When I get sick, I like to watch TV. It’s one of those things that requires minimal effort and distracts me from my pain. I was sick this week and landed on watching Shark Tank. For those who aren’t familiar with the show, it features 5 millionaire/billionaires who listen to product pitches from entrepreneurs looking for an investor to fund their idea. Some entrepreneurs walk away with multiple offers, some walk away with nothing. This show makes me giddy. I love seeing ideas from entrepreneurs on how to offer something that people want – how to meet a need that is not currently being met or how to meet a need in a more effective manner. This led me to consider the benefits and drawbacks of being in a partnership. You may not be making a sales pitch to a wealthy investor like the sharks, but you may be considering (or are already in) a partnership agreement with someone else. First of all, a couple of benefits:
1. Supplementing a skill or capital gap
• If you don’t lack either money or skill, then you don’t need a partner. But if you lack one or the other, a partnership might be a good solution. Coming together can allow two people to do things neither one could do by himself.
• Sometimes business owners can make poor decisions. If you have someone to help keep you in check, it can help limit poor decisions.
3. Some degree of Freedom
• Entrepreneurs can set their own schedules to some extent. They are also free to pursue the priorities and strategies they care most about.
Now some drawbacks:
1. Most partnerships end poorly
• Unfortunately, lasting partnerships that are successful are the exception, not the rule. Most people could probably tell of a partnership that went bad. Sometimes honest people can simply disagree over the best decisions for the business.
2. Small Business Ownership has new burdens
• Partners in a small business are never off the clock. If something breaks, it is the owners responsibility to make sure it is fixed. There are always new ideas swimming inside an entrepreneur’s head. This can be exhausting. So although there are freedoms to small business ownership, there are new burdens that employees do not have to consider.
3. Succession Planning can be difficult.
• What if one of the partners has kids that are interested while the other one does not? A partnership may be great today, but what about 30 years from now? How does one partner get out if the other wants to stay in? These are questions that need to be answered on the front end – which leads me to some closing advice to consider.
Partnerships with Sharks and normal people like you and me can be a great blessing. But many times they are not. Choose wisely. Don’t be yoked to someone with different values than you, no matter what they have to offer. Communicate clearly and spell out as much as you can on the front end.
At Foundation Bank, we work with partnerships on a regular basis to help them make good financial decisions. Whether it is borrowing for today or saving for tomorrow, we can help.