A Founder’s Guide to Building Business Partnerships That Actually Work

A great partnership can accelerate a business. The wrong partnership can complicate everything.

Before equity is divided, titles are handed out, or money changes hands, get clear on four things: the idea, the risk, the investment, and the contribution.

And whenever possible: keep the room small.

1. Start With the Idea

Before discussing percentages, define exactly what you’re building together.

Ask each other:

• What are we actually trying to build?
• What does success look like in one year? Five years?
• Are we building to sell, building for cash flow, or building something we want to own long term?
• How big do we each want this to become?
• What are we unwilling to sacrifice to get there?
• What happens if the original vision changes?

The takeaway: Alignment today doesn't guarantee alignment tomorrow. Talk about where you're going before deciding who gets what.

2. Get Uncomfortably Clear About Risk

Not everyone entering a partnership is taking the same risk.

One person may be leaving a salary. Another may be investing cash. Someone may be putting their reputation or relationships on the line. Another may be taking on debt or personally guaranteeing it.

Put it all on the table.

Ask: What am I risking? What are you risking? What happens if this doesn't work? Who is personally liable? Who can afford to wait to be paid? Who carries the financial pressure when things get tight?

Risk isn't just financial. Time, reputation, opportunity and responsibility all count.

3. Define the Investment

“We're all invested” isn't specific enough.

Document what each person is actually putting into the company:

Cash. Time. Intellectual property. Existing clients. Relationships. Equipment. Personal guarantees. Expertise. Sweat equity.

Then ask the harder question:

Is the investment a one-time contribution or an ongoing expectation?

Someone putting in $100,000 on Day 1 and someone working 60 hours a week for three years are contributing in very different ways.

That needs to be understood before resentment has a chance to enter the room.

4. Know What Everyone Is Bringing to the Table

Don't create roles around friendship. Create them around what the business needs.

Every partner should be able to answer:

What do I own?

Not just their equity. Their responsibility.

Who owns sales? Who owns operations? Who owns the product? Who manages people? Who controls finances? Who has final decision-making authority? Who is accountable when something isn't working?

If everybody owns everything, eventually nobody owns anything.

5. Keep 'Em Small

More partners don't automatically mean more resources.

They also mean more opinions, more competing priorities, more communication, more equity distributed, and more people who need to agree when the business reaches a crossroads.

Before adding another partner, ask:

Does this person need to be an owner to create the value we need?

Sometimes the answer is yes.

Sometimes what you actually need is an incredible employee, advisor, consultant, lender, investor or strategic partner.

Equity is expensive. Treat it that way.

6. The Conversation Most Founders Skip

Don't only talk about how you're getting into the partnership.

Talk about how you'll get out.

Before signing anything, discuss what happens if:

• Someone wants to leave.
• Someone stops contributing.
• Someone wants to sell their shares.
• Someone gets divorced, becomes seriously ill, or dies.
• Partners fundamentally disagree.
• The company needs additional capital.
• One partner wants to sell the company and another doesn't.
• Someone isn't performing in their role.
• A partner wants to work less.
• The business becomes wildly successful.

The best time to have uncomfortable conversations is while everybody still likes each other.

Have an attorney turn those conversations into an operating or shareholder agreement appropriate for your business.

7. The Partner Test

Before you say yes to a business partner, sit down separately and answer these questions. Then compare answers.

VISION: What are we building?

RISK: What am I personally willing to lose?

MONEY: How much am I willing to invest, and what happens if we need more?

WORK: What am I committing to contribute?

AUTHORITY: What decisions do I own?

COMPENSATION: How and when should each of us get paid?

EQUITY: Why does each person own the percentage they own?

CONFLICT: How will we resolve a decision when we completely disagree?

EXIT: What happens if one of us wants out?

SUCCESS: If this becomes worth $10 million, do we still agree about what happens next?

If your answers are dramatically different, that's not necessarily a reason not to partner. It's a reason to keep talking before you do.

One Last Thought From Us

Some of the best partnerships aren't built because two people bring the same things to the table.

They're built because they bring different things the business genuinely needs, understand the value of those differences, and get clear about expectations before things get complicated.

• Keep the partnership small.
• Get clear early.
• Put the uncomfortable stuff on the table.
• And protect the relationship by protecting the business.

Dave & Shawnda Huffman

Tuuti Agency‍

The Power of U, Backed by Us.