Business partners can be a blessing or a curse. Sometimes they are both. I had two business partners for 9 years when I was in the real estate and mortgage industry. Together we were very successful and made a LOT of money working together. There were plenty of times where we felt like brothers and were grateful we had each other. There also were plenty of times that we could not stand one another. It was undeniable. We were a great team and very successful together despite our differences. We had 7 great companies with 40 employees. We had the best people in town working for us. Other companies were constantly trying to recruit our people away. Do you know why they stayed? We were the best at what we did. We were also the biggest in the city and paid better and offered more benefits than anyone else. We had the best opportunity. We were like a family. We all worked together and many of us socialized together. We had a great culture.
The first year we were in business together I personally made approx. $156k. That was the most I had ever made in one year. Just two and a half years earlier I was only making $37,000 working for Centex Rooney as a project engineer. I was 28 and on top of the world. All three of us were. In the early years together we tended to yell and scream at each other like immature children when we got angry. Too in our egos. We mellowed out in later years.
We each brought something to the table that the other two could not. We each did things well that the others either did not like to do or simply did not want to do. It was a business marriage. In the first few years there was often tension between us. Several times we were at the point where we wanted to walk away. However, together we were all way more successful than we had ever been on our own. Plus when you are making more money than you ever have in your whole life, its pretty hard to give that up. So we always when faced with dissolving our partnership and going our separate ways, would find a way to suck it up and tolerate each other.
When the market started topping out and property values got to be ridiculous back in 2004-2005 our profit margins started getting squeezed. Our business model was built for a buyers market and it had become a sellers market. Most of our buyers were in the $190k price range. Within 6 months those property values had skyrocketed to $300k pricing most of our buyers right out of the market. What you could get that they could afford was crap. So we were faced with some tough choices. Either change our business model to adapt to the new market reality, or go and do something else. By this point in our business relationship our hearts were focused on other ventures. We liquidated the companies and went our separate ways.
From that point forward I resolved to not have business partners going forward. I wanted to do something where I had 100% control over my own destiny and creativity. When you are in a business relationship with two other people who have different goals and objectives, you will either find a way to grow together or you will grow apart. When we first went into business together all three of us were focused on buying, fixing and reselling single family homes for a profit. After several years we had other companies and interests we were focusing on. Over time we simply grew apart. It simply came to a point where the market had changed, we had changed and our individual goals and interests were no longer aligned. We basically grew out of needing and relying upon each other for our own success. One of my former business partners is still a dear friend of mine to this day. The other one I rarely talk to.
So if you are going to formulate a business partnership you should hire an attorney to create a partnership agreement between you and your partners that details and illustrates the individual contributions of each partner. It would include, money to invest, ownership percentages, job descriptions and responsibilities, what happens if one of your partners kicks the bucket, etc.
You should always build a business in order to sell it later on down the road. Many entrepreneurs and businesses do not do this. When we first started out, I figured we would all be doing the real estate and mortgage business for the rest of our lives. We never imagined that our interests and goals would change to the point where we would want to go our separate ways. Set your company up so a person could eventually be hired to do your job as well as the jobs of your other partners. That way when you sell the company, the new owners can hire people to do the jobs the former owners used to do. Otherwise, you don’t have a business. You simply have a glorified job.
A doctor or an attorney is a good example. Unless they set up their practices to later be sold when they decide to retire or do something else, their practices will dissolve once the owner retires. However, if it is set up like a business should be, the owners can be replaced with salaried employees to take over their positions when the company is sold, or the partners want to retire into their business instead of from their business. They can take a seat on the board of directors and still guide the company, but not be involved in the day to day operations of the business.
Also, any company that does business valuations to determine what your business is worth will tell you the same thing. If you build and run your company like an employee who has a job, you will not have a company to sell but a job and its value will be significantly less.
Would I have business partners again? Very doubtful, but when I was younger and knew a lot less than I do today it was a great choice. I could not have accomplished what I did without hard working and talented partners and superstar employees. Technology has evolved so fast that my business is totally mobile. Everyone that works for me now is an independent contractor. They are located throughout the world and I have never met most of them in person. I can be in a hotel room in Paris with my girlfriends and running my company from my hotel room. The need for an office and all the associated overhead is gone. I can do a lot more with less. If I’ve got an internet connection and my computer, I can operate from anywhere in the world. Pretty damn amazing!
So if you are thinking about going into business with other people, there is a lot to consider. Make sure everyone knows what is expected of each other and have a legal agreement drawn up that details it all out and the consequences if partners don’t do what they have committed to. People change, interests change and the market changes. Build your company with the intent to sell it.
If you fail to plan, you plan to fail. Don’t try and wing it and hope everyone will be nice or fair later when there’s lots of money at stake.
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