My US$15-Million Lesson in Choosing a Business Partner

By Mike Whitaker, author of The Decision Makeover

The most expensive lessons in my life have been due to poor choices in business partners. In fact, I lost more than $15 million dollars in 2010 in the demise of my manufacturing business because I was vulnerable to my partners and bankers. When things are going great, partners behave great.

When things turn, you find out the truth. Owning a business is hard enough without suffering from the self-serving whims or circumstances created by your business partner. Choosing a good business partner can mean 1+1=3. A bad business partner can kill your business and your bank account.

DO YOU TAKE ON PARTNERS OR GO IT ALONE?

Business is more fun when you are not working alone, in my experience. The wonderful milestones, the victories and the highs are all better when you can share them with a partner. The partner makes the lows more bearable as well. It’s human nature. A partner adds capacity. People working together can make more discoveries and accomplish more. However, my partners have also caused me the most grief in my life. That fact doesn’t deter me from partnering—but I am now wiser when choosing!

The wonderful milestones, the victories and the highs are all better when you can share them with a partner.

If an entrepreneur doesn’t have the money to move a business forward, the answer is easy: He needs a partner with money. If that entrepreneur has enough money to conservatively make it work (but not quickly), he or she can go it alone, but the business will not scale quickly and it may lose its niche opportunity.

Partners can assist greatly with capital and effort. If you must have growth capital, there are only a few ways to acquire it. This was the reason I partnered with large capital sources (funds) and learned a painful $15-million lesson. We elevated the business value to new heights in 2008 and yet I was powerless to stop the carnage as it plummeted to earth a few years later due to errant decision making. In hindsight, the expression, “He who has the gold makes the rules” came to life before my eyes. When the problems escalated, nobody cared about partnership. Alternatively, magic can happen when partners come together. Steve Jobs and Steve Wozniak paired to create what would become Apple. Bill Gates and Paul Allen combined to create what would become Microsoft.

WHEN PARTNERSHIPS TURN BAD

Once a partnership starts to sour, the bad behavior begins. I used to think that people were either good or bad and that would determine their behavior in the beginning, middle and end of a partnership. Alternatively, while watching partnerships end, I have witnessed good people generate bad behavior toward their partner for common reasons:

They feel the original business deal is now unfair. 
They feel they have been undercompensated, that they are due). They feel their skills are undervalued by their partner. They feel hurt and want to inflict pain in return. They are kicking themselves for being so gullible.

We all know the feeling that comes over us when we realize the partnership isn’t going to last. Our behavior changes toward the other person under these circumstances. People start hoarding ideas; withholding information, time, or energy; creating side businesses; doing the minimum required to keep up appearances, etc. 
Thus, when you think it might be going badly, trust your intuition. In business, you don’t need anyone’s blessing—just a good legal agreement. Spend the most energy picking your partners and less energy trying to hold something together that is flawed.

Spend the most energy picking your partners and less energy trying to hold something together that is flawed.

 

CHOOSING YOUR PARTNERS 


The most important decisions we ever make in life are choosing our partners. Just look at how poorly some 
people choose their spouses. It turns out, though, that divorcing a spouse is usually much easier than unwinding business partnerships.

With a business partner, issues can originate from the partnership itself. In the beginning, the differences between partners may feel complementary for the business—a balance of skills and perspective makes the business stable. As the business grows, however, some of those differences can become major disruptions. Power is easily something to fight over. Second-guessing one another can become commonplace. Long-lasting partnerships in business are rare.

As I found out, choosing a business partner with whom you have no trusted background or relationship and who has enormously greater capital will mean that you have very little say. Also, when partnering with a more powerful unknown, it is important to legally document your rights to prevent your “partner” from crashing your business because he or she is willing to risk what you are not.

If you feel helpless in a partnership, it is not a partnership.

Your business partner needs to be someone you trust or someone who is legally bound to do the right thing. Partnership is strongest when the collective vision is clear, the motivations are the same and the leverage is not one-sided. If you feel helpless in a partnership, it is not a partnership. A friendship won’t survive a bad partnership, so proceed carefully and do so as if you are partnering with a stranger—so you have your eyes wide open for your decision making.

Mike Whitaker is a serial entrepreneur who has been creating profitable businesses since he was a teenager. Today, Whitaker is founder and CEO of LucasColorCard, one of the country’s premier manufacturers of loyalty, membership and library cards. He is also the president of Idea Gateway which works with its client partners to reach the next level of excellence through effective business planning and strategy. Whitaker is co-founder and board member of RevTech Accelerator, a leading venture accelerator seed fund. In addition, Whitaker is launching three new platforms: The Idea Filter™, WisePath®, and The Institute for Self Reliance to assist in personal goal achievement and income certainty in an uncertain economy. Learn more at www.mikewhitaker.com.

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