IAN MANN REVIEWS: How to build a successful business partnership

Cofounding the Right Way: A practical guide to successful business partnerships, by Jana Nevrlka

'Cofounding' refers to a partnership established to grow a business, and it was author Jana Nevrlka's personal experiences that stimulated her to write this very useful book. The book's value is not limited to the earliest stages of a business, but I am sure, to the partnership issue at any stage of the business's growth.

It will also be a valuable read for one who's business partnership has failed irreparably. In these circumstances it is very common to blame the other. This is to miss the real learning one should glean from the experience: 'What have I overlooked? Which warning flags did I ignore? Was my motivation clear? Did I do a proper due diligence?'

Partnerships are risky. Some even place the risk of failure at between 60 to 70% - way higher than even the modern marriage failure rate. Not entering into a business partnership means missing all the potential opportunities that a good partnership can create. Building a successful business requires a combination of skills and resources that are very seldom found under one hat. On your own, you are always only the best you. By joining resources, knowledge, brains and hearts, you can go way beyond what you can achieve on your own.

"And I still remember the surprise," writes the author, "finding out how big an issue the failures in cofounding teams are in the real world, and how little information is out there on the topic of how to build successful business partnerships."

Pitfalls of partnerships

The fatality rate for first time sky jumpers is below 1%, because we are very aware that before trying to sky jump, you should learn how to do it safely. Yet we consider it completely normal to enter partnerships without learning about the pitfalls and mitigating the risks.

This easily accessible book is a practical guide that will lead you through the seven steps required to enter into a partnership that has the best chance of success.

The first stage is to confirm whether a partnership is right for you. Some people are simply not 'team players' and with all the drawbacks, prefer to go solo. (If you aren't sure where you stand on this issue, there is a 'Cofounder Test' on the author's website).

Being partner material

Not being 'partner material' is not a fatal business flaw; after all, of the 10 most valuable companies in America, three were not founded or developed by partners.

If your answer to having a partner or partners is a clear 'yes!', proceed to the next step: What are you looking for in a partner? This starts with your business plan and an analysis of the gaps that exist that you cannot fill. If you are not 'partner material' these gaps can be filled by hired staff or outsourced.

You could need a partner to bring additional resources – financial or other. You may want to have a team. You may feel isolated when doing things on your own. Understanding your motivation is a prerequisite of success in this area.

I have seen many enter partnerships when all they really wanted was an investment. It too often comes back to bite them.

Choosing a partner

When it comes to choosing a partner there are two important considerations: working style and personality differences. Just because you enjoyed each other during leisure hours or studied well together, does not correlate to partnering in the tough world of business. Personality differences which are easily overlooked in social contexts can easily destroy a business relationship, and a business.

Where possible, "try before you buy". How you work together on a project is an indicator that could save much distress in the future. At this stage it is appropriate to discuss your different visions, purposes and values regarding work. If your vision is a comfortable life-style business and hers is creating real wealth, clashes are inevitable. Ditto for your view that people will commit given an enabling environment, and your potential partner's view that people need to be controlled.

Having made it this far in your discovery of your potential partner, it is time to formulate and formalise the roles and responsibilities each of you will accept and honour. This needs to be very clear but rarely is, and the consequences will place strain on the partnership.

Equity split

The sixth step is to decide on the equity split as early in the relationship as possible, but no earlier. I have seen, time and again, how partners split equity with ease and casually, because when the company is worth nothing – why bother with a deep process. When the company is finally worth a great deal or on the way to being so, it is very difficult to tell one partner that his 40% equity stake is far too high for the effort he put in – especially compared to yours and the other partners.

Without the understanding that there are many ways to split a pie, it reduces into "dividing up the shares equally between us.” The fixed equity split is widely accepted and practiced. In the author's opinion, it is a primary cause of the high failure rate of business partnerships, especially where the maturity of the team and the business is not quite there yet.

There are many ways to achieve a fair equity split and the discussion cannot start too soon. The decision should be made as late as possible.

Equity splits can be dynamic, just as they can be fixed. In the dynamic form they can reflect the realities of running the business so that contribution is rewarded, not overlooked, or ignored.

Equity can be vested: which simply means that the right to the equity in the business which was agreed between the cofounders, will be acquired either over time or when milestones have been reached. The reason for delaying the equity decision is primarily because activities such as setting milestones, can be unknowable or can change.

The author offers solid advice on equity issues as she does on all the previous steps.

With all the previous steps taken, the partnerships have a good chance of success. However, all of the conclusions must be committed to writing, as the first step to adherence.

I don't know of any partnerships that have gone through a process anything like this. I know of many partnerships that have failed completely or partially. Simply knowing that this process is required for a partnership to succeed, will give you a far better chance of getting the full value out of the association. It must be taken seriously.

Readability         Light -+-- Serious

Insights              High -+--- Low

Practical              High +---- Low

*Ian Mann of Gateways consults internationally on strategy and implementation and is the author of 'Strategy that Works' and 'The Executive Update.' Views expressed are his own.