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7 Points To Include In Your Business Partnership Prenup.

7 Points To Include In Your Business Partnership Prenup.


Next to marriage, a business partnership is the most intense and collaborative-dependent and interdependent relationship an Entrepreneur and business owner can have. And, like marriages, over 50% of them will fail. That’s a staggering statistic by any measurement.

If you’re part of a business partnership, you expect to have discussions that end in decisions rather than arguments with your partner or partners and where communication is not a barrier but rather a tool for success. However these are major issues that result in the demise of many potentially successful partnerships.

So if you’re considering a partnership and aren’t sure how to determine if there is a fit, and how to make sure you have shared values, beliefs, goals before you enter into the partnership what do you need to do and look out for.

Well partnerships are natural breeding grounds for conflict because everyone is a chief, or at least think they are. That’s just one of the reasons many partnerships end up failing. Partnerships form with the best of intentions but they fail for a variety of preventable reasons.

Partnerships generally form for three basic reasons:

 A few very smart and talented people decide to pool their talents because they believe that they will be able to leverage their combined skills and knowledge to better meet the needs of the marketplace.

 Most consultants are inadequate on the sales and marketing front and they hope that by having more people involved in rainmaking they will create a more stable business.

 Occasionally, partnerships form because the founders believe that a partnership will be more fun and rewarding than going it alone.

Like many high profile marriages, where the stakes are high in the event of failure and separation the partners agree on what will happen if and when this comes to an end in the form of a pre nuptial agreement or prenup. In this way everybody knows before going in what’s going to happen going out and what happens in between.

So what do you include in your Partnerships prenup. This is not an exhaustive list but represents some of the things that readily come to mind and internet research.

1. Ensure that you adequately define the agreed vision and reason for starting the business which should be more than simply being a vehicle to make money. Develop a vision for the partnership that people must opt-in to before joining. You want people to self-select into the partnership based on vision and value congruence vs. simply joining to earn a paycheck, otherwise, you’ll have to keep paying them more to keep them around. Failure to do this will result over time in partners leaving because of values, career or life goal misalignment.

2. Ensure that you develop effective decision-making processes especially if you have assertive partners who will do what they want, causing less assertive partners to resent those decisions and actions because they weren’t consulted. Without a clear understanding and agreement on how decisions are to be made, partners will end up feeling that their views weren’t adequately considered. Or, they end up doing what they want to do because they didn’t understand, agree with or buy-into the decisions and directions that they believed were made. As a result, decisions you thought were made end up in the dustpan of disregard and irrelevance. The end result is that partners will go in opposing directions that meet their own needs but not the strategic needs and direction of the partnership.

3. Money, money money. Always talk and agree money and financial matters from the outset, preferable when there is no money on the table and the business is looking to raise the startup capital. Ensure that that prenup protects the business against rewarding those who take care of themselves above the common good. Partnership compensation structures have been known to encourage fiefdom building, not teamwork.

4. Equality and Balance. Avoid situations where you have a dominant partner who can make or break the partnership due to his particular skill, expertise, influence, contacts and or financial resources. Known as Rainmakers they can become prima donnas and end up holding the partnership hostage with the threat that they will take their clients and resources elsewhere. Resist the temptation to bring on rainmakers who do not share your values. Value misalignment can create conflicts in approach to business development, delivery of services and how you treat one another. Create a mindset that everyone is in the sales and marketing business and is responsible for not only delivering services (the easy job) but bringing in new business. Some people will be more naturally effective at rainmaking but everyone can learn to do it more effectively in a way that is congruent with his or her personality.

The last thing you want is for the Rainmaker to walk and the business folds.

5. Partners that play and socialize together outside of work tend to stay together. Often times partners are so business and client focused that they don’t adequately attend to the care and feeding of each other and for non-partner staff. As a consequence, people do not develop a sense of camaraderie and loyalty to each other and the partnership. They leave once they see a better opportunity elsewhere. Agree to make time for each other outside of the business.

6. Be clear about the end game for the partnership. Leahcim Semaj often laments on the fact that many business owners are never sure if they are building a business to last and pass on to future generations or building to sell at the right time and price, to be acquired, to grow into a powerhouse or to be just a lifestyle business. Answers to this question will help determine the strategic direction for the partnership and the action steps to achieve the goals. A lifestyle business will require a different strategy than building a business that will become an attractive buyout candidate. You want people to join the partnership with a clear understanding and agreement about the goal of the partnership. This is a corollary to developing a vision. Vision is the raison d’être, while the end game helps people know how they will be able to cash out or retire.

7. Determine in advance how partners can exit gracefully if they determine it’s time to move on, e.g., financial aspects of the separation. All it takes is one bad exit to tank a partnership through all the bad press and karma. You want ex-partners to remember and talk well of their time at your company. Make it possible for your ex-partners to want to refer business to their alma mater.

If you follow these guidelines the odds will be in your favor to create a long and successful partnership.

Additional Source: Why Partnership Fail and Steps to Prevent Failure by Carl Robinson, Ph.D., © 2007