How to decide whether partnership is the right decision for your business
Taking on a business partner can have many benefits, the biggest of which may be sharing the workload. In fact, splitting the responsibility may even give a business more opportunity to thrive. According to the U.S. Small Business Administration, companies with multiple owners are more likely to survive longer periods of time than sole proprietorships. Still, entering into a business partnership is a big decision that should not be taken lightly.
When Mike Regina and his brother Ryan started Gibbsboro-based Big Sky Enterprises, a construction management/design-build operation, in 2003, they felt that their shared vision and their drive would make it a successful partnership—and it has. The brothers didn’t enter into a traditional business partnership but instead split the business 50/50 for ownership. That has worked for the brothers but most business experts say that partnerships should be a 60/40 or even 70/30 split. That’s because you need a point person for accountability and overall operational control.
“We have such a unique situation that I can’t imagine not having Ryan as a partner,” says Regina. “The advantage of having a partner is that when one is down, the other is there to pick you up. It also provides a sounding board for everything that has to do with the company. Being able to talk through ideas, processes, challenges, successes and clients with someone else, instead of a wall, has great value.”
Larry Steffani, owner at Catalano & Steffani Insurance Group, LLC in Blackwood, has a similar story. Steffani says that when he decided to go out on his own and launch an independent insurance agency, doing so with a partner was the way to go. But finding someone who shared his vision was the key. Like Regina, Steffani feels that the biggest pro of his business partnership has been the ability to talk-out problems and situations with someone else who has just as much at stake.
“My business partner and I do a great job at showing each other a different angle of a situation,” Steffani says. “In a business partnership, a partner must be able to voice his or her opinion on any matter without the fear of repercussions. If it is a partnership, then both parties have a lot on the line so each must be able to discuss the good things and the bad things freely. The goals for the future of the business do not have to be identical, but I do believe they should at least be made in the same direction.”
When problems arise
While there are many positives to having a business partner, there can be downsides, as well. Both Regina and Steffani say the inability to be on the same page can lead to bigger issues. It’s why partnering with the right person is so critical. Regina says if partners have different visions, battles can arise in the form of power plays, company morale issues, or worst of all—total business failure.
Milton Corsey, principal with Evolution Training and Consulting, a Deptford-based employee training company, says that lack of autonomy, sharing profits and a strained relationship are three additional common downsides that can arise when entering a partnership. The latter of which can be an issue when friends or family enter hastily into a partnership.
“I’m always a bit wary of going into business with family or friends, although there are many examples of highly successful business ventures involving family or friends,” Corsey says. “But there are also many where they do not work out so well.
If you are going to go into business with someone with whom you have a preexisting personal relationship, you need to reevaluate things as a business person—are they good with money, are they punctual, and how do they handle stress?”
But Corsey says it’s that shared vision that is really at the core—which is what both Regina and Steffani say have made their partnerships successful.
“A shared vision is a point that is often overlooked, but vital to your long-term success,” Corsey continues. “You need to agree on your goals. Do you want to stay small or grow? Who do you envision as your perfect client or customer?”
These types of questions must be asked prior to entering a partnership, he stresses.
In addition, the following other factors should be weighed when deciding whether to enter into a partnership:
- What is our purpose?
- What is our level of commitment?
- Do we have realistic and shared expectations?
- How do we make decisions?
- Manage risk
- Establish communication and conflict resolution system
If these issues are thought through in advance, problems may be averted. In fact, the more advanced thought you can give the process, the better.
“I think a lot of potential pitfalls of partnerships can be avoided if we ask ourselves if we are the partnering type or if we prefer to go at it alone. That question also needs to be posed of your prospective partner,” Corsey says. “I also recommend that once you have made a decision to enter into a partnership that you first enter into an operating agreement/partnership agreement where you flesh out as many possibilities that are reasonably foreseeable. It’s always better to determine how you will deal with situations with a cool head than to address them during more challenging times.”
Making it work
Regina says that both he, and his brother Ryan, are involved in their own outside businesses, also with partners, and that character, motive, passion, beliefs, strengths, and weaknesses all help determine how well the individual would fit into a partnership.
“The bottom line? Everyone has to be on the same page with the idea that money cannot be the driver,” Regina says. “The product and the service need to be the driver—which in turn will drive the revenue.”
Steffani adds that being realistic has helped his partnership work. And while everything has gone very smoothly for their first year of business, he remains a realist.
“We will have our disagreements at some point,” he says. “In a partnership you can’t—and shouldn’t—make a drastic change or decision by yourself. Partners must agree on major decisions.”
But Steffani knows that keeping communication at the core of their partnership will help when tough decisions arise. Trust is also key.
“There has to be a strong, mutual trust that we will both do our parts to maintain an honest and professional business,” Steffani says. “The profits will come, but they can’t be maintained if they are gained in the wrong way.”
Published (and copyrighted) in South Jersey Biz, Volume 5, Issue 9 (September, 2015).
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