I saw a great article awhile back in Entrepreneur and thought I should post the article for those in the formation stages of their next business venture.
I can't stress enough how much time and energy it takes to launch a start-up, and just how much the success or failure of a budding new company rests on the people involved. I see it everyday as an Indiana technology lawyer involved in Indiana entrepreneurial law.
You can count on spending hours upon hours of the day with your business partners, so consider who those people are wisely. At the very least, read this article by Scott Gerber, who is a columnist for Entrepreneur.com's Young Entrepreneur and the CEO of Gerber Entertainment.
Partnerships can turn out to be a blessing or a curse. For every thriving partnership featured in Entrepreneur, there are thousands that end up stagnant, dissolving, dysfunctional or worse--in court. More often than not, performing basic due diligence can keep you from ending up in bad partnerships. So, have you done your homework? Are you ready to trust your financial security on someone else’s personality, work ethic and business acumen? Before you drink the partner Kool-Aid, here is a list of the top ten worst business partners for your start-up--along with some tips to help you avoid this cast of characters:
- Mr. Employee
Mr. Employee is a first-time entrepreneur with a pristine resume and an abundance of references. He enjoys collecting a weekly paycheck, health benefits, and eating dinner with his family nightly at 7 p.m. Unfortunately, Mr. Employee isn’t really self-sufficient and doesn’t know how to move the business forward without you instructing his every move. Plus if your investment deal doesn’t pan out soon he is going to need to find a “real job” to pay the kids’ college tuition. Tip: Risk-adverse individuals who do not share your priorities will not be productive partners. Pass up individuals who cannot commit equal time, energy and financial resources.
- Mr. Perfectionist (also known as Mr. Procrastinator)
Mr. Perfectionist needs every “i” to be dotted and “t” to be crossed before he schedules an official product launch date. He enjoys researching competitors, building industry case studies and improving his 150-page business plan. Mr. Perfectionist really wanted the new business to be up-and-running by now, but still feels something isn’t quite right. He plans on putting together another comprehensive survey to send to all of his colleagues, friends and family in the next few weeks to help flesh out the concept further. Tip: A good plan today is always better than a perfect plan tomorrow. Steer clear of excuse-prone procrastinators. Seek out self-starters who run with the ball and make things happen.
- Mr. College Buddy
Mr. College Buddy had a stroke of genius while out at the bar one night, wrote it on a cocktail napkin and asked you to help him “make it happen”. He enjoys bragging about his great idea and giving you directions on how to execute (he’s not into the “heavy lifting” thing). The issue: he’s moving across country to start med school in the Fall. But fear not, Mr. College Buddy will make himself available by phone when he’s not studying, working, in class or on a date. He’ll be sure to forward you the address where you can mail his 50% of the profits. Tip: Never assume all of the risk in exchange for half the reward. Ideas are worthless without proper execution. Before you bring a co-conceived idea to fruition, make certain that your partner plans to be around for the long-run. Napkins are not legally binding. Always execute an operating agreement.
- Mr. Inventor
Mr. Inventor thinks he’s created the next billion-dollar widget. He enjoys giving two-hour dissertations on Chinese electrical engineering standards to investors and making business decisions based on ‘nice people’ and ‘gut feelings’. Mr. Inventor doesn’t really understand the phrase ‘in the black’, but feels it’s imperative to spend all of the company’s investment proceeds on research and development. Tip: Brilliant academics are not necessarily brilliant businessmen. In lieu of a partnership, first consider licensing deals or strategic partnerships. If you decide to go ahead with a partnership, be sure your agreements clearly distinguish the differences between product control and operational control.
- Mr. Right
Mr. Right will be the first person to tell you that he is never wrong. His favorite phrase is ‘my way or the highway’. He will rarely discuss his decision making process because he views such discussions as a weakness. He enjoys demeaning partners who don’t agree with him and making decisions without telling them. Funny thing about Mr. Right: he always seems to blame everyone but himself when his plans don’t pan out. Tip: Communication is the key to a successful partnership. Find a collaborator, not a dictator. No one is always right.
- Mr. Dreamer
You’ll hear Mr. Dreamer say this line a lot: “One day, when we’re millionaires…” He loves talking about retiring by 29 and how he intends to spend his hypothetical millions on a gold plated yacht that he’ll dock off the coast of his private island. One small problem with Mr. Dreamer: he doesn’t seem to know how to keep the business above water next month. Tip: Big paydays come from years of hard work and persistence, not excessive rambling and daydreaming. While it’s important your partner be both positive and optimistic, it is equally important that he or she is grounded and focused.
- Mr. Spender
Mr. Spender can’t possibly survive without a six-figure salary, lavish office and an in-house cigar roller. Price is no object when it comes to entertaining a client or flying first class. If you’re lucky, Mr. Spender might even invite you to one of the extravagant dinner meetings that he charges on your company’s corporate card. Tip: There is no such thing as the unlimited checkbook. Partner with fiscally conservative, financially responsible individuals who strive to make every dollar benefit company growth and development--not their personal lifestyles.
- Mr. CEO
Mr. CEO feels compelled to tell everyone that he is a CEO within 30 seconds of meeting him--even if his company is worth less than the paper on which his business card is printed. He loves cocktail receptions, his name written in fancy fonts, and stacks of luxury car magazines neatly piled on a coffee table in plain sight of customers. The only thing he doesn’t seem to like: real work. Tip: Successful companies are not built on titles, talking and toys. Keep away from selfish, egotistical individuals who want to talk the talk versus walk the walk.
- Mr. Vacation
I’d tell you more about Mr. Vacation, but I don’t know much about him. He never seems to be around. Tip: No-shows are dead weight and eat away profits. Make sure that your operating agreement clearly outlines partner responsibilities and vacation days.
And the partner to avoid like the plague is…
- Mr. Personal Issues
Mr. Personal Issues always has a sad story. On the same day as your company’s keynote presentation at the big conference, his son’s wisdom teeth need to be pulled and his dog died of pneumonia. He would love to attend next week’s investor meeting, but his divorce hearing might tie him up all day. Unfortunately, Mr. Personal Issues can’t afford his legal bills, so he’ll need to pull a little more money out of the company this month to avoid his ex-wife from taking 50% of his equity in the settlement. Thankfully, this will be the last time he needs money… Tip: You’re not in business to be a babysitter or a psychiatrist. Know everything there is to know about a prospective partner before you sign on the dotted line. Discuss everything from business to politics to family life to finances. If a potential partner seems to have a few screws loose, run as fast as you can in the other direction.