To Partner Up or Not?

A Nebraska home improvement company owner who took his operation from zero to $2.5 million in sales in about three years describes how, in the year before launching the company, he considered partnerships. Twice. In one case he was on the verge of moving forward with the idea, but pulled back at the last minute, electing to go into business alone. 

His reason was the same as the No. 1 reason listed by Phil La Duke in a recent article in Entrepreneur (“5 Questions to Decide if You Need a Business Partner”). The potential partner knew marketing and sales, but so did the future company owner. And the first thing La Duke advises those considering taking on a partner is that they seek someone who has skills they lack. 

That's pretty much the consensus. Citing the example of Steve Jobs and Steve Wozniak, an unattributed article (“What Do Successful Business Partnerships Have in Common?”) on LawDepotBlog notes, “A diverse and complementary skill set is valuable for problem solving and creativity. While each partner offers their own separate skills to the business, partners should work together to collaborate on business values to move their company forward.” Between those two well-known co-founders of Apple, Wozniak was the tech whiz, while Jobs brought his flair for business to the partnership.

Past Life

Not surprisingly then, some of the most successful companies in home improvement are partnerships that are created when someone who’s great at sales teams up with a crack production guy. As Bill Murphy Jr. notes in the article, “9 Key Things Successful Business Partners Always Do," on the Inc. website, successful partners are usually people who have worked together for a while, meaning they know and admire each other’s strengths and temperament. “Great business partners almost always have had a prior history of working with each other,” he writes. “The more closely they've worked together, the better.” Often what happens is that they worked for the same company, informally agreed on how things there could be improved, and left to form their own business.

But how well they really know each other plays a big part in whether or not that partnership will thrive. What if roofing production guy Ed thinks he can work with roofing salesperson Bob, only to discover in a few months that though Bob closes half or more of his appointments, generating all of the jobs they need, he’s careless about paperwork, indifferent to customer service, and accustomed to getting his own way? All bets are off on that partnership. It could work, given the different skills and temperament each person is bringing to the venture, but it’s far more likely to succeed if, before getting started, Ed and Bob agree on a vision. Yes, they’re in business to make money, but that’s not exactly what a vision is. 

“Look for what energizes and motivates each of you about your business,” suggests Marian Banker at BusinessKnowHow.com (“7 Tips for a Successful Business Partnership”). “Give it a purpose and define what the ideal business will look like. Put the joint Vision and Mission in writing and use it as the reference for everything else you do.” 

So, for instance, the vision may be to create a roofing company delivering not just expert roofing services but unique levels of customer service to its homeowner customers through continuous communication before, during, and after the job, as evidenced by customer reviews. Now there’s something everyone can work toward and a goal around which the owners can create process.

Difficult Subjects 

So these two guys are all set to go then, right? 

Not so fast. Before anything can happen, there needs to be a discussion—perhaps even a negotiation—about responsibility and finances. Who’s in charge of what, and how will this business be capitalized? 

There are, legally, three different forms of partnership: general, limited, and joint venture. An article (“The Small Business Partnership: General and Limited Partnerships”) on FindLaw.com, a legal website for small business, says: “In a general partnership, the partners equally divide management responsibilities, as well as profits.” They are also both equally liable in the event of the business racking up debts. 

A joint venture is generally a limited agreement, often involving a single project. Limited partnerships can involve both the partners managing the business and outside investors without management responsibility, who, in the event of a business failure, would only be liable for the amount they invested in the business. 

So, presuming this is a general partnership, the partners should have a clear idea of what kind of responsibilities are involved in the relationship, as spelled out in a partnership agreement. “A partnership involves people carrying on a common business for profit,” writes Diana Fitzpatrick, at Lawyers.com (“General Partnership and Fiduciary Duties”). “Partners in a general partnership are fiduciaries to each other. This relationship means that they owe each other, and the business, certain basic duties.”

While those duties are spelled out in detail, state by state, in statute form, in essence it gets down to this: “Partners must always place the interest of the partnership above their own personal or business interests.” (For a state-specific template, see FormsTemplates.com.)  

So, let’s say while the business is in its early stages and cash flow is up, down, and inside out, Bob agrees to work strictly for commissions paid on the jobs he sells and Ed will take a salary for managing production, including recruiting crews, ordering materials, scheduling jobs, keeping the schedule on track, and collecting payment. When the business grows, they can alter this arrangement and go to a different compensation structure, by mutual consent. Since the partners are accountable for how the business itself performs, mutual consent is at the heart of managing it, and a partnership agreement outlines who will do what.

Show Me the Money

But how are Bob and Ed going to get this operation off the ground? They need money to build a website and create marketing materials. They need to hire a part-time marketer who will generate leads. They need some essential tools and equipment, maybe even a truck. They need some warehouse space. It’s not millions of dollars, but they need enough money to establish their partnership as a viable, working business entity. 

“Part of the partnership agreement is the financial responsibility of each partner,” writes Kristie Lorette in the HoustonChronicle.com (“Sources of Finance for a Partnership”). “Sources of financing for a partnership can range from personal money contributed by each partner to obtaining a business loan for the partnership.” As Lorette notes, “Partnership agreements make each partner responsible for a certain percentage, so one partner may contribute 20 percent of the funds required to start and run the partnership, while another partner may only be responsible for 10 percent of the money needed.” 

Often partners put up money out of their savings or retirement accounts to get the business up and running, as much for a show of good faith as anything else. But if the partners elect to finance the business via a loan or a line of credit—the one a fixed-term agreement, the other essentially a revolving loan—they are responsible for repayment of those funds “according to the percentage of responsibility in the partnership agreement.” If Bob and Ed borrow $250,000 to get started, and they are 50/50 owners, each is equally (and legally) obliged to repay half that amount.

In This Together

Successful partnerships have trust as their foundation. The spirit of loyalty and camaraderie they can create may make working an altogether different and more pleasant experience. But the principle of partnership is that all, or in this case both, are in this together. “Our society is so fixated on the hero as an individual leader—the one person who takes all credit for innovation,” writes Mark C. Thompson at Fast Company (“4 Secrets to Making Your Partnership Succeed–or Fail”). “But the secret to success in life and work is to find someone who can support your weaknesses and encourage your strengths.” 

Successful partnerships are those in which the partners find ways to praise each other’s contribution to their joint effort. They’re also organizations that develop effective decision-making processes for getting through and past the inevitable challenges down the road. In the absence of that, as Carl Robinson writes (“Why Partnership Fail and Steps to Prevent Failure”) at Advanced Leadership Consulting, “the partners go in opposing directions that meet their own needs but not the strategic needs and direction of the partnership.”