- The pros and cons of having a business partner
- What you should look for in a good business partner
- Red flags to keep in mind when looking for a business partner
- The advantages that business acquisition provides over start-ups when it comes to having a partner.
The path to business ownership can be a lonely journey.
Poring over business listings on broker websites, deciding which businesses to investigate further and analyzing those deals, making an offer, and then the negotiation process – each stage seems much less daunting if you have someone to review it with you.
This fear of entering the unknown often leads Acquisition Entrepreneurs (AEs) to seek a partner to accompany them on their business buying journey. After all, it’s a lot easier to justify a decision when two people agree – even if it turns out to be the wrong decision.
However, Acquisition Entrepreneurs should tread carefully when deciding whether or not they want to partner with someone – because business partnerships have been shown to lead to disaster just as much as they lead to success. Take, for example, the story of Eduardo Saverin and Mark Zuckerberg: The pair co-founded Facebook in 2004, invested their own money, and grew the company to become a social network behemoth. Years later, Zuckerburg cut Saverin from the company and diluted his stake, leading to years of lawsuits.
Harvard Business School professor Noam Wasserman studied nearly 10,000 founders for his book The Founder’s Dilemma. While his book primarily looked at start-ups, some parallels can be drawn between start-up founders and Acquisition Entrepreneurs. According to Wasserman, 65 percent of “high-potential” start-ups fail due to a conflict between co-founders.
Given failure rates like that, aspiring owners should think long and hard about who they partner with. We’ll delve into some of the pros and cons of a business partnership, and then we’ll look at some strategies for finding a good fit, assuming you decide to go that route.
Acquiring a business, owning that business, and growing that business is a huge undertaking many entrepreneurs will choose to shoulder alone. But for others, there often comes a time when bringing in a partner might make sense.
Here are a few reasons you might consider bringing in a partner.
Business acquisition is not a risk-averse venture. If you’re applying for something like an SBA 7(a) loan, lenders will almost always require you to secure the loan with collateral. That collateral can include:
- Commercial property
- Machinery & Equipment
- Accounts receivable
Depending on the lender, they may also evaluate your personal assets. The idea of spreading that risk out between multiple parties is often enticing for AEs.
As we said earlier, it’s hard to go it alone in the world of acquisition entrepreneurship. Having someone to provide a different perspective on business decisions can make the endeavor seem less lonely.
Should you raise prices on your services? Do you need to open a new location to keep up with demand? Do you need to invest more in marketing? These are just a handful of decisions that a business owner has to make in the course of a year. Weighing those decisions alone can take a toll.
If you have someone to offer a different perspective with different experiences, it can often make decision-making less taxing. Not to mention, having a savvy partner who can help make decisions to improve the direction of the business can give you a big advantage over the competition.
A Balance of Knowledge & Skills
While you may have the experience and skills to run a roofing company, you may not know what it takes to find and retain talent. Or maybe you know everything about the financial side of the business. Still, you’re relatively green regarding operations. In situations like these, it can sometimes be beneficial to bring someone in to fill the gaps.
However, when you acquire a business, hiring someone with the knowledge you lack may be just as beneficial. Your business will have cash flow you can use to pay someone with the experience or knowledge you lack.
A Strong Personal Relationship
At Acquira, we have met many Acquisition Entrepreneurs who have already come as a package deal. These are sometimes husband and wife, sometimes old college buddies, and others who just found each other at a previous job and thought they clicked.
However they found each other, it’s clear from the outset that they want to work together. Oftentimes, “Should I get a business partner?” can be answered with, “I see myself working with this person for decades, and I think that working together will allow us both to grow as entrepreneurs.”
Sometimes, a business relationship is just something you feel in your bones.
While there are pros to having a companion on the journey, they can sometimes be a hindrance. Are they going to make your job harder or slow you down? Could your partner accidentally or purposely torpedo an opportunity due to ignorance or vanity? These are all possibilities, so let’s look at some of the cons of a business partnership.
While having someone to share in some of the risks could be seen as a good thing, it could also be risky to entangle yourself with another person’s financial history. You don’t want to go into business with someone and find out they have a blemish on their credit history that might come back to haunt you.
Giving Up Ownership
When it comes to a business acquisition, you and your partner must decide early in the process what each of you is worth. Are you willing to give up equity in your business for the sake of the partnership? Will profits be shared 50/50?
Some partners agree to an “eat what you kill” model, where each person takes home the profits that he or she earns. In an industry like home services, this arrangement might lead to each partner taking a percentage of the profit for any new business they generate.
Other partners may choose to just take an equal share of what the company brings in.
Whatever you decide, as early as possible, you should set out how much each partner will be compensated. You should also determine early on how you will resolve disputes.
Harder to Make Decisions Quickly
While it’s true that being the only person at the helm can be tiring and limiting, it’s also much more efficient. A team of two or more people needs to ensure they have an excellent communication cadence so that decisions can be made quickly and efficiently. Otherwise, you risk creating bottlenecks for the whole organization.
Think back to any time in your working life when a new coworker was brought on – it likely caused some slow-downs and confusion, at least initially, as people had to explain things to the new hire and pick up the slack as they worked to get up to speed. Any personnel change will cause some amount of disruption. It’s inevitable.
When you have a partner, you have to explain your thoughts and discuss ideas so everyone can be understood BEFORE making a decision. If it’s not handled perfectly, that often leads to inefficiencies and confusion in the organization.
How to Find a Good Business Partner
There are pros and cons to a business partnership. Whenever you find yourself needing to weigh the pros and cons, the outcome often comes down to your preference.
Given that, if you decide to find a partner for your business acquisition journey, there are a few best practices to follow to ensure you find a good fit.
Look for someone who gives as good as they get. In any successful relationship, each person believes the rewards they receive equal or exceed their contributions. However, you should never be keeping a mental tally of how much you’ve done versus how much you’re owed – that way, bitterness lies.
Instead, look for a partner who has a sense of equity and knows that some days, they will have to give more than they get.
Look for someone who is growth-minded. You want a partner who believes in you, your company, and your ability to work together to grow the business (and vice versa). Members of a successful partnership embrace change and growth and can see how it benefits the individual and the team as a whole.
Look for someone who can resolve conflict. In close relationships, you should neither compete with nor avoid the other person. These are not effective conflict management strategies. Rather, to maintain a healthy partnership, you should look for proactive approaches to conflict management that include compromise and collaboration to resolve any differences.
Look for someone who shares your vision. A company’s vision is what it desires for itself in the future. This vision comes from the top down, and a partnership requires unanimity of mind and spirit. To create a shared vision, you and your partner should:
- Create the initial vision
- Translate that vision into actionable steps
- Articulate the vision to others
- Remain true to the essence of the vision when making decisions
Look for someone who knows when to exit. At Acquira, we don’t believe the job of an Acquisition Entrepreneur is done until they can sell the company for more than they paid. If you partner with someone, you should plan your exit strategy early. Write out your strategy and include it in every business plan.
Look for someone who can make decisions with the same ease as you. Working with someone who makes decisions at a different pace than you can be frustrating. If you work with a perfectionist or someone very cautious, there can be built-in conflict, and you will move more slowly. Partners should understand when things are good enough but not perfect.
Partnering with someone is a big deal, especially if you plan on sharing the business's liabilities with that person. This sort of relationship often adds another element of uncertainty to the mix.
There are a few reasons people typically look to partner, and business acquisition actually provides unique advantages over a start-up for each of these reasons.
1 – If you are looking for someone with more operational experience, the nice thing with a business acquisition is that you have the cash flow to just pay someone well and vest a bit of equity over time.
2 – If you’re concerned about liability during a deal, you can look at different financing methods. Acquira has a debt fund through its Accelerator Program, for example, or you may look at raising money through a General Partner/Limited Partner structure to help mitigate the risk while allowing you to maintain control.
3 – If you're looking for someone with a ton of experience to be somewhat of a mentor or coach, you may want to look at setting up a Board of Directors. This option is typically attractive to people if the business already makes nearly a million dollars.
The ultimate goal of a business acquisition should be to move an owner-run company into a management-run company. That means installing a leadership team that sets and regularly meets those goals. If you can achieve this with a partner, a partnership may be a great jumping-off point. If, on the other hand, the partnership slows this process down, you may want to reconsider.
We never want to give the impression that we are anti-partnership. After all, Acquira was co-founded by two friends and long-time business partners. But you should be very careful about who you partner with and always do it for the right reasons.
Have you ever had a bad business partner experience? We’d love to hear about it in the comments below.
Through our Accelerator Program, Acquira provides access to several resources, including our community and Success Coaches, that can also serve as a sounding board. Sign up for the Accelerator Program to get started on your own business buying journey, or schedule a call with us today to learn more about the program.
- Acquiring a business is lonely work if you’re not properly prepared.
- A good partner can complement the skills and knowledge you may lack.
- You should not find a partner just to make the job less lonely.
- If you’re looking for a partner to help with operations, consider paying a professional and vesting over time.
Acquira is a business acquisition in a box service. We help entrepreneurs buy businesses and we invest in them and their chosen businesses. We are here to help ensure that each business we work with is posed to make the biggest positive impact possible for its owners, employees, and community.