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Why Partnerships Are Almost Always A Bad Plan, Plus: How To Avoid Getting Screwed If You Insist On Forming One

Why Partnerships Are Almost Always A Bad Plan, Plus: How To Avoid Getting Screwed If You Insist On Forming One

My position on forming partnerships is, roughly, thus: don’t do it. They almost always suck, and they almost always don’t work out. When they are formed between friends, they almost always lead to bad blood, not to mention lots of unnecessary expenditures of legal fees and hassles.

Obviously, I don’t believe this is always the case: I am married, after all. But I think that a happy marriage is probably the exception that proves the rule that you should mostly avoid partnerships whenever possible. But since people seem to be forming partnerships left and right, and in light of the recent controversy involving the Blissdom Conference and its own partnership disputes (about which I know nothing, except what you might have read), I have a few thoughts.

1. Assume your potential business partner is a douchebag; prepare yourself accordingly.

Let’s say that you are dead set on starting a partnership with somebody because you are certain that you cannot get ahead in social media without doing so. If you do, you need to act as if whomever you are going into business with is a douchebag in hiding. Because even if they aren’t, currently, acting like a douchebag, there is a good chance you will believe they are a douchebag at some point, particularly when there is money involved.

Start-up businesses are tough: there is tons of work, and no money. Until there is money, and then you’re going to start fighting over it unless you have made a written agreement for how the partnership is to be structured. An oral agreement is not good enough, even if there is no money and you’re not sure there will ever be.

2. If you aren’t sure what the agreement is between you and your potential business partner, figure it out before you do any work.

You have a voice and you have the ability to stop doing work if you are not sure you’re going to get a good deal. Figure out what you want out of a deal and ask for it. Do not do any work until and agreement has been hammered out, and do not assume that everything will work out without these details being clearly discussed. If your partner does not want to make a formal agreement, or wants to put it off, then you need to forget going into business with them. Do not trust that they will remember you when they make it big, because they won’t, and you will have nobody to blame but yourself.

3. Forget about being rude. There is no “rude” — there is just “dumb.”

Talking about money and the details of an ownership stake is difficult. It requires you to act like an adult. If you cannot do this or are worried that you won’t be assertive enough to do so, then you need to hire somebody to do it for you: that’s what lawyers are for.

4. You must have an exit strategy.

Have you thought about what is going to happen when your partnership goes sour (because it probably will)? How about when your partner decides, for whatever reason, that you are not right for the company and wants you out? You need to have a clear agreement for buying and selling shares in the company so that if this happens, at the very least, a partner is forced to buy you out instead of just kicking you to the curb. And you need to have a lawyer write this for you, because you will not be able to do it on your own.

Here’s what I think about partnerships disputes, both hypothetical and alleged: there are two sides to every story. Sometimes people go into agreements without making their needs clear because they are afraid to bring up the issue. Sometimes they deliberately obscure the terms as a means of making things better for themselves. The details of most partnership disputes are usually really complicated and it’s impossible for an outsider to make a judgment one way or the other on who was right and who was wrong. And because I’m guessing that the recent disputes in partnerships between mommybloggers adhere to this rule, I think a more appropriate response than choosing sides in all of it is probably just using it as a reminder of why you have to protect yourself.

Comments (8)

  1. Feb 2, 2011

    I just found your site yesterday and have been reading it over since then. I really liked your post about sneeze pages and am now off to read some more. Have already downloaded your ebook too.

    Thanks so much, I’m glad I came across your site!

  2. Feb 2, 2011

    I followed your intriguing tweet to the “fairy tale” account of this sad dissolution of (at least) a friendship. And your tips here–a reminder that “business is business”–are really the best, most dispassionate takeaway.

  3. Laura
    Feb 2, 2011

    Years ago, I formed a partnership with my very, very best friend. I love her like a sister. And still, our first business move was to visit an attorney and have her work out the legal details. We sat at a conference table (with newborn babies in each of our laps) and talked about expectations. It cost a couple thousand dollars, however we were both protected in case of some terrible unforeseen event. Our business relationship dissolved due to an out of state job move, but our friendship is still as strong as ever. Lawyers and insurance and filing the proper paperwork is a lot of work and expense, but is really just the cost of doing business. This is a valuable post. Maybe one of your best for those seeking a fairytale ending in the blogosphere.

  4. Feb 2, 2011

    A-freakin-men.

    I think mommybloggers are particularly prone to trouble in this area, because of all the talk of friendship and community and whatnot. Those things are great, but if you don’t have paperwork, your friendships and your community will be destroyed. The best thing you can do to preserve your friendships and community is to make sure the lines are clear.

  5. Feb 2, 2011

    Oh, and the masthead is KILLING me.

  6. I’ve got a new venture in the works and we are absolutely putting together an agreement. I think Kerry is right. As women, we get involved with our friends but don’t remember to leave our friend hats at the door when we talk business. Or worse, we don’t set boundaries and allow our personal lives and business lives to intertwine so much (talking shop over playdates) that it’s hard to separate the two.

  7. Feb 3, 2011

    This is excellent advice. I am a partner in an IT consulting company that is now 6 years old. We developed a partnership agreement at the on-set of the company and set the company up as a corporation with stock shares. We have clearly defined responsibilities and exit agreements. And our company is owned by two family members (myself and my first cousin) and a friend of ours. I am very glad to have these agreements in place to protect each of us and the company. So far, we have managed to preserve our family ties and friendships!

    If you want to own and operate a professional business, then treat it like a professional business. Leave your friends and family hats at the door.

  8. Everybody loves to rag on us lawyers (cough) (cough) but lawyers have their place, and can be priceless. Visit us for preventative care just like you’d see a doctor. You hope that you won’t need us for drastic fixes (surgery, lawsuit). The best way to avoid this is to see us BEFORE the situation goes bad. We are trained to anticipate problems and can draw up a contract to protect you.

    The dearer and closer the friendship, the more need there is for a contract to protect you. We are all human and prone to lapses when greed blinds us to the consequences of our actions.

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