By: Bryan L. Tyson
Sherlock Holmes has Dr. Watson; Batman has Robin, and even Tom Brady has Rob Gronkowski. In many endeavors in life, it’s easier and more advisable not to go at it alone, and the same can be said for a business. However, suppose you’re thinking of starting a business with someone else or even adding a partner to an existing business. In that case, there are three steps we recommend you consider before saying “I do” to a joint venture with someone else.
Number 1: Make sure you and your new partner know your roles.
Whether you’re a reader of the original Conan Doyle works or a fan of the BBC production of “Sherlock,” everyone knows it’s Holmes that uses deductive reasoning and solves the crimes; Watson serves as the faithful assistant and chronicler of their adventures. Neither is less important than the other, and they most certainly are better together than if each worked separately. Yet, they have their distinct roles within that partnership.
What role will each of you play in the business to ensure its maximum success? What are the strengths and weaknesses that each of you brings to the table? Thinking about this ahead of time ensures that you will maximize what you separately bring to the firm and don’t create unnecessary conflict by having overlapping roles.
Memorializing those roles either in an operating agreement, employment agreements, or even job descriptions can help you think through what each person should be doing, how they will accomplish that, and identifying necessary resources. Again, neither is more or less important than the other. However, defining distinct roles can make it a better working relationship.
Number 2: Do your homework on the person with whom you’re joining forces.
Before there were Batman and Robin, there was Bruce Wayne and Dick Grayson. The two knew each other first in father/son-like roles before teaming up to become the crime-fighting Dynamic Duo. That knowledge base enabled them to become a powerful team and ensured their working relationship was based on trust and faith in the other partner’s capabilities and commitment to a common cause.
Before going into business with someone, you should follow a similar pattern. We often recommend that individuals do background checks on their potential business partners. If your potential business partner is worried about this, that might tell you something. Background checks can identify liens, unresolved lawsuits, bankruptcy filings, or other concerning activities. It’s also helpful to talk to any former business associates. Remember, you’re about to hitch some portion of your financial wagon to this other individual: if you smell smoke, there’s likely fire.
What if the person has something valuable that is integral to the business but comes with other personal or business issues? Maybe consider them as an independent contractor to your business. If the issue is equity compensation for that person—so they get the value of the business they are helping build—you can always explore phantom equity or other bonus arrangements to ensure they receive business value, but without the legal liability or other concerns that might go along with being actual partners or co-business owners.
Number 3: Begin with the end in mind. When Gronk retired and Brady left the New England Patriots, it certainly seemed like the end of not only the Patriots’ dynasty, but also the end of one of the most prolific and successful quarterback/tight end combinations in NFL history. But as some suspected, there was another chapter ahead to their working relationship. Because of the preparation and thinking about their exit from New England and new homes in Tampa Bay, they were ready and able to make the most of their relationship to capture another Super Bowl title.
And yes, we know, this sounds like you’re planning for failure from the very beginning. And guess what? That is exactly what you are doing. But planning ahead for tough times in the future isn’t a bad thing. It will likely make those tough times much easier to navigate and reduce any potential damages to the business as a result of the end of the relationship. And in some instances, it may even help identify problem areas that can be addressed and corrected upfront.
Before going into business with someone, set out what happens when you suddenly aren’t in business together. Will one partner buy the other one out? Are there restrictive covenants that you would want so your former partner doesn’t compete against you? How will you value the business? If there’s a dispute, do you want an arbitration clause to attempt a swift resolution rather than more traditional litigation? All of these issues can be addressed in an operating agreement, buy-sell agreement, or another similar document. Again, thinking through these issues ahead of time can save you time, money, and trouble in the future.