GUIDE: GROW YOUR BUSINESS | BONUS:
Find a Business Partner
Do I need a business partner?
We’re sure you’ve asked yourself whether or not you can start your business on your own. Running a business can be very challenging, but it can also be very rewarding. Having a business partner may not always come down to a personal preference, rather, it may be a financial one (e.g. investment opportunities). In all reality, this kind of decision is best made through consultation with a small business expert, like the ones at the Iowa Small Business Development Center.
Pros of bringing on a business partner
- Greater expertise: We all have our limitations when it comes to skill sets and availability. By bringing on a business partner with different skill sets, certain areas of your business that otherwise may be lacking can now grow appropriately. Your time will also be freed up to focus on the areas of the business you excel at as well.
- New perspectives: Different skill sets and backgrounds provide a variety of experiences and perspectives on certain topics, and strategies to resolve issues. Someone with a different perspective can make your business more well-rounded in the long run.
- Support system: Having someone to lean on during uncertain times, especially in business, is important. A great business partner is someone who you can trust and engage with to better both your business and yourself.
Cons of bringing on a business partner
- Giving up power / ownership: When you bring on a business partner, you are essentially giving up a portion of your power, by way of ownership of the business, to that partner or partners. Once they have partial ownership, it would likely be very difficult and / or expensive to buy them out in the future.
- Differing views: Though different views can be a good thing to reach a “middle ground” solution, if partners cannot resolve an issue together, the business will suffer, and likely the partner relationship will suffer as well.
- Complex decision making: When you are a solo business owner, the decision making process is very straightforward: whatever you want. When you have a business partner, you must weigh their opinions in some way, shape, or form in most if not all major decisions with the business.
Top 10 qualities to look for in a business partner
Though it can vary depending on who you are, the business you run, customers you have, and the investors you are seeking, there are some key qualities you should consider when identifying a potential business partner:
- If someone isn’t passionate about the problem(s) you are trying to solve, the customers you serve, or the overall mission, they likely shouldn’t be considered as a potential business partner.
- If a person isn’t reliable, in either a personal or professional level, it might be a red flag when offering a potential partnership to them. A great business partner is someone who you can depend on to conduct their job independently, in a time-sensitive manner, and someone who can pick-up-the-slack when you aren’t around.
- “Opposites Attract” should be your mantra when identifying a potential business partner. If you have an idea for an online store and you are great at writing sales pitches and advertisements, but you lack the technical know-how to get your online store built and continuously running – then a technical co-founder is likely what you need! If you are starting a landscaping business and are highly skilled on the physical labor side of things, including the management of a crew, but you lack the skills necessary to organize upcoming gigs and payroll, consider finding someone who can tackle that portion of the business for you.
- Ability to build strong relationships
- When you are just starting your business, your first few customers (at least) will need to be known on a one-on-one basis. It is O.K. if your customers aren’t familiar with everyone at every level of your business, however, a great business partner should be personable and generally possess the ability to build strong relationships with your customers and investors.
- Fiscal responsibility
- If a person isn’t fiscally responsible (responsible with their personal or past business finances), why would you trust them with your business credit card? Even if you trust them, think about your investors; if they don’t feel comfortable with your partner’s ability to grow their wealth, why would they invest in your business?
- Similar to the compatibility quality listed above, you should look for a business partner who is creative in their own regard. If they are the sales arm of the business, they should be able to come up with creative ways to obtain and maintain customer relationships. If they are the technical side of the business, they should know how to build things for your customers to feel engaged and comfortable doing business with you.
- It’s inevitable – disagreements will happen between business partners. They can be big and they can be small. Irresolvable issues within the business can mean loss of customers, loss of investors, personal finances taking a toll, personal relationships being strained, and unfortunately so much more. This is why it is highly important to identify someone who is open-minded to new ideas and ways of conducting business. A business partner should be a great listener and understand that they are playing for a team.
- Tolerant of risk
- Starting a business is risky, really risky. It isn’t like a 9 to 5, clock in / clock out kind of job. There will be times when business is great, and there will be times when business is poor. Tough conversations will need to be had, and even tougher decisions will need to be made. If a person you are considering a business partnership with isn’t able to handle the type of risk and tough choices you will have to make as the business grows, you should avoid working with that person.
- Conflict mediator and resolver
- Both you and your business partner need to have great communication and listening skills. Whenever there is conflict, ensuring everyone is on the same page means ensuring everyone’s concerns are “heard”. If a person can’t confidently resolve issues that improve either their personal or professional relationships, that might be an area of concern to remember.
- Would you want a business partner who gives up at the first sign of a struggle? When something goes wrong with your supply chain, your website crashes, a big account leaves you, or even a bad quarter (or two, or three, or four) happens, would you want a business partner to call it quits right away? Or would you want them to have some fight in them to get you, and your business, back on track to success?
How to calculate business ownership percentage
Though it may be tempting to start your business partnership with a simple handshake, you may want to reconsider. It is highly important that you work together on a formalized agreement about who is in charge of what, who has invested what so far, and what the percentage of ownership looks like between you and your partner(s). All too often, business owners skip this step because their relationship with their partner(s) is healthy and thriving. Sooner or later, there will be stress put on the business and it could turn sour – really quick. This is why a formal agreement is needed, though it may seem awkward when you are just getting started.
There are many ways to determine ownership percentages between all parties involved. Not only can it depend on your specific business type, it can also vary based on the amount of partners and investors you have. Below are ten different questions to ask yourself when determining who should own what percentage of the business. These are in no way the only questions to ask yourself when determining ownership percentages. IASourceLink and the Iowa SBDC highly suggest you speak with a legal professional when formalizing this kind of agreement.
For our ten questions below, let’s use this example: There are two founders, Tom and Jerry. Tom is the person who came up with the idea, wrote the business plan and service offerings, has previous expertise in the industry, and manages the finances. Jerry has experience with business operations and management, has the technical skills for the website, and provides connections to investors interested in your industry. Both Tom and Jerry share the responsibility of creating and giving pitch presentations.
- Who came up with the initial business idea? Tom ✔
- Who wrote the business plan? Tom ✔
- Who has previous expertise in your target industry? Tom ✔
- Who has previous expertise in business operations and management? Jerry ✔
- Who is building or coding the product/service/platform? Jerry ✔
- Who came up with the product/service/platform features? Tom ✔
- Who calculates financial projections and funding scenarios? Tom ✔
- Who manages current operating budgets and expenses? Tom ✔
- Who is providing connections to potential investors? Jerry ✔
- Who is creating and giving pitch presentations? Tom ✔ Jerry ✔
If you add all of these up, and divide by the number of questions answered, Tom would own 70% of the business, while Jerry would own 40% of the business. However, this would make 110% of the business, which isn’t possible. A way we can solve this problem is by rating each partner’s contribution on a scale of 1-5 if they both contribute to the same question; 1 being the lowest contribution and 5 being the highest contribution.
For our example, let’s say Tom is a 3 when it comes to creating and giving pitch presentations, while Jerry is a 5. For simplicity purposes, the question would go to Jerry, which would adjust the ownership breakdown to Tom with 60% and Jerry with 40%. This can get more complicated by actually weighing the 1-5 score, but for all intents and purposes, we hope this is a helpful starting point for you.
Frequently Asked Questions
Do you have questions about finding a business partner? You should consider checking out our Resource Navigator. It houses the contact information of 400 of our most helpful partners from across the state, like the Small Business Development Center, who provides free to low-cost assistance to Iowa entrepreneurs and small business owners.
Q: Do I have to evenly split my business 50 / 50 with my business partner?
A: No, you don’t have to evenly split your business 50/50 with your business partner. The ownership split of a business depends on various factors, such as the contributions of each partner, the value of the business, and the level of involvement of each partner in running the business.
Q: Does having a business partner make running a business easier?
A: Having a business partner can make running a business easier in some ways, but it also comes with its own set of challenges. Some advantages include a shared workload, shared resources, and the use of complementary skills.
Q: Should I find a business partner just like me?
A: When considering a business partner, it’s not necessary to find someone who is just like you. In fact, having a partner with complementary skills and strengths can be very beneficial for a business.
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