People starting off on their entrepreneurial journey often feel the need to partner up before they launch a company. That’s what I did when I started in December of 1999 and as I learned, partnering can actually create more stress and difficulties for you and your company than if you flew solo from the beginning.
In my experience, entrepreneurs are far more likely to get into trouble or fail if they make someone a business partner for the wrong reasons: believing that the person has a certain expertise that they feel they lack or simply because they’re afraid to do it alone.
I’m not saying that you shouldn’t hire people who have special expertise or reward people who make special contributions. And I also know how lonely the entrepreneurial path can sometimes be. But none of those reasons alone justify making someone a business partner.
There is no more expensive way to finance a business than by giving away equity, although you probably won’t realize it until your business starts succeeding. Giving equity to the wrong person will wind up creating all kinds of problems that will distract you from what you should be doing — namely, building the business.
Here are some of the big issues that can face you if you pick the wrong partner:
1. Different work ethics
Many entrepreneurs find themselves working with partners who don’t share their enthusiasm or passion for the business. Partners who can’t meet deadlines, follow up with clients or follow through with their responsibilities can bankrupt a new venture. Unethical partners can also contribute to the downfall of a business. Although you hope to know your partners beforehand, you may not realize their true colors until they have damaged your reputation, stolen money or disappeared on you when it’s crunch time.
2. Lack of experience
Some business partners don’t have the experience or skills to do their job successfully. You need to count on your partner to deliver results and when they don’t, that leads to angry customers and angry employees.
3. Disagreement on direction
On the flip side, a motivated, talented and brilliant partner can cause problems if you don’t agree on the long-term goals for the company. This can lead to weeks and even months arguing over key decisions. Disagreements consume time, resources, cause stress to confused employees and lead to inconsistent business practices.
4. Sharing profits
Entrepreneurs happily share profits with partners when they bring additional value to the company. If your partner does not increase business enough to justify their involvement, however, they shouldn’t receive a share of the profits. If you make the same amount of money with a partner as you do without a partner, you may have selected the wrong person to help you run your business.
5. Liability for your partner’s actions
You take responsibility for whatever happens in your business. If your partner violates any laws, you may end up in court, too. This can lead to fines, expensive lawsuits and liabilities for damages you had no part in.
When you have a business partner, you have the added stress of making sure you know everything your partner is doing. Even if you and your partner trust each other, you have to monitor your partner’s work to avoid negligence, misuse, or violations. You have to make sure you both understand applicable laws and establish a set procedure for running the business.
6. Your reputation is on the line
Even if your partner doesn’t break the law, his or her actions may come back to haunt you. A shady or dishonest partner can lead to widespread distrust of your company which could do real damage to your business and personal reputation.
Carefully consider whether you need a business partner and what benefits they’ll bring you and the business before you sign on. I am much more successful, happier and creative without a partner. In my mind, when you build a business alone, you truly have succeeded!