There’s nothing more exciting than the promise of a brand new venture. Potential profits and explosive growth rates linger just around the corner, and the world bursts at the seams with possibility.
Unfortunately that’s the high point of most ventures. Most of them end in lawsuits, bankruptcy, or simply dwindle to nothingness with only the slightest scent of shame.
For all the reasons your venture can fail (and there are a shit ton), I’m here to help you avoid a simple and all too commonly overlooked mistake….
Choosing a rotten business partner.
It won’t guarantee you’ll find a product market fit in 6 months, nor will it ensure that you’ll raise capital successfully or get that first MVP sale.
But it will guarantee that if you DO do these things, you won’t hate yourself later for making a bad deal in your fledging company’s early days.
I’m here to tell you about how to choose a business partner (if you are insistent on having one) without jeopardizing your idea’s future.
Over the past 10 years I’ve made just about every partnership mistake in the book. They all caused me significant financial and emotional damage and in hindsight, all are completely avoidable.
My overall recommendation is to NEVER directly partner with someone at the very beginning of a new venture (especially if it’s your idea)…
But since you insist… here are my top 3 types of Partners to avoid at all costs (and how to identify them).
Who they are
In the startup world you’ll find a lot of people that love talking startups. The prospect is invigorating no doubt, and many of them know their stuff. There’s just one small miscalculation everyone makes.
Talking about startups is insanely easy. Actually building a product from a scratch and selling it in the market is one of the most challenging (and rewarding) raw components required to build cash-cow venture.
How to spot one early
This is fairly straightforward: look at their history and experience. Have they built and sold anything in the past?
If they’re a first time founder, you have to take a more holistic approach and look at their whole life. Do they have a history of following through? Or is their resume littered with 15 projects that never ‘got off the ground’.
If they want to come in as a ‘marketing partner’ to sell what you build but only after it’s complete.
Beware of the talkers, search endlessly for the men and women of action and concrete results.
The Ghost Partner
Who they are
This person is the quintessential hustler. They’ve got 10 things going on at once, all of which are just bursting with potential and about to hit big (so they say). Their enthusiasm and amount of activity is intoxicating. You want to get on the same level as them!
Why be concerned? Because this person isn’t actually after the long term play, they’re addicted to the startup excitement and the lust that comes with new projects.
Building companies to reasonable levels of profitability takes YEARS.
Source: Paul Graham via andrewchen.co
This cheeky graphic covers the first few YEARS of a tech startup.. and all new ventures follow a similar curve of enthusiasm/success. Your hustler partner that has 8 other irons in the fire will never stick around for the low times (trough of sorrow) and will gravitate to more exciting projects.
How to spot them
Multiple projects, always a new idea they’re trying to ramp up. If they consider themselves as ‘entrepreneurs’ and haven’t spent over 2 years on one project consistently they might be a significant flight risk down the line.
The (Lazy) Corporate Troll
Who they are
The corporate troll is one of the most frustrating types of partners. They’re accustomed to operating in a bureaucracy, and employ their full corporate bags of tricks to attempt to offload the maximum amount of work -on you-.
New features are someone else’s responsibility, they don’t want to troubleshoot or do manual paperwork to accommodate an early client.
This type of person will always stick around, but over time their lack of effort will breed resentment in the partners that do the actual work.
How to spot one
These people want to be a part of a startup without speculating and risking their time in the early phases. They only want to work if they are sure it’s going to payoff.
Because of this, they are always putting off the work of today, in hopes of a more promising future.
Common things a lazy troll will say are “once the product is done I’ll be able to go out and sell it” or “Once the market shows more promise I’ll spend the time on that…”.
Escape Partner Hell – How to Structure Your Startup Relationships
Of course there is nothing inherently wrong with partnering up. A partner can provide capital, ideas and -ideally- skills that you personally are lacking. If you do choose to go with a partner from the get go, make sure you’re watching out for these key types of lousy partners. To choose a partner poorly is to securely wrap an anchor around your neck before swimming for the shore.
No one likes to face uncertainty alone. Aside from a synergy of skillsets, a partner provides an emotional level of comfort. You’re in this together, right?
Until you’re not.
Partners can leave, lose interest, screw you over, or worse: stay and shower you with negativity day in and day out. In my opinion it’s better not to have them…
If you must bring on a new partner to build an idea, try and adhere to these maxims:
Don’t Give them 50% Upfront
Most people’s first step with their idea is to incorporate as a partnership and sign over half their idea before any work is even done. Do not do this:
- Your tax filing burden increases before you even know you have a company
- It enables your partner to do nothing and be entitled to half of what the company creates (at first)
- If the partnership doesn’t work out or your partner wants to leave the project, then you have another potential headache of paperwork and negotiations.
Work With Separate Entities on a ‘Project’ Basis
If this is a new idea for you, make sure you own it all. Instead of ‘Partnering’ in the legal/tax sense, have your co-founder form their own entity and enter in some kind of agreement between the two. It’s best if you can do this based on the smallest project possible.
The reason this is my preferred structure (when the idea is mine):
- It allows me to own all of the IP I create (software, marketing materials, content).
- Flexibility to compensate partners on a project based on their contribution levels (not all work splits should be 50/50)
- If a partnership doesn’t work out or my partner disappears, no paperwork is needed to end their involvement.
- If I incorporate as a single member LLC then I’m not required to file a separate tax return each year.
Partners can be an incredible asset to your company and in the building of your ideas. But tread lightly before forking over 50% of your future assets and profit to someone that will rarely have the same priorities, desire and work ethic as you.
Instead, dip your toe in the waters of collaboration. Make sure you own as much of the IP and content as humanly possible, and keep your legal agreements flexible and simple.
Happy partner hunting!