At some point in many consultant's journey, the question of whether or not to get into business partnerships often comes up. In this blog, I’ll share the main questions you should ask yourself as you consider potential partnerships.
Note that this blog is not meant to give legal advice or suggest any particular type of legal structure or terms that you would put into an agreement. Rather, I’m simply offering suggestions to make sure that you ask yourself the right questions before you say yes to a business partnership.
Why Do I Want to be in a Partnership?
Start by clarifying why you want to be in a partnership in the first place. Ask yourself what benefits you’ll get out of the partnership that you don’t have today. Will it make your daily life easier? Will it enable you to offer more value to your clients? Generate more revenue? Expand your existing client base by enabling you to offer more services? Knowing your “why” will help you assess if partnerships are right for you, and, if they are, help you pick the right one and the right kind.
Is this Business Partnership Worth the Trade-Offs?
As with most choices you’ll make in life, there will be trade-offs associated with any decision to enter into a business partnership. You will need to decide which trade-offs are worth it. The specific trade-offs will depend on the type and depth of partnership and how it is structured. A common trade-off is loss of control. You might have to share decision-making with someone else or with a group of people instead of making those decisions yourself. A partnership could add greater complexity to your business. With that complexity comes additional roles and responsibilities that you may have to assume that you don’t do today. You might have to take on greater responsibility, including to your partner or a group of partners. You might have additional staff and now you're responsible for their livelihoods. These are just a few types of trade-offs.
That’s why it’s very important to first identify what your reasons are to get into a partnership and if they’re worth any of the potential trade-offs.
As you're considering these things, you may not be able to give a simple yes or no answer. You might decide, "You know what? It's actually not worth it for me. I'm going to pass on being in a business partnership." Or you might say, "I do want to be in one because it's got something valuable in it for me, but I'm going to think about what it's going to look like or how I cautiously might want to start to match how I feel about the trade-offs."
Who is the Right Partner for Me?
So you think it might be worth getting into a partnership. Now what? Now it’s time to figure out who the right partner will be. If you want to get into a business partnership but don’t know who that partner might be, you’ll have to go look for one. More often, though, a potential partnership will spring up through various circumstances, such as someone you already know.
One of the most important questions to consider is how compatible are you and the potential partner are. This isn’t a simple yes or no question because compatibility has many different dimensions. It’s important to assess those dimensions before you decide to get into a partnership and decide how it will be structured. I encourage you to do a thorough assessment rather than a "gut check" because partnerships often take a lot of work to put together and are a lot of work to manage. So you want to make sure that you're as compatible as you can possibly be across multiple dimensions that are actually important to you. To assess your compatibility, honestly answer these questions.
Do I Trust My Potential Partner? Trust is one of the most important aspects of any compatible relationship, business partnership or otherwise. This is an important litmus test of whether or not it's a good idea to get into a partnership. Do you trust the potential partner? If you've just met the person, do you see signs that there are reasons to trust them? If you've known them for a while, do you have a good track record of being able to trust them across multiple encounters? Trust is absolutely essential. If you aren't able to trust who your potential partner is, I would suggest that you pass on the partnership or, if sometime of arrangement is worth the risk, consider much less involved ways that you might be in some type of a partnership with them.
Do Their Goals and Values Align with Mine? Another important consideration when choosing a business partner is whether they have the same or at least similar goals and values to you. Are your business goals aligned? Think about their business sense and if it matches what you want out of your business. Does their risk tolerance match yours? It may not be an exact match, and that's OK. It may be that you want to get into a partnership because you are very comfortable with risks (maybe a bit too much), and this could be someone to help pull you back when you need it. Or it could be the reverse. But you at least want to know up front what their risk tolerance for business is and how that is going to translate into a business partnership. Then consider your and their values match. For example, do they value honesty and transparency, the outcomes you are trying to achieve, the way you engage your clients, or the type of quality you expect in your deliverables?
Does Their Working Style Work For Me? Once you decide on a business partner, you’ll be working with that person day in and day out. So it’s critical that you have compatible working styles. They don't have to be the same, but they definitely have to be compatible. You’ll want to know things like how they view work-life balance, and if they work long hours or on weekends. If you have different approaches to how and when you work (or don’t work), this could easily cause friction later. That’s why it’s better to be clear up front if your styles of working, work-life balance, and personalities are actually compatible. If your potential partner has a firm, you’ll also want to know what the culture of that firm is like. Culture is absolutely essential, particularly as you move towards business partnerships that are deeper and more integrated. You want to get a sense of how the culture of the organization works and whether it matches with your values and the culture you have and want.
What Type of Business Partnership Do I Want?
Depending on how you answer these questions, you might at some point say, "No, not worth it to get into that partnership with that person or with that entity.” Or you might decide to adjust what type of partnership you want to be in. There are various ways you can do it. At one end, there are low-commitment partnerships. At the high end, there are high-commitment partnerships that have significant integration between you and your partner.
On the low-commitment side, it could be as simple as sitting down with someone else who is in your field that might do complementary things and talk about opportunities to do cross referrals. They might send business to you, and you might send business to them. They understand what you do, and you understand what they do. You agree to make some effort over time to check in and see if there are opportunities to do more together. These types of partnerships can generate a lot of business for you. And when they do…it is critical to treat any business that they send to you as sacred because it’s a reflection of their trust in you. You want to make sure that you do excellent work for that client, and you're able to fulfill the trust that they have in you.
Moving a bit further on the commitment scale are joint projects. Joint projects involve more commitment than referrals. For example, you work with another person or another firm on a project for a particular client. There are several ways you could do this. You might have a single contract where one of the partners is the prime and the other is the subcontractor to the prime contract holder. Or you can do two separate contracts and work together as a team. In either circumstance, the clients will expect that you truly will work together seamlessly as a team. That makes it easier for the client and can help ensure better quality work. Working together on a project also is a good test of whether or not the person or other firm would make a good partner for you.
If you move further along into greater commitment, you can also decide to do joint ventures. Joint ventures can look a lot of different ways, but it's some type of a formal agreement where you decide that you're going to work together in some specific way. It could be that you decide to change your branding so that your joint services look like a single firm or suite of services to the outside world. You might decide to do joint marketing or to share staff. There are all kinds of ways to structure this type of partnership, including where each entity would keep control over its own organization but you do very specific things together. That's a much deeper commitment than simply doing projects together.
If you decide to deepen the partnership even more, you might start to consider things like mergers, which is where the two entities decide to become a single organization. That obviously requires tremendous commitment on both parts. Because it is such a significant commitment, that’s where compatibility and culture and things that will matter on a day-to-day basis become even more important.
Evaluating and deciding on a business partnership sounds like dating, doesn’t it? Well, it kind of is. You want to get some experience with each other to see how compatible you are. You don’t want to jump into a partnership too quickly, the same way you wouldn’t get married on your first date! And just like dating, the relationship doesn’t have to be perfect. You don't have to match up on every single thing. The relationship does, however, have to be workable. You also won't know everything, but, if you take the time to assess a potential relationship honestly, you will likely know enough to make good decisions.
And just like any relationship, if you enter into a business partnership, you should expect that things will change over time. For example, if you start with doing cross referrals with another person or firm, that might lead you to want to do projects together, which then might lead you to want to do a joint venture. You may stop there, or you may decide to go even further into a merger. Even after you form a more committed partnership, that may change over time as well. Maybe you decide to stop doing a joint venture and part ways or go back to doing occasional projects together. Because partnerships will likely change, it’s important to keep having conversations about how the relationship is going; how it could improve; or, if necessary, how it should change.