make compromises
so that both are satisfied.
"A resolution is when each person feels he got enough of what was
important to him," he says. "If one person is harboring resentment
that he had to give up too much, then that will sow the seeds for a
later conflict."
In your case, you may resent your partner for failing to shoulder
his share of the financial risk. Or your partner may resent you for
pushing him into a venture of which he wasn't an enthusiastic
supporter.
If, however, you do decide to go ahead with your business
partnership, there are several ways to structure the deal so that
your financial contribution is commensurate with your financial
reward. If you wind up putting in all the capital, you and your
partner can agree that once the company turns a profit, you will be
repaid for your investment. In addition to the company paying back
your principal, it can also pay you a risk premium, or interest. The
premium may be higher if you and your partner determine that it will
take the company some time pay you back, or lower, if it happens
relatively soon.
Or you and your partner can decide that because you're providing
most, if not all, of the startup capital, your equity in the company
will be greater than his. Maybe you will determine that his know-how
is worth a 25 percent stake in the company and your know-how and
capital is worth 75 percent. Or you can decide that your partner
will receive a smaller equity position and get a salary. The idea is
that if he isn't taking any risks, then he's not eligible for the
rewards. Borghese stresses that you and your partner should have an
experienced corporate attorney guide you through this process.
Having a great idea for a business is just the beginning. Unless you
and your partner can figure out a way to work with each other that
is satisfactory to both of you, then you will have a tough time
turning your idea into a successful company.
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© 2005, Fortune Small Business, Distributed by Knight Ridder/Tribune Information Services |
Arnold Ahlert | |||||||||||||||||
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