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What Is the Optimum Shelf-Life of a Business Partner?

“Timultuous,” he said. (I received that nickname from Marvelous, a portly, white-haired, chain-smoker I worked with many years ago.) “I tell you, Timultuous, with partners, it’s 80-20 — 80% you can’t trust and 20% you can, maybe.”

He launched into a sorry tale about his latest venture. I’d heard at least 10 different versions of the story before. Ironically, my own experience had been uncannily similar, only with different players and under different circumstances.

I’m not sure of Barfo’s track record, but I have had eight business partners in six construction-related companies over the years. Today, I have no partners and can’t remember being happier. In fact, I told my wife recently that if I ever make overtures about going into cahoots with someone again, please conk me with a 2x4.

Why is it that the most important thing any businessperson needs to learn is not taught in school? There should be a class: The Nearly Impossible Task of Choosing and Keeping a Business Partner - 101. Following are a few lessons from the Builder’s Engineer School of Hard Knocks.

Why have a partner?

Every would-be business owner seems to think a partner or two is necessary. Not so. Many strong companies, especially small ones, have only one owner. Here are some common reasons people hook up:

• The other person is your friend or a family member.
• The other person brings something to the table you don’t have, like money, equipment or know-how.
• Partnership is sometimes a carrot used to keep a good employee from jumping ship.

The irony here is that every one of the above ignores the most important reason for entering into a partnership: compatibility.

Webster defines compatible as: “Harmonious, able to exist, live or work together without conflict.”

Pop-quiz

What percentage of business partners who’ve been together at least five years would describe their relationship as harmonious?

My guess is less than 10%. In fact, I’d like your help proving or disproving this bold statement. Please e-mail me, with comments if you wish, to buildersengineer@constructioncalc.com. I’ll post the results in a future column.

But I digress. My point is this:

A partnership should be a relationship first, and a means of making money second.

Good relationships are founded on trust, built over years of working together — not weeks, not months, but years. And even years sometimes are not enough to really know a person.I had worked well with a past partner of mine for eight years before we went our separate ways. To my surprise, the split got ugly. When our assets were being divvied up, character traits surfaced I never would have expected. People get strange when money is on the table.

Shelf-Life

Let’s suppose you are one of the fortunate few, the 10% who formed a healthy partnership based on compatibility. How long should the partnership last? In other words, should a partnership have a shelf-life?

Regardless of the very poor odds of success, no one goes in to business assuming failure. No one that is, except well-initiated, gray-hairs like me. The smart businessperson executes a “business prenuptial” — a buy-sell agreement whose main purposes are to define how the business is bought and sold, how assets are split and how the partnership is dissolved. Any good attorney will have an appropriate buy-sell template at his fingertips. When you get one, actually read it, carefully. Your best hedge against future problems is avoiding them in the first place. Talk the tough items over with your would-be partner, assuming worst case scenarios.

I believe a partnership should assume that there is going to be a shelf-life; three years is my preference. That is enough time to set a foundation, but more importantly, verify whether or not the right people are on the bus. Certainly, after you make three, it’s easy to extend another three, and another. But it is a very difficult matter to undo a partnership that has made no provisions for failure.

The best scenario, of course, is a blissful partnership that lasts forever. Not just a long-lived money-making arrangement where the partners coexist tolerably, or in many cases, miserably. Those are a dime a dozen. I’m talking a decades-old bond that yields financial and personal wealth year after year, decade after decade. I haven’t found one yet, but I’m sure they exist. If you are in one, I’m jealous — kudos to you!

Tim K. Garrison P.E. of ConstructionCalc.com has authored books and short courses and lectures on topics relevant to builders. Got a technical or management issue? E-mail buildersengineer@constructioncalc.com. Tim reads every one.

This column cannot be reprinted without permission from the author.

The views expressed in this article represent the personal views, statements and opinions of the author and do not necessarily represent the views, statements, opinions or policies of the National Association of Home Builders. NAHB does not necessarily endorse any of the views expressed by the author and NAHB is not responsible for any direct or indirect consequences arising out of the views expressed in this article.

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