6 Rules for How to “Try Before You Buy” With a New Business Partner

Have you ever known a couple that met, fell in love and eloped? 

Have you ever seen it work out?

I sure haven’t.

Don’t get me wrong – I believe in true love as much as the next guy.

I’m sure there have been lots of couples who eloped and then had long and happy marriages.

But I have a feeling they are the exception to the rule, with said rule being that rushing off and getting married in Vegas to someone you just met is just plain dumb.

Just ask Britney Spears.

Stupid or not, the same thing actually happens all the time with business partners as well.

Two people meet, they decide they are going to go into business together, and pretty soon they are rushing down the aisle.

I’ve seen this happen more than once. A client will contact me and say they are going in to business with someone, like, tomorrow.

Sometimes I feel like the one sober friend in a Vegas wedding chapel, saying “wait a second! Let’s think this through!”

I hate being a buzzkill, but seriously, what’s the rush?

Sure, it’s great when two or more people decide they want to be “partner up” and create a business. In fact, I love it.

I love the satisfaction of helping clients to achieve their dreams when they are launching a new business.

But it’s not always a good thing to start serving customers and clients before you’ve taken the time to iron out a few critical details at the outset.

It’s much better to take a few days or weeks or months and ask yourselves a few hard questions to make sure you are a good fit for one another.

It’s also far better to follow what I call the “Try Before You Buy” strategy.

Here’s how it works: you and your business partner agree to work together, iron out some basic terms, and then you try out your partnership over a relatively short period of time to make sure you are a good fit for one another.

It gives you an opportunity to test out your compatibility for one another before you spend a lot of time, money and energy on creating a new business. And I guarantee it will help you grow more in the long term.

It’s kind of like renting a car for a weekend before you plop down thousands of dollars to buy it.

That makes sense, right? Now let’s talk about how you should specifically work out the details of your trial run. Here are the key elements of the “Try Before You Buy” strategy:

1. Don’t Rush Things

The first rule is it’s OK to slow things down. In my experience, when two partners are rushing to open up their doors for business as soon as possible, there always seems to be some “urgency” which is driving it.

As yourselves if there does seem to be an urgency, what is it? Is it really valid?

In most cases, the clients and customers will still be around later, even if you have to wait a few weeks or months to get everything in order. If the customers won’t be around a few weeks later, then maybe you shouldn’t start the business.

If two new partners don’t have any urgency but they still absolutely must launch the business now and can’t wait a few weeks, then the motive is probably financial, meaning someone isn’t working or wants to make money.

Needing money quickly is a bad reason to start any business, but especially to start a business quickly without working out all the details first.

2. Get an Agreement in Writing

This rule could be rule numbers 2, 3 and 4. It is that important. You should take the time to write out an agreement between you and your partner.

It can be as simple as a few notes jotted on the back of a napkin. But the point is you should write down the basic terms of your partnership.

In its simplest terms, the agreement should include terms regarding ownership interests, compensation, job responsibilities, and capital contributions, and how to wrap it all up or shut it down.

I could say you can hire a lawyer to help you with drafting this document, but I hate it when lawyers (or any professional for that matter) make points that are completely self-serving. So I will leave it up to you.

Writing down your agreement serves two purposes. First, it’s a communication tool. It helps you to talk through certain material issues you may not have already discussed. Second, it serves as a record. Later, when either of you have questions about your roles or responsibilities, you can refer back to this agreement.

Think of it as your “Constitution” for the United States of Your Business.

3. Define the Parameters of the “Trial” Period

If you rent a car or a hotel room, you first must sign a written agreement with about 10 pages of small type font defining all the “rules” that apply. First and foremost is what time you need to turn the car or hotel room back over to Hertz or Hilton.

But the tiny type font also says a lot about what you can and can’t do with the stuff that is not your property.

Why do rental car companies and hotels require you to sign these agreements? Have you seen what happens when rock stars check into hotel rooms?

Strictly defined parameters for business agreements are like good fences to neighbors. They are just a good idea.

For your trial business partnership, you need to do the same thing. Define the rules of the road. Create a start and an end date for the trial run. Define what you are going to be doing and what you are not going to be doing. Divvy up responsibilities, costs and revenue splits.

4. Build Flexibility Into the Agreement

On the surface, this rule appears to violate the previous rules. However, there should always be some flexibility built into agreements between partners.

The problem is people change over time and priorities change. If a business starts out with three partners and they each get 1/3rd of the profit no matter how much effort they put in, human nature may lead some

Let’s say the business is a huge success. Like making-money-hand-over-fish kind of success. Who’s to say one of the partners may want to just kick back, stop putting effort into the business and roll around in their own pile of money?

If that happens, you want a way to modify your agreement. You don’t want an agreement that is so solid it can’t be penetrated.

5. Keep Open Lines of Communication

This one pretty much speaks for itself. Practicing this rule is not as easy.

One way you can keep the lines of communication open is by scheduling regular sit-down meetings to evaluate how the partnership is going.

If you feel that a one-on-one doesn’t allow for enough communication, you can work jointly with a business coach who is dedicated to the partnership’s success. I have had great results from working with my business coach, so I highly recommend looking in to this option

6. Don’t Negotiate So Hard You Bruise Feelings

This last lesson is really important. As you negotiate, you need to keep in mind that you don’t want to do anything to jeopardize the partnership or bruise egos in a way that will come back to bite you much later.

This rule also is more likely to be violated as parties get larger. Most small business partnerships between two individuals who don’t have thousands of dollars to spend will work out the agreement between themselves. Hopefully they will put their agreement in writing, but oftentimes they don’t.

As people become more successful, they are more likely to “lawyer up,” as they say. There are a lot of lawyers who are completely ignorant to how brass tacks negotiating tactics can cause hard feelings between two partners who need to be able to work together.

They negotiate like someone who brings a gun to a knife fight – whether the party on the other side of the table is a foe or a friend.

I don’t blame clients who’ve told me they generally don’t like to work with lawyers because lawyers tend to not be business-savvy. I totally agree that many lawyers are insensitive to preserving relationships between business partners.

But the answer is not to avoid using lawyers entirely. The solution is to not work with bad lawyers.

Have You “Tried Out” a Business Partner?

Finally, I want to hear from you. Have you done a “trial period” with a business partner before? If so, was it helpful?

 

Photo credits: Flickr/slgckgc

Cash Cat/Neatorama.com

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