Despite his God-given abilities and otherworldly skills, Michael Jordan could not win a single title for the Chicago Bulls. Fast-forward five years after Jordan’s final game in the NBA, another player seemingly kissed by God upon birth, LeBron James has failed to win a single title for the Cleveland Cavaliers. Even when Jordan and James had a solid team around them, it took them one or two years to win their first championship title.
Building a business goes through the processes same as those in building a championship team. Despite your individual accomplishments, skills, experience, and levels of competencies, you cannot hope to succeed on your own. You can achieve a certain level of success under your own merits, but doing so is not representative of what you can accomplish under fully optimized conditions. You need to build a team of people who will comprise the final components to a winning business model.
When you are in the process of organizing your business, you will inevitably come across this question: “Do I need business partners?”
The general description of a business partner is one who contributes equity to the enterprise in the form of capital and/or expertise to ensure goals are met and interests are protected. Deciding on having a business partner does not mean your business structure has to be a partnership. You can set up a corporation with four other individuals who are viewed as “partners” in the context of running the business but have different participations in terms of equity and function.
There are several types of business partners, each with its own legal implication in the distribution of equity, level of participation, and obligation in the enterprise.
For the purposes of this article, I will only discuss the two types that are predominant in a corporate structure: active and dormant business partner.
An active partner is one who is directly involved in running the business affairs of the company. He or she owns equity and is designated to manage or oversee a specific area in the company.
A dormant partner is one who is not involved in the company’s business affairs. He or she owns equity, which is typically less than that of the active partners. He or she also shares with the profits and is accountable for the company’s debts.
Before you can decide on which type of partner you need, you first have to decide if you need to have business partners. Here are a few questions you have to ask yourself to make that decision:
- Do I have enough capital to start and sustain the business for at least six months?
- Am I confident of my skills and competencies to get the business running efficiently during the start up stages?
- Am I strong enough emotionally and mentally to forge through the most stressful periods of operation?
- Can I handle all the essential tasks of the business without missing a beat?
- Do I have the ability to expand the business on my own?
If the answer to all of the above is “no,” then you definitely need to have business partners. As for the type of partner you need, opt for a dormant partner if your reason is primarily for capitalization purposes. If your purpose is to distribute responsibilities so you can focus on your core competencies while being assured of capitalization when needed, finding an active partner is the best.
In finding the ideal business partner or partners, the immediate go-to solution of first-time entrepreneurs is to invite close friends or families. The reasoning is obvious. Venturing into business for the first time can be a daunting task; it is the “Great Unknown.” We don’t know how to start, what to expect, and what to do. In some ways, it’s similar to your first day in school; you’re either looking for a familiar face or someone you can latch on for security and assurance.
Our friends and family are familiar. They’ve been with us through the good times and bad, and our relationships have stood the test of time.
But does the history of friendship enough to merit our trust in the context of business?
Is blood truly thicker than water when it comes to managing a business?
Perhaps familiarity is not ideal for business. Who was it who said, “Familiarity breeds contempt?” It was Apuleius, a writer whose own family accused him of deception through magic spells!
I’ve heard all of these before.
“I got him to be my business partner because he stood by and helped me through the toughest times. There’s no one else I would rather start a business with.”
“I’m lucky he accepted my offer to invest and become a partner in the company. He’s so smart and has been responsible for the success of all the companies he’s handled.”
“I’ve confided with her all my life. She knows my deepest secrets just like I know hers. I’m sure I can trust her in business.”
If at this point, it seems that I’m discouraging you from inviting friends and family from becoming business partners, I’m not. But the reality is business is not an incidental experience. It’s not a one-time thing. It’s a long-term commitment to an endeavor where the objective is to increase shareholder value over time.