As I begin initial discussions for another startup involving a business partner, I’m reminded of the precarious balancing act between what’s fair, legal, and recommended by experts. Excitement and anticipation at these beginning stages, along with dreams of what’s to come, can easily disrupt any thoughts in the interest of practicality. Get grounded. What may feel like an awkward discussion with your proposed partner(s) cannot be delayed, so be intentional about removing yourself from the equation as you consider these beginning steps.
View your partnership with impartiality.
Although the startup I plan on launching includes a family member holding a partnership role, I have taken the initiative to list the pros and cons. Evaluate the skills, experience, connections, and any other assets your partner brings to the table. Then, take an open, honest look at character traits, personality, and qualities, both yours and theirs. What irks you? What do you most value about the other person? Do your values, mission, and purpose seamlessly blend? How do you get along? What idiosyncrasies will you work on accepting and what are those you are unwilling to accept? This is one of those awkward discussions I mentioned above; it must be had. Be ready to hear some truths about yourself as well; it’s a two-way conversation.
Create a Letter of Intent for Your Startup.
It’s never too early to lay out the terms for equity, responsibilities, non-negotiables, and next steps. While a Letter of Intent does not have to be a legal and binding document, it’s a good opportunity to present your expectations and understand your partner’s as well. It’s a good place to initiate discussions about equity as well. Speak with a professional to better understand how distribution of equity is best handled. There are two camps on co-founder shares; one says never be equal partners on paper (my stance), and the other camp says it’s only fair. Don’t forget to set aside equity for employees and investors and agree on vesting restrictions. (Again, talk with a professional accountant or lawyer).
Draft a timeline for next steps.
In my situation, we both own other businesses and are very busy people. Most likely, you are too. It’s best if one of you can commit to the startup full time, but sometimes that is not possible. Either way, a timeline is important. In my Letter of Intent, I drew up a timeline that speaks to weekly phone meetings of 60-minutes, each of us traveling to one another’s destination for face-to-face meetings, and a timeframe for next steps. This not only states your intention, but holds both parties accountable to their commitment.
Hire a pro to draft a Partnership Agreement.
When is the right time for this big step? It can depend on many factors, as the scope of your agreement may change as the company grows. Certainly, prior to making any huge and lasting investment of time, and definitely before any sizable investments go into the company, whether it’s your money or someone else’s. “Sizeable” is relative to your financial resources. View your Partnership Agreement as a prenup. Remember those idiosyncrasies I mentioned above? This is where you can draw the line. I once had a client include a clause about the consumption of alcohol in his agreement because his proposed partner was a recovering alcoholic. Another put a restriction on her partner’s availability to other endeavors since the other person had a tendency to over commit to new ideas. This is also the place to determine who makes the final call on big decisions, or how you will divide decision-making responsibilities. Just about anything can go into your Partnership Agreement; better to go overboard than to regret your decision later.
It’s not too soon to employ a business coach. Launching and running a business can feel lonely and overwhelming. Making decisions is sometimes daunting, and the wrong decision can be the difference between success and failure. Ask me about my 30-minute complimentary consultation.
Don’t confuse fair with ideal.
I hear the word, “fair”, quite a bit in reference to partnerships. Of course, fairness is only just. However, your determination of what’s fair and what isn’t, needs to be based upon what each individual brings to the table. I see emotions, and even a need to please, muddy the waters in these beginning stages. If you have to worry about hurt feelings now, you haven’t seen anything yet. Agree right at the get-go that honesty delivered with kindness is part of your value system—open the doors for frank discussions now to set the standards for the future.
This is an exciting time, albeit a bit frightening. You’ll enjoy and endure the journey from a stronger place when you take these steps. What’s your startup idea? I’d love to hear about it!