Let me start with an anecdote (*names changed):
When Abhishek* was a young man in his late twenties, he engaged me as his professional consultant and mentor for his dream project. He wanted to start his own business as a first-generation entrepreneur and had been working on his business plan for the last few months. For the most part, he had already decided on several critical parameters of his project. Although one issue kept giving him pause: he kept rethinking whether he should do the business all alone or should he involve co-promoters/business partners?
Abhishek had put this idea across to me many times: He dearly wished for one of his college friends, Mohit*, to join him in this start-up as a co-promoter. They were very good friends at college where they were pursuing their MBA. They were also roommates in the hostel. Abhishek generally spoke quite highly about Mohit. He was impressed with Mohit’s extensive contacts and networking abilities, his resourcefulness, and his technical as well as managerial skills. Abhishek would often passionately back up his friend and talk to me about how they will make a wonderful business team. Together, he added, that they could each provide their business with the necessary inputs needed to run it effectively.
I was neither in favour of nor against Abhishek’s choice of opting for Mohit as his co-promoter. But then I was not endorsing the way Abhishek was analysing the situation. I was sceptical. Abhishek was trying to take an emotional decision without undertaking any structured analysis of the situation. With his best in mind, I wanted to alert him to all the pros and cons of the situation before he takes the final call on such a vital aspect of his project.
The story of Abhishek is not an isolated one. It is all too common.
In my decades of experience in dealing with businesses and entrepreneurs, I have come across so many young men and women who are excited by the idea of starting their businesses in collaboration or partnership mode. This is neither right nor wrong, but one must proceed with caution. The entrepreneur must be convinced about the reason for their choice.
Let’s think aloud about this for once:
What is the need of having a partner? Why can’t you manage your business alone? I would argue that all the resources—physical, financial, human, or informational— can be bought with money. There are advisors, consultants, functional experts, and professionals adept at technology always available to provide you with necessary support. What does one truly need a business partner for?
This person you are enjoying eating dosas with, discussing money-making ideas in the canteen, may or may not have the tenacity to make your ideas real together!
That person you are sharing a smoke with next to a tea-stall, solving imaginary business problems, may or may not be able to support you when you face a real crisis!
They may be a great intellectual soundboard but does it translate well into a joint partnership?
What is expected of a co-promoter or partner?
One may look for a co-promoter/partner for reasons like – building up the equity base, pooling the knowledge/expertise, fulfilling promises with friends, emotional reasons, coping with frustrations in business, and moral support. Inviting reputed professionals, consultants, domain experts as members or invitees on the company’s board and/or committees is something entirely different and should not be mixed up or confused with joint ownership. Whatever be the reasons for such an association, you must understand the point of view of your co-promoters, partners/directors, and act accordingly.
Do you share the same entrepreneurial vision? Will they make the same level of effort?
Partners/directors who hold a minority stake in business tend to ditch the main promoter during difficult times (when they are needed most) and walk away consoling themselves that it was a bad investment for them.
It is necessary to ascertain whether such partner(s) or director(s) are sharing the entrepreneurial dream and/or vision of the main promoter and are willing to make necessary sacrifices or simply interested in the venture as an investor. Partners/directors who are inducted into business must either bring in equity/quasi-equity and/or some complimentary technical or professional strength.
Importantly, the organization must get the benefit of functioning under the umbrella of a competent and stable top management. This objective is defeated when the chosen director/partner sits at the fence, and acts only as an “investor,” disengaged with the actual work of running the business. They may end up giving an impression of their involvement in the functioning of the organization but not really commit their time and effort.
How to guard against conflicting self-interests?
My observations are that when the business is being handled by two or three co-promoters (as partners or directors) who share equal stakes – the situation may be more acceptable. In such cases, it may be a good idea that the management of the company may be entrusted to a COD (Committee of Directors) instead of a single person heading the company as Chairperson/Managing Director.
Further, to secure the business from being jeopardized because of issues among partners/directors and to ensure the trouble-free working of the organization, the main promoter should insist that a suitably structured memorandum of understanding (MOU) defining the role of the incoming partners/ directors is signed and executed. The MOU should clearly spell out possible exit options if any partner/director decides to exit from the business at any point in time for whatever reasons.
Remember – if we want peace, we must prepare for war. All this must be done after seeking necessary legal advice.
Incompatibilities between cofounders start unfolding with the passage of time.
Some of the typical incompatibilities include:
- The reason they have teamed up is simply that they were in the same class or they were part of the same cricket team.
- They have never spent significant time with each other outside the familiar setting and thus have not seen how the other handles stress and operates in a variety of environments.
- They have not considered each other’s values and motivations carefully enough. These are likely quite different.
- One or both co-founders have no experience in the market.
- While one is committed and immersed, the other just likes the idea of being “part of a start-up”.
- Instead of working from mutual and complementary strengths, the entire reason for the union is based entirely on the insecurity of having to go for it alone.
So, are partnerships doomed to fail?
Of course not. There are plenty of success stories out there in where founders who were friends have successfully kept their business and personal spaces separate and thriving. But there are some qualities that successful co-founders usually possess:
- There is shared motivation.
- They have complementary skill sets.
- They have shared values and mutual respect.
- They have deep loyalty and friendship.
The moot point is that you really must know the other person deeply. You both must be self-aware and understand how important the relationship is and be mature enough to handle the inevitable disagreements with great professionalism and understanding.
Remember that if you both want what is best for the company, you’ll always find a way through.