Why you should avoid business partners at all costs

[fhs8]

Why are people inclined to get business partners? It's a TERRIBLE idea. In general you should NEVER get a business partner.

1. It requires that the partner benefit you more than the cost of giving up ownership. If you give up 50% of your company then the company would have to earn 100% more profit for the partner to be beneficial to you.

2. You usually can get an employee instead of having the skills that the person offers.

3. Most business partners do not have a business already either because they are new entrepreneurs or their past businesses were total failures. In other words they don't know what they're doing. Why would you partner with someone who never started a successful business before?

4. Lots of legal issues. For example you can't open up another business that's similar without risking a lawsuit from a business partner.

5. If a partner doesn't do anything and you have to do all the work then you have little recourse.

6. Legal costs should be higher since the operating agreement should spell out if money can be contributed for a percentage of ownership. If you get a boilerplate operating agreement from Legalzoom for example it might not have the provisions needed to protect you from getting screwed over.

7. Your partners might want a salary when the company is low on funds or blow money on worthless stuff.

8. Time is wasted with partners when it could be focused on the business.

9. You have less control of your business. More than likely a bad thing.

10. Partners can raid corporate bank accounts and run off with the money. If you wouldn't trust a business partner with $20,000 of your own money under their bed then you shouldn't have them as a business partner.

11. The business partner who actually wants the business to succeed will be doing most of the work.

12. Ever go to any business networking events? Total losers everywhere. What ends up happening is that the 50yr old sandwich shop guy gives you a brochure to go to his hole in the wall sandwich place. It's just business people trying to advertise to get more business. These are the same kind of people who want to be a business partner. No thanks. I don't want to end up like that.

13. You basically admit that you can't open a business on your own because you're too stupid to do it yourself so you need the help of someone else. Only problem is that someone else doesn't know either.

14. Multiple business partners virtually guarantee your failure. If there are 10 business partners or lets say 4 business partners with VC and you're left with 10% ownership then even if the business makes one million net income you'd only get $100,000 and a job basically. Not many businesses ever make it close to that level to begin with. You'd be better off if you started the business yourself but it only made $120,000 profit.

So in general I would say that you should avoid taking on business partners. Does anyone else have experience with business partners?

 

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[Steven French]

When I decided to go fastlane last April, I got a business partner. A few months later I ended up being the one that did all the work while he complained I wasn't doing enough then he took all the money I made out of the corporate account. Said he needed it for his grandmother's funeral. She died 7 years ago. I'm not going to say this is going to be everyones' experience if you end up deciding to go into business with someone, but I strongly recommend doing it yourself.

 

[fhs8]

When I decided to go fastlane last April, I got a business partner. A few months later I ended up being the one that did all the work while he complained I wasn't doing enough then he took all the money I made out of the corporate account. Said he needed it for his grandmother's funeral. She died 7 years ago. I'm not going to say this is going to be everyones' experience if you end up deciding to go into business with someone, but I strongly recommend doing it yourself.

The guy probably used the money to go vacation in Vegas and buy a lowering kit for his car. How stupid did that guy think you were to think that you'd accept his grandma's funeral 7 years after her death excuse? I don't get what you were thinking by taking on a business partner. How in the world did you think that guy would benefit you? I wouldn't have hired him as a minimum wage employee.

You would've been better off giving ownership of the company to a dog.

 

[Steven French]

The guy probably used the money to go vacation in Vegas and buy a lowering kit for his car. How stupid did that guy think you were to think that you'd accept his grandma's funeral 7 years after her death excuse? I don't get what you were thinking by taking on a business partner. How in the world did you think that guy would benefit you? I wouldn't have hired him as a minimum wage employee. You would've been better off giving ownership of the company to a dog.

Everything you've said is true and it hurts to think about it, it was a terrible experience. It sounded good at first since I was completely new to business and figured I needed the funds to start a company, the guy lied to me and said he dished out 3 grand to get our corporation started. The worst part of it however is the fact that I was the one doing all the work, since I was the one with basic knowledge of webdesign. I ended up making over 10 different websites since every time he thought of something new the guy would tell me I needed to put in the work to make it an equal partnership, and I figured hey he dropped 3k who am I to complain about that? Only 2 months later did I find out it cost 90$ to open a corporation in Canada with assistance from a lawyer.

I can't get into all the douchebaggery that took place between April and September, because there is a lot, and some of it you wouldn't even believe. This guy was a pathological liar, and I really should've noticed it sooner. The only good thing that came out of it is I got really good at webdesign and can have something set up and ready to make sales overnight. Started my own business and it didn't cost 3000$, it was free and I did it from home. But to answer your question of why I thought it was a good idea, I guess it was because I was afraid to go at it alone and I thought I needed money that I did not have. Which was a dumb mistake, but a huge eye opener. And I did learn a lot when it comes to business since I did all the work, so it wasn't a complete waste of time. But man, never again will I make a decision that stupid.

 

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[JasonR]

Why are people inclined to get business partners? It's a TERRIBLE idea. In general you should NEVER get a business partner.

What's true for you is not true for everyone else.

http://visual.ly/8-famous-business-partnerships-really-worked

 

[Steven French]

What's true for you is not true for everyone else.

http://visual.ly/8-famous-business-partnerships-really-worked

It can definitely work out sometimes, in September my mom went into business with my aunt. They make soap and bath bombs. I helped them import the materials they needed to do this at a good price. Can't speak for my aunt but my mom is making more than she ever has before. They ended up getting a really nice following on social media that's been getting them a lot of sales, they're now in the process of finding a storefront to sell their goods from. Here's to hoping it continues to work out.

 

[fhs8]

What's true for you is not true for everyone else.

http://visual.ly/8-famous-business-partnerships-really-worked

I KNEW someone would bring this up which is why I said it was "in general."

I can say the same thing to a gambler and show them examples of gamblers who won the lottery. It doesn't mean playing the lottery is a good idea.

There really isn't too much data on partnerships to form a more objective opinion. I did find a few sources however.

http://www.pibinstitute.com/pibi-resources/new-business-survival/

In Australia 49.3% of partnerships survived after three years while 36.4% of sole proprietorships survived. So partnerships are a little more likely to survive but at what cost? Half or more of the income generated? Not worth it IMHO. If there are four partners and you have a 25% stake in the company it means that the company has to generate FOUR times as much net income over what you could've done as a sole owner.

https://techcrunch.com/2016/08/26/co-founders-optional/

According to this article of the startups that raised over 10 million 45.9% of them had one founder. Even more impressive is that of the startups that successfully exited 52.3% of them had one founder. Wow that's horrible for partnerships. If there are multiple partners do you know how small a slice of pie you'd be getting?

 

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[IGP]

The problem is not "having a business partner"... The problem is YOUR ability to choose a good one...

Think about that for a second.

 

[Dolf112]

Why are people inclined to get business partners? It's a TERRIBLE idea. In general you should NEVER get a business partner.

1. It requires that the partner benefit you more than the cost of giving up ownership. If you give up 50% of your company then the company would have to earn 100% more profit for the partner to be beneficial to you.
2. You usually can get an employee instead of having the skills that the person offers.
3. Most business partners do not have a business already either because they are new entrepreneurs or their past businesses were total failures. In other words they don't know what they're doing. Why would you partner with someone who never started a successful business before?
4. Lots of legal issues. For example you can't open up another business that's similar without risking a lawsuit from a business partner.
5. If a partner doesn't do anything and you have to do all the work then you have little recourse.
6. Legal costs should be higher since the operating agreement should spell out if money can be contributed for a percentage of ownership. If you get a boilerplate operating agreement from Legalzoom for example it might not have the provisions needed to protect you from getting screwed over.
7. Your partners might want a salary when the company is low on funds or blow money on worthless stuff.
8. Time is wasted with partners when it could be focused on the business.
9. You have less control of your business. More than likely a bad thing.
10. Partners can raid corporate bank accounts and run off with the money. If you wouldn't trust a business partner with $20,000 of your own money under their bed then you shouldn't have them as a business partner.
11. The business partner who actually wants the business to succeed will be doing most of the work.
12. Ever go to any business networking events? Total losers everywhere. What ends up happening is that the 50yr old sandwich shop guy gives you a brochure to go to his hole in the wall sandwich place. It's just business people trying to advertise to get more business. These are the same kind of people who want to be a business partner. No thanks. I don't want to end up like that.
13. You basically admit that you can't open a business on your own because you're too stupid to do it yourself so you need the help of someone else. Only problem is that someone else doesn't know either.
14. Multiple business partners virtually guarantee your failure. If there are 10 business partners or lets say 4 business partners with VC and you're left with 10% ownership then even if the business makes one million net income you'd only get $100,000 and a job basically. Not many businesses ever make it close to that level to begin with. You'd be better off if you started the business yourself but it only made $120,000 profit.

So in general I would say that you should avoid taking on business partners. Does anyone else have experience with business partners?

I've had two business partners. The first one did almost nothing and took nothing out of the business but still owned 50% of what I had built.
The second, couldn't stick to what he knew and trust me with what I knew asking me to clarify every minor decision for him. That put the nail in the coffin before it even started rolling fully.

On a sidenote I always think for example. What if the 20 greatest minds of this forum built a business together. Would that not be a multi billion pound business and if everyone didn't get a billion out of it. It would be close?

 

[Torobaro]

Why are people inclined to get business partners? It's a TERRIBLE idea. In general you should NEVER get a business partner.

1. It requires that the partner benefit you more than the cost of giving up ownership. If you give up 50% of your company then the company would have to earn 100% more profit for the partner to be beneficial to you.
2. You usually can get an employee instead of having the skills that the person offers.
3. Most business partners do not have a business already either because they are new entrepreneurs or their past businesses were total failures. In other words they don't know what they're doing. Why would you partner with someone who never started a successful business before?
4. Lots of legal issues. For example you can't open up another business that's similar without risking a lawsuit from a business partner.
5. If a partner doesn't do anything and you have to do all the work then you have little recourse.
6. Legal costs should be higher since the operating agreement should spell out if money can be contributed for a percentage of ownership. If you get a boilerplate operating agreement from Legalzoom for example it might not have the provisions needed to protect you from getting screwed over.
7. Your partners might want a salary when the company is low on funds or blow money on worthless stuff.
8. Time is wasted with partners when it could be focused on the business.
9. You have less control of your business. More than likely a bad thing.
10. Partners can raid corporate bank accounts and run off with the money. If you wouldn't trust a business partner with $20,000 of your own money under their bed then you shouldn't have them as a business partner.
11. The business partner who actually wants the business to succeed will be doing most of the work.
12. Ever go to any business networking events? Total losers everywhere. What ends up happening is that the 50yr old sandwich shop guy gives you a brochure to go to his hole in the wall sandwich place. It's just business people trying to advertise to get more business. These are the same kind of people who want to be a business partner. No thanks. I don't want to end up like that.
13. You basically admit that you can't open a business on your own because you're too stupid to do it yourself so you need the help of someone else. Only problem is that someone else doesn't know either.
14. Multiple business partners virtually guarantee your failure. If there are 10 business partners or lets say 4 business partners with VC and you're left with 10% ownership then even if the business makes one million net income you'd only get $100,000 and a job basically. Not many businesses ever make it close to that level to begin with. You'd be better off if you started the business yourself but it only made $120,000 profit.

So in general I would say that you should avoid taking on business partners. Does anyone else have experience with business partners?

Thanks, you make some very valid points. But I think you didn´t take into account some issues like: how big of a business do you want to build? what type of business do you want to build? are you entering an existing market? are you creating a new market? How many risk is there in your idea? Are you importing something? or are you trying to create a new market? are you competing against some very big and established players because you can do it faster or cheaper?

When you look at the entrepreneurs that made it really big almost all of them had at least one business partner (Apple, Intel, Google, Facebook, Mark cuban with Microsolutions or HDNet...). Also Incubators like YCombinator strongly recommend having a business partner. Paul Graham even points out the lack of a partner as a start-up cause of fail.

Having said that there are also great entrepreneurs who didn´t have a business partner like Dell or Bezos.

There are many issues to take into account when deciding wheater or not to have a partner. This statement from Paul Graham captures the point I want to make:

"Startups take off because the founders make them take off"

An employee will never put as much blood, sweat and tears as a business partner.

 

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[MrShah]

What's true for you is not true for everyone else.

http://visual.ly/8-famous-business-partnerships-really-worked

I agree with Jason. It's important to have a Accountability Partner to keep on Track

 

[Michael Burgess]

I don't think having (or not having) a business partner is so black and white. There's a lot of factors that will go into whether or not the business is successful - how committed the partners are, the skills they bring to the table, the social dynamic between the partners, etc etc...

Just a few weeks ago I decided to partner up with an old associate of mine. I have my own landscaping business, and have been doing landscaping for almost three years now. In the process I've built up some basic capital; two diesel trucks, trailers, tools, brand recognition, best practices, etc. The company supports me personally, while growing the business as well.

For the last two years, he's been building his own landscaping company in the same community, doing the same thing. Building up assets, a network, knowledge of the industry, etc.

We decided to team up and combine forces instead of working separately. He sold some of his equipment that was a duplicate of what I had, brought some cash to the table, ad we're splitting my corporation 50/50.

Already, I can see we have a great dynamic. We both have our strengths and weaknesses, and help to balance each other out. We can also specialize into distinct roles in the company now, instead of doing EVERYTHING ourselves. Our business can also be demanding on our time (we haven't liberated ourselves from the Time Commandment yet), but having each other as a support structure allows us to take time off for other things, if need be. The company can continue running without us there all the time.

Of course, time will actually be the test that demonstrates how well our company does... but I'm really happy with the new relationship.

Instead of being so preoccupied about owning 100% of a business... maybe ask yourself if you'd rather own 50% of something 5X as big, while having camaraderie along the way.

 

[Yoda]

There are other reasons people take on partners, too. It's not always a growth play.

1. Selling Equity For Capital -- Allows you to take money off the table for redistribution or retaining.
2. Leveraging Distribution -- Allows you to tap into an existing audience, where both partners benefit immediately.
3. Autonomy -- Allows you to bring in someone else to manage the business, have an invested interest, and free your time.
4. Exit -- Sell the business, where you become the minority owner for long term share of profits.

Partnerships are like golf clubs. To some, they're nothing more than frustration. To others, they're tools to take your game to the next level.

 

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[andrewhook]

I think that you're just considering the economic aspect!

In my opinion, having a partner is a good way to start a business for new entrepreneurs who can't afford to pay an employee yet.
Think about having one partner:
Working 14h/day each will produce a workforce of 28 h/day (if you perfectly manage to cooperate) which ideally should allow your business to grow much faster.

Moreover, i think that being expert in any role that the business requires is impossible for everyone.

If you have a partner who is as determined and dedicated to the business as you, you should team up!

 

[Silverhawk851]

What about if you need $5MM in capital? How long will it take you to get there by bootstrapping yourself?
What about a strategic partner who has the ins into places you would never get into?
What about operational partner who handles all the things your terrible at,
freeing up your time to be used for your highest value activities?

Never get a business partner?

I don't know.

Better to be a 20% part of a $10 Million project than to be a 100% owner of 200k if you ask me.

"If you want to go fast, go alone.
If you want to go far, take a team."

 

[fhs8]

What about if you need $5MM in capital? How long will it take you to get there by bootstrapping yourself?

I'm talking about business partners who are supposed work day to day in the company and not VC.

What about a strategic partner who has the ins into places you would never get into?

How would you get that information from a business partner and what do you mean that the partner has the ins into places you would never get to? Name one example and how likely does this happen? If you can't get a business meeting with a company but the other person can because they're a half decent communicator then it means you shouldn't start a business because you don't know what you're doing.

What about operational partner who handles all the things your terrible at,
freeing up your time to be used for your highest value activities?

Just hire an employee?

Never get a business partner?

In general yes. There's always exceptions to every rule. Sometimes playing the lottery really pays off.

Better to be a 20% part of a $10 Million project than to be a 100% owner of 200k if you ask me.

"If you want to go fast, go alone.
If you want to go far, take a team."

I just showed data that startups with one partner do just as good as startups with multiple partners and obviously startups with one founder tend to have more equity to benefit from appreciation. Where's your data?

So right off the bat your statement of "Better to be a 20% part of a $10 Million project than to be a 100% owner of 200k" is 100% misleading.

Instead of being so preoccupied about owning 100% of a business... maybe ask yourself if you'd rather own 50% of something 5X as big, while having camaraderie along the way.

It's also better to own 100% of a business that's 5x as big as a partnership business that you own 20% of.

The problem is not "having a business partner"... The problem is YOUR ability to choose a good one...

Think about that for a second.

No the problem is math. A 50/50 business partner has to increase the net income of the business by 100% in order for that business partner to benefit you. It isn't enough if the business partner increases net income by 30%. The debate isn't that a business partner is better for the business the debate is centered around whether or not a business partner is better for yourself.

For the last two years, he's been building his own landscaping company in the same community, doing the same thing. Building up assets, a network, knowledge of the industry, etc.

We decided to team up and combine forces instead of working separately. He sold some of his equipment that was a duplicate of what I had, brought some cash to the table, ad we're splitting my corporation 50/50.

This is basically M&A and the benefit wasn't that great. Actually it can be pretty bad depending on the tax situation. If the corporation is in a higher tax bracket because of this then that's something to consider.

 

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[Michael Burgess]

It's also better to own 100% of a business that's 5x as big as a partnership business that you own 20% of.

This is basically M&A and the benefit wasn't that great. Actually it can be pretty bad depending on the tax situation. If the corporation is in a higher tax bracket because of this then that's something to consider.

Might as well play devil's advocate here.

What's the likelihood that 1 A player is going to build something 5x as big as 2 A players?

I just don't understand how you think it would be a liability to have a partner who's going to substantially contribute to a business. It's a classic example of 1+1=3. There are going to be tons of benefits to a company by bringing in a partner who's equally as invested, motivated, intelligent, hardworking, and capable.

Not to mention your logic of being worried a corporation's going to be in a higher tax bracket... clearly you'd rather just earn $5K a year to avoid taxes on a $500K income.

 

[townhaus]

Cool story bro, but iv'e had good experience with partnerships.

Last April, I got a new business partner.

A few months later he ended up being the one that did all the work while I complained he wasn't doing enough. Then I took all the money he made out of the corporate account. Said I needed it for my grandmother's funeral (She died 7 years ago).

I'm not going to say this is going to be everyones' experience if you end up deciding to go into business with someone, but I strongly recommend partnering with someone like this.

 

[fhs8]

Might as well play devil's advocate here.

What's the likelihood that 1 A player is going to build something 5x as big as 2 A players?

I don't know but it's sure a possibility. What's the likelihood that a 2 person partnership is going to build something on average 2x as big as a sole owner? If it's less likely then it's better to be the sole owner. Based on the data I've looked at so far it does point to partnerships not having a big enough advantage to justify having less equity.

I just don't understand how you think it would be a liability to have a partner who's going to substantially contribute to a business. It's a classic example of 1+1=3. There are going to be tons of benefits to a company by bringing in a partner who's equally as invested, motivated, intelligent, hardworking, and capable.

The partner would have to contribute enough that it increases net income by 2x. I don't see any data showing that.

Not to mention your logic of being worried a corporation's going to be in a higher tax bracket... clearly you'd rather just earn $5K a year to avoid taxes on a $500K income.

What kind of logic would make you think sole owners typically make 5k while partnerships make 500k? Show me real world data that supports your opinion.

 

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[IGP]

No the problem is math. A 50/50 business partner has to increase the net income of the business by 100% in order for that business partner to benefit you. It isn't enough if the business partner increases net income by 30%. The debate isn't that a business partner is better for the business the debate is centered around whether or not a business partner is better for yourself.

Math has nothing do with it... Quit blaming other outside factors!

If YOU choose a business partner that increases net income by 5000%, then YOU made a good choice.

If YOU choose a business partner that runs off with your money, then YOU made a bad choice.

Math is only relevant AFTER the fact...

 

[BaraQueenbee]

The problem is not "having a business partner"... The problem is YOUR ability to choose a good one...

Think about that for a second.

THIS. And then THIS again.
*also ouch* reflection, but yes agreeing.

 

[fhs8]

Math has nothing do with it... Quit blaming other outside factors!

If YOU choose a business partner that increases net income by 5000%, then YOU made a good choice.

If YOU choose a business partner that runs off with your money, then YOU made a bad choice.

Math is only relevant AFTER the fact...

So if person A is so bad at business that if they partner with business person B then the company makes 5,000% more income? I would advise person B to avoid partnering up with person A because it's a very bad choice.

Math has everything to do with it and can't be ignored because even if the company itself performs better due to the partnership it doesn't mean that it was a good decision due to net income divided by owners equity.

 

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[Yoda]

I would advise person B to avoid partnering up with person A because it's a very bad choice.

How could you advise that?

What if person A has a license or product which would take the market by the throat, but it isn't because of lack of execution? Person B would happily grab that situation by the you-know-what's and run with it.

I know, because I've done it.

You are looking for someone to agree with you, when there are simply too many variables. You can't box ALL business partners out.

Well, YOU can.

I won't.

Only a Sith deals in absolutes.

 

[MJ DeMarco]

In general

NEVER

These statements are contradictory. NEVER means NEVER and there is no room for "generally".

While I understand your take and agree with a lot of your points, it is in great irony that I must say that absolute statements (NEVER/ALWAYS) are ALWAYS wrong.

Reminds me of this thread...

https://www.thefastlaneforum.com/co...-cardone-buying-a-house-is-for-suckers.69230/

According to this, I'm a sucker.

Absolutism allows for no gray areas, compromises, or situational variances. And therefore, they are ripe for debate and critique.

 

[G-Man]

The problem is not "having a business partner"... The problem is YOUR ability to choose a good one...

Think about that for a second.

IGP nailed it. This reminds me of before I got married: All the unhappy and divorced people telling me how marriage is a terrible idea. People that had been married 30 years talking about how marriage is this great thing that makes life better. Ironically, both groups were right,... for themselves.

 

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[Almantas]

Saying that business partners should be avoided at all costs , because you don't know how to effectively choose them is like blaming entire stock market for the wrong investment choices you've made.

 

[MyronGainz]

You're seriously comparing a business partner working out to winning the lottery? This is a troll thread.

Do you like Huey Lewis and the News?

 

[Ninjakid]

Because Elon Musk, Zuck, BIll Gates, and Steve Jobs did it all on their own. Oh wait...

 

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[ZF Lee]

Maybe we should only take business partners if they have a trump card that could level the playing field AND if the profits are screaming high....

Worked quite well for the Internet companies.