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Partnerships

10 Questions to Ask Before Committing to a Business Partner

Like a marriage, a business partnership often begins with enthusiasm and high expectations – only to end in acrimony and legal proceedings.

Lisa Girard

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It’s important to know as much as possible about a potential partner, including how his or her finances and family life may affect the business, before signing on the dotted line.

Here are some questions to ask before deciding if partnering is a good idea:

1. What do I need from a business partner?

You should look for a business partner who brings something different to the table than you do. If you’re creative, maybe you need a more detail-oriented partner. If you have money to invest in the business, you may want to look for a partner with access to a market, or with great connections.

Or if you’re shy, you might need a good “people person” to balance the equation. “If they’re similar to you, it might be more comfortable, but it may not be what you need,” says William M. Moore, founder of the Moore Firm in San Diego, a law firm that serves entrepreneurs. “You need someone who complements your skills and personality.”

2. What is your potential partner’s financial situation?

It is important to have an understanding of someone’s financial status and commitments before getting into a venture together. “It is tough to ask what they are currently spending on a house or in payments to an ex-spouse, but someone’s prior financial commitments shape the decisions they will make in the short term,” says Gregory Kratofil, an attorney and shareholder with the law firm Polsinelli Shughart in Kansas City, Missouri, who specialises in small business interests. “If he has large outstanding obligations, but says he can get by on R140 000 salary, it is a red flag.”

3. What are the potential partner’s expectations on the time involved?

Partners don’t have to spend the same amount of time, but it is important that they are on the same page as to each other’s expected time commitments. How many hours a day does your partner expect to put into the venture, and do his expectations meet yours?

“It is equally important to level set your partner’s expectations on your time commitments,” Kratofil says. “The age old adage that it’s better to under-promise and over-deliver applies here.”

4. Is your potential partner’s commitment to the business as strong as yours?

“I don’t care if it’s a coffee house or a design firm, the business partner’s commitment has to equal yours,” says Bob Phibbs, consultant and CEO of The Retail Doctor, a site that provides information to small and medium-sized businesses. A partnership – especially one between friends – can start off with fun and excitement, but within a short time, the slog of every day catches up with you. If they’re not as committed to the business as you, they may lose their enthusiasm and may actually be damaging the brand every time you open your doors.

5. Is there something in your potential partner’s family life that might make the business a secondary interest?

If your potential partner has a pregnant wife or is taking care of an elderly parent, he may be distracted from the business. That’s why you have to be brutally honest when thinking of forming a partnership. “The partner can say, ‘My wife is behind me 100 percent.’ But I want to talk to the wife,” Phibbs says. “If they’re too distracted by a family issue or their family isn’t behind them, the business may be doomed from the start.”

6. How would he or she handle a tough situation?

It’s important to know what your potential business partner will do if he has his back up against the wall – and it will happen, Phibbs says. The best way to discover this is to look at what he’s done in past business ventures. If he couldn’t meet payroll, for example:

Did he do the right thing and dip into savings or borrow from a credit card or a friend? Or did he pay employees late, or not at all? Or worse, did he skip paying payroll taxes? It all comes down to character issue, Phibbs says, adding, “Payroll taxes are a federal obligation. If that’s negotiable, you can bet your partnership is also negotiable.”

7. What questions do they have for me?

If a potential employee doesn’t ask any questions in a job interview, you might be less likely to hire him because of a perceived lack of interest. The same applies to a potential business partner, who should want to know about your character, reliability and expectations.

“I want them to ask me the same tough questions I ask them. If they say it doesn’t really matter, it could mean two things: their expectations are too high or they might be kind of flighty,” Phibbs says. “Things may be fine now, but in a month or two, they may want to change things or even get out of the deal.”

8. What is the potential partner’s standing in the community?

A lot of people seem good at first, but that may be their skill – seeming good at first, Moore says. Once they get their foot in the door, it may be difficult to get them out. Talk to former employees to see what they were like to work with, or for. If you’re looking for someone with money connections, verify that they have money.

If they say they have great connections, see if those connections go beyond just being recognised and given a slap on the back. “A business partnership is not a marriage, but there should be some sort of courtship process that you can verify that they are who they say they are,” Moore says.

9. Are they willing to put everything in writing?

Many partnerships are cemented with a handshake, but this can be a recipe for disaster. It’s crucial to put it on paper – not only what is expected of each partner, but the consequences if expectations aren’t met. “There’s something about actually putting it in writing that exposes the potential problem areas in the partnership,” Moore says.

If someone has a family emergency and disappears the first six months of the business – even though it may not be through any fault of his own – are you still expected to give that person a certain percentage of the business?

“If someone simply isn’t pulling his or her weight, you need to be able to get them out without destroying the business,” he adds. “And if it’s in writing, there’s no arguing it.”

10. Do I really need a partner?

If you can get someone to do something without giving them a stake in your business, it’s always better, Moore says. People get wrapped up in the idea of needing to work with someone, but it’s not always a good idea. Sometimes you need somebody to show up from 9-5, work hard and go home, he says, adding.

“If you’re cash poor, or it’s a start-up and you don’t expect to make money right away, taking on a partner might be the better option. But if you can just pay somebody to show up and work, it’s generally a better option than giving them a stake in the company.”

And now a bonus question….

What happens if we can’t work it out?

Most people don’t envision the rough times ahead for a new venture, so this question is probably the hardest to remember to ask and the beginning. Yet, the best time to address potential problems with your partner is at the beginning before emotions run high.

“You can’t predict every potential problem, but a good start-up lawyer can help you work through some of the common problems and put a framework in place to help address unforeseen circumstances,” Kratofil says.

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The Essential Elements of Working With a Partner. Don’t Miss These Tips

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Lisa Girard is a freelance writer who covers topics as diverse as golf fashion, health and beauty, the hardware industry and small business interests. She also has been Senior Apparel Editor for PGA Magazine for more than a decade. Lisa lives in New Jersey with her four children and two dogs.

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Partnerships

The Whats And The Whys Of Creating A Successful Business Partnership

Partnerships can break businesses. They can also make them fly. How can you ensure your partnerships serve all parties and safeguard the company’s vision?

Grant Field

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One of the first businesses I started was a high-school DJ-ing business with my brother. We were going to ride the party wave to untold success. Because I had known my brother all my life, I just assumed that we would be on the same page in terms of the future of our little business, and I didn’t bother to check whether we had the same long-term vision.

When the money started coming in, he wanted to invest the earnings, while I wanted to plough them back into the business. Each of us had a distinct idea about an end goal. I wanted us to be a leading DJ company on the South African event scene. He wanted to preserve the capital. Both of these were noble pursuits, but we neglected to ensure that we were on the same page when we first started out.

The “why” really does matter

Right there is the first lesson that anyone should learn when considering a partnership – you need to agree on the “why”. Simon Sinek wrote that great book, “Start With Why”, which encourages people to begin by finding their purpose. In a business partnership, if your whys aren’t the same, if you don’t have the same fundamental reasons to do what you’re doing, your business isn’t going to fly.

As we all know, business can get tough – all efforts must push towards the same end-point to enhance your chances of success.

What?

If you’ve ticked the “why” box, the next thing to consider is the “what?” What are you and your partner each bringing to the table? When the skills sets are very different, it can be hard to understand value… which can result in resentment on both sides.

For example, if you are an engineer who has built an amazing platform, but you’re just not a people person, you could establish a partnership with a business development expert with loads of connections. From one angle, it might appear that your new partner spends each night having expensive dinners, until he lands the contract that provides your platform with national exposure and gives your business the first step into true operation.

There’s no way to put an actual value to the contribution that you’ve each made, but the business would be nothing without both of your efforts.

Once you’ve defined what your business needs, it’s a process of accepting that even if a different skills set cannot match the blood, sweat, and tears that you have invested in the business, it can still contribute exceptional value to your bottom line.

Partnerships in practice

Even established businesses can investigate partnerships in order to evolve. At Fedgroup, we’ve engaged in in three active partnerships to allow us to innovate in new, future-critical spaces.

Our Impact Farming venture was perfected as a product from a tech and accounting perspective, but would never have made it to market without the deep expertise of our partner Suraj Lallchand in the sustainable agriculture and agritech world.

We have also partnered with the machine learning and AI guru, Marco Cerutti and his company DragonFlower, clearly recognising that this technology is critical to Fedgroup’s sustainability, and further recognising that we simply didn’t have the skills to make fruitful contributions in this space.

Another example is our Internet of Things partner, Techsitter. Michael Stofberg, the head of Techsitter, has allowed us to enter this market with a deep skills set and vast knowledge that we would never have gained in-house in time to meet demand.

A leap of faith

The funny thing about all of this is that my brother and I are still the same people we were in high school, and both of us are using our particular approaches to the benefit of the companies we run. I still want to use my profits to reinvest in the business and grow, whereas his successful property portfolio investment company, Fieldspace, ensures capital preservation and growth.

In all the partnerships I’ve mentioned, there was a meeting of minds. There was a common why, and a complementary what, but in the end when you’ve ticked all the boxes, any partnership is a leap of faith, and sometimes you just have to take it.

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Success Fuelled By Partnership

Property Point, the Department of Small Business Development (DSBD) along with the Small Enterprise Development Agency (SEDA) have joined forces to drive market access to a legion of high potential small black-owned businesses.

Property Point

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When SEDA invited Property Point to apply for funding through their incubation fund structure, the pilot project became a game-changing partnership. The aim of the project is to provide incubation funding of R6-7million annually over three years. The Enterprise Incubation Programme (EIP) under the Department of Small Business Development awarded Property Point funding of R5 million for a 12-month programme to incubate 15 businesses.

“The goal of the collaboration was to drive market access to a cohort of high potential small black businesses,” says Desigan Chetty, Head of Operations at Property. “Point Property Point’s demand led-approach to ESD suited DSBD’s objectives to ensure that businesses are able to access markets after going through a capacity building programme.

“Property Point’s objective is to establish a strategic relationship with government to assist in contributing to the sustainability of small businesses, reducing dependency and ensuring that businesses are enabled to competitively access market opportunities,” he explains.

Access to markets, job creation, and sustainable small business growth

The major objective was to access markets, ensure job creation and sustainable growth of small businesses. Each business was taken through a diagnostic assessment and a bespoke business development map was produced.

Related: Public Private Partnerships Can Work For Entrepreneurs

“One-on-one mentorship was a successful tool to align the objectives of the owners as well as the businesses,” adds Desigan. “In addition, the focus was on profiling the businesses, enabling them to access markets through a solid sales pipeline process, acquiring machinery to increase operational capacity and also accessing technical certifications which are often a barrier to opportunities.”

The power of partnership

The biggest success story would be that Property Point has managed to exceed all expectations of DSBD, according to Khutjo Langa, Property Point’s Monitoring and Evaluation Manager.

“The impact targets were achieved in the first quarter and we have been pushing the boundaries to increase the ROI of the funding. We have added one more business to the initial set target of 15 businesses because we saw a need and a perfect fit for that business to benefit from this partnership.”

Khutjo believes that there is certainly a need for collaborations of this nature, “especially now that we have seen the results that can be achieved if things are done correctly. South Africa needs both private and public to work together to solve the ills of our country. These kinds of collaborations allow easy flow of resources and accountability, thus ensuring that everyone does what is expected of them.”

Working with the DSBD

The small businesses that are part of the DSBD intake will form part of the Property Point alumni network and we will still maintain contact through our monthly Entrepreneurship To The Point networking engagements.

Related: 4 Black-Owned Businesses Participating in This Enterprise Development Programme That Are Growing – Fast

“The DSBD team was supportive and provided oversight to ensure that programme objectives were met,” says Desigan. “The Director General, Edith Vries, attended the launch of the programme and engaged with each of the 16 businesses on the programme individually.”

“We have learned a lot from this engagement,” says Khutjo. “We were stretched but proved that our ten years of existence and proven track record qualifies us to be able to take on such projects and succeed.”

Bradley Kodi, Programme Manager at Property Point agrees. “The experience has been amazing thus far, by no means easy, but a beneficial relationship of interchangeable learning between both organisations,” says Bradley. “I strongly believe this public-private partnership can be considered a success – our impact speaks for itself.”

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Partnerships

Alan Knott-Craig Answers: How To Find Partners And Navigate The Partnership Territory

Most businesses are built on some form of partnership, from co-founders to investment deals. Here’s how to find partners and navigate partnership territory.

Alan Knott-Craig

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How do you find the right partners? — Johnny

The best way to find partners is to make it easy for them to find you. Speak at conferences, write a blog, write books, do media interviews, make it easy for people to notice you. With some luck someone will approach you and voila, you’ll have a potential partner. The real challenge is knowing whether they are the right partner.

The only way you will find the right partner is if you are totally honest about yourself. The only way you can be totally honest about yourself is to know yourself.

To know yourself, you need to take risks. Lots of risks. Fall in love, start businesses, travel, meet new people, do public speeches. Keep taking risks. Sometimes you’ll win, most times you’ll fail.

It’s in failure that you’ll find out how you respond to setbacks, what is important to you, what type of people you gel with. One of the biggest risks you’ll take is choosing a business partner. If you make a mistake, it’s painful, but you then know more about yourself and will find it easier to find the right partner next time. Take risks.

Related: Alan Knott-Craig Answers: How To Build A Debt-Free Business

How do I discipline a senior executive in my business? We’ve been partners for over two years, he’s helped me enormously, but he recently crossed a line with one of our staff members and I’m not sure how to handle the situation. — Busi

Start with having a disciplinary code and disciplinary process that describes the steps to be taken in the event of an employee contravening the code.

You then need to call in your partner, have a witness present, and get his side of the story. If the issue can be explained away, problem solved.

If not, you have to follow your disciplinary process to the T. If anything, you must be overly strict. You must over-react.

You have to show the rest of your staff that no one is above the law. If you don’t, don’t be surprised if your staff become demoralised and disrespect you and your disciplinary code.

Related: Alan Knott-Craig Answers Your Questions On Money And Partners

I’m a CEO of a small business. We’ve recently had some HR issues. What’s the right response to gender or racial discrimination in the office?  — Vusiswa

No company in South Africa can tolerate gender or racial discrimination. Immediately start a disciplinary process, act firmly and publicly. Make an example of the situation. Draw a line far away from anything that could be construed as offensive, and make sure your entire team knows where that line is.

The first offenders should be used as public examples. Tough luck for them, but the best way to save others from doing the wrong thing is to over-punish the first offender.

I’m losing the confidence of my investors. What do I do? — Belinda

There are a couple of reasons for losing investor confidence:

  1. They think you’re incompetent. Only you know whether that is true. If true, there is no escaping this truth. Your only option is to find someone else to run your business. That action will rebuild investor confidence.
  2. They think you’re a liar. If you’re a liar, you will eventually be caught out. Investors will forgive incompetence, but they’ll never forgive fraud.
  3. You are not delivering on the promises you made. This doesn’t necessarily mean you are incompetent. It means you over-promised. The solution is simple: Stop over-promising. If you think you’ll do 20% sales growth, promise 10%. Get into the habit of giving yourself a margin of error. If you keep your promises, your investors will back you.

 


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