Partnerships That Won't Sink

The biggest risk to scaling your business or your investing portfolio is not what you think, so you probably underestimate how difficult it is to get right.

Finding the right partners.

Most entrepreneurs and investors dream of scaling to new heights. While the right partner can skyrocket your success, choose the wrong course, and you'll find yourself entangled in a web of headaches, interpersonal conflict, incompetence, betrayal, or even theft.

Even for solopreneurs who choose to run active businesses without partners, they often need to find passive investing opportunities to place their earnings. When we aren't experienced at choosing, vetting, and structuring active business partnerships, not knowing these skills puts us at more risk when investing as a limited passive partner.

If we're not careful, our biggest asset could turn into our worst nightmare. So how do you find partners who won't sink the partnership?

Navigating a Partnership That Lasts

Pay attention, the following tips make or break most businesses trying to scale!

Tips to get you started off on the right foot with business partnerships when not followed, might doom the entire venture.

? Have good legal documents and background checks.

• Partnership agreement questionnaire templates from a lawyer will force partners to ask the important questions before working together and creating an operating agreement. Most attorneys do not have this survey and will instead spend hour upon (billed) hours on the phone with the partners to hammer out the details. Best to start with a survey among the partners, then bring those answers to the attorney to draft the operating agreement.
• Don't step over dollars to pick up pennies: pay the $49 for standard background checks for credit and white collar crime before doing business with anyone! Also run a free online securities fraud check.

? Demand frequent communication.

• Deals going bad often go silent. Schedule regular meetings to go over details.
• Be a resource to one another and a safe place to land when something is not going well.
• One another's strengths are why you went into business with one another, maybe one has access to great funding while the other is more operationally minded, but are you also transparent with your weaknesses? Communicate this up front and negotiate how to handle weaknesses.

Some of the best partners I have ever had are project managers because this is my personal kryptonite! In one instance, showing up for weekly meetings often left me embarrassed because I kept forgetting to do what I had promised, putting the venture at risk.

I scheduled a 1:1 meeting with one of the partners, an experienced manager and PMP, to ask for help. After about half an hour, we had designed a system to get me more organized, integrate into the tools he was using to keep the project on track, and most importantly, reached an understanding of one another's strengths and weaknesses.

It's still embarrassing to talk about because I feel it damages my credibility, but hiding these issues does no person or business any favors.

? Diversify investments and believe the cliché of don't invest what you can't afford to lose.

• Spread money thinly enough to protect yourself, but not so thinly that your business suffers, or so thinly that identifying and monitoring investments become a part-time job that feeds on a scarcity mind set.

A close friend of mine lost everything in a business deal gone wrong (selling to unscrupulous criminals who embezzled from the company and eventually went to prison, leaving him with zero-valued stocks, no board position, and no profit sharing per the sale agreement.)

As the business was struggling, he poured everything he had into it to save it, to save employees from losing their jobs, losing his retirement, even his house. Years later after rebuilding, he said to me:

"I should have been setting aside investments in addition to my business. I felt guilty for thinking that, felt responsible to our employees, but after the business failed, they all went and got other jobs while I was bankrupt."

? Don't keep too much money in bank accounts, keep everything other than reserves working in the business or distributed to the partners.

• There's no way I know of to require a partner getting approval before making bank withdrawals even of large amounts: I've asked at every bank we use.
• Instead, split up banking security such as phone number, email, and one-time password destinations between two or more partners who must give permission to log in or talk to a representative together. Or if you are a limited partner/investor, ask how the managing team protects themselves.

Security creates friction, so yes, it's annoying that when my financial manager needs to log in or talk to someone at the bank the OTP is sent to my phone number. It forces us to communicate more often and coordinate bank access. We also log in to review financials weekly as a group to make sure no one has absconded, and to keep the financial manager organized by being accountable!

? Forgive yourself.

• Becoming bitter or scared of partnering can cost us much more than actually losing money due to the opportunity costs of staying out of the game after we've been burned.
• Sometimes we will lose money to a deal that didn't go well, or sadly to dishonest partners. Learn the lessons, diversify more, invest less into each venture, but keep going!

When I first started, I loaned money to an unscrupulous business owner who did not start making payments on schedule, making many excuses along the way. I had a friend who also loaned him money, and she was likewise struggling to get timely payments. We figured the money was gone (happy ending, I dealt directly with his attorney and had him make payments. They both needed a lot of babysitting, were often late, full of excuses, but my friend and I both eventually had all our funds returned to us.)

I called my financial advisor while things were still up in the air to ask what I should do if I lost all the money to a dishonest person. His advice so early in my investing and business partnering career still rings in my ears:

"I have clients who have lost money only to become so bitter and insecure about their own judgment, it has crippled them. Don't let that happen to you. They lost so much more money than the actual loss by becoming frozen, and their mental health has suffered often for years."

I went on to need this advice after losing money on other deals. I have made 15-20x what I have lost, so despite it always being difficult to make a wrong move in business or investing, I keep partnering up and moving forward. We either win or we learn!

Whether you are an active business partner or a passive limited partner, choosing the right partners, but most importantly, how to structure the partnership for success before investing your time and money is crucial to coming out on top in the long run.

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