by: Roger Dooley
While flipping channels, I ran across an episode of City Confidential,
a show that takes viewers on a trip to an American city while
recounting a murder there. This particular episode involved two
business partners - one was convicted of killing the other. The murder
victim was apparently exceptionally hard working and capable, and was
abandoning the shared business due to the poor performance and lack of
effort on the part of the other owner.
The slacker parter, seeing that the business was already in trouble
and would certainly fail without the other’s contributions, was found
to have killed him - apparently to take advantage of a hefty “key man”
insurance policy that would have paid the firm’s debts and left the
remaining partner well-capitalized and in full control. While few
business partnerships will lead to murder, lots of them do generate
hard feelings when the partners seem to have different expectations for
their effort and performance. Nowhere is that more true than with Web
The dynamic nature
of Web businesses mean that they are often formed quickly in response
to a perceived market opportunity. Frequently, these businesses are
launched by multiple partners or shareholders, each of whom may bring
some particular strength or expertise to the enterprise. The Web also
makes it possible for founders to be in different locations - a huge
advantage in combining skills, but also potentially problematic.
Partners who are geographically separated may communicate far less than
local partners, and don’t have the opportunity for informal bonding. In
addition, even determining what a partner is doing or how much effort
he is putting forth can be difficult.
I’ve occasionally responded to forum members seeking advice in setting
up a new venture. After seeing the partner murder story, I was
motivated to do the same here.
I’ve been part of both
in-person and virtual startups involving multiple partners, and the
potential pitfalls are actually quite similar. (I’ll use the term
“partner” even though sometimes “fellow shareholder” might be more
accurate from a legal standpoint.) I’ve seen some go very well, and
others not so well. Based on my own direct experience, as well as what
I’ve observerd in other startups, here are a few ways to avoid wanting
to bump off your partner(s).
Partner With Quality People.
Love is blind, and so is new business enthusiasm. Just as individuals
sometimes overlook flaws in the people they marry, or assume they’ll
change the other person, so do entrepreneurs. Nothing is more important
than choosing partners who have a track record of positive
accomplishment and have demonstrated integrity over time. Markets
change, business needs change, but a solid individual will remain an
asset throughout. Conversely, if you have reservations about an
individual or his background, or are unable to determine much about the
person’s history, don’t get involved in a business relationship. Do
some reference checking with past employers or business partners to
Clearly Define Roles and Expectations.
In the enthusiasm surrounding a startup, often partners plunge in with
only a vague idea of who will be doing what. When things get rolling,
it may turn out that one partner had a greatly differing idea of what
she would be doing, or how much effort would be required. I saw one
such partnership blow up when one of the founders of a
bakery/restaurant realized she would have to get up at 2 AM every day
to begin making product. (Of course, even clear role definition doesn’t
eliminate the possibility that a partner will be unwilling to fulfill
that role after a period of time.)
Establish Milestones and Tangible Performance Indicators.
If a partner is expected to complete specific tasks as part of the
startup process, define these. Set dates for completion, and state how
completion will be measured. The more specific you can be, the better.
(The partner murder case I mentioned earlier started when one partner
was working long hours and creating most of the value in the business
while the other spent most of his time sitting around and chatting up
the female employees.)
Decide What Happens If a Partner Can’t, or Won’t, Meet His Obligations.
Setting out expectations is great, but you also need to decide what
happens if these expectations aren’t met. Will ownership be reduced?
Will compensation be cut? Since often “sweat equity” is a big component
of these startups, it may be that adjustment of ownership shares is the
Have a Lawyer Create Your Documents.
“Handshake” partnerships are the worst when the go sour - with nothing
legally defined, the partners who are creating value may end up sharing
that value with those who aren’t contributing. While “do it yourself”
agreements are better than nothing, investing a few dollars in a lawyer
who understands the laws in your state is well worth it.
Define How Partners Exit The Business.
Sometimes partners may exit the business tacitly, by ceasing their
efforts. In other cases, a partner may need to exit because of other
circumstances - health problems, family issues, etc. Regardless, the
agreement needs to define what will happen under these circumstances.
Will the partner forfeit all rights of ownership? Will compensation be
due? How will time affect this determination? Clearly, a partner who
has worked on the business for a year will have contributed more sweat
equity than one who stops working after a few weeks.
Some partnership problems result from festering issues. One partner
thinks another isn’t working hard enough, is taking the wrong approach,
etc. Instead of addressing the issue head-on with the other partner, he
stews about it, complains to other partners or team members, and in
general does nothing to solve the underlying problem. Not all issues
can be resolved by communication, but it is always worth the effort to
These thoughts are in no way a complete guide to starting
a small business or a virtual partnership. But, if you are
contemplating such an involvement, consider these points carefully.
It’s infinitely easier to solve problems before a venture starts than
when it is well underway. I’ve been involved in negotiations to
straighten out messes created by poor partnership arrangements, and I
can assure you they are no fun at all. Get everyone to agree on terms
while enthusiasm is high and while relations are cordial, and you’ll
avoid those murderous thoughts later.