When you are the sole owner of a business, life can be pretty good – you’re your own boss. You have immense freedom to make decisions, and you can decide to grow or to go slow. You can redirect investments within and outside the business on a whim and can move quickly to chase new opportunities that look intriguing.

But there may come a time when, for various reasons, you decide you need to look for and bring on a partner. This not only changes the day-to-day operations of your business but also has a significant effect on how decisions are made. Here, we highlight a few of the reasons for seeking a partner and walk through some strategies for navigating the often-complicated dynamics of decision-making.

Deciding it’s time

If an owner decides to bring on a partner, it’s not because they are yearning for someone to seek permission from to make decisions. Instead, the prospect of adding partners typically comes when owners are seeking substantial value-adds that they don’t presently have – the most common of which include outside capital, expertise and wisdom, and network.

Outside capital

Outside capital is often first sought when a substantial merger or acquisition is contemplated. These events are when owners may wish to take the business in new directions, or when it will grow to levels where the existing owners will expect to confront situations that they never have before. They look to partners to help them navigate those situations while also having “skin in the game” so that both attention and incentive are more strongly reinforced.

Outside capital can be used to:

• Increase the growth rate when the existing owner’s capital doesn’t allow them to support growth at a rate they desire
• Replace and/or provide liquidity to some existing shareholders who wish to exit
• Acquire other businesses

It’s worth noting that existing owners may have sufficient capital to do some of the things above, but using all the capital they have can either increase their risk (e.g., concentration risk or greater vulnerability in the event of a downturn) or limit their options. Therefore, having a partner becomes attractive as it reduces the need to deplete the pre-existing capital base.

Expertise and wisdom

An owner might seek a partner who brings a wealth of knowledge and experience that can be instrumental in steering the company toward success. Outside expertise can offer a fresh perspective on strategic decisions, adherence to industry best practices, and innovative problem-solving approaches. For example, new, seasoned partners may have previously navigated the complexities of scaling operations, managing crises, or expanding into new markets and can bring that experience to the table. Their wisdom can be a guiding light, averting potential pitfalls and optimizing the business’s strategic vision.

In addition, a partner’s expertise can bolster credibility with stakeholders, including investors, clients, and employees. It can instill confidence that the business is being managed with insight and prudence.

Network

A partner’s network can provide access to myriad resources, including connections to potential clients, investors, industry experts, and service providers. Leveraging these contacts can facilitate new business ventures, strategic alliances, and beneficial collaborations. Furthermore, it can open doors to closed forums and discussions where key industry trends and insights are shared. Active engagement in these circles can ensure a business remains ahead of the curve, adapting to changes and seizing emerging opportunities.

Understanding your partner

There are substantial benefits to a good partnership, but there’s also plenty of opportunity for tension if you (and your partner) do not have a clear consensus on how you will work together. The best practice for setting yourself up for successful decision-making with a partner is to discuss and develop mutual expectations from day one.

First, it’s important that you understand who you will be working with and what they want out of the relationship. Involving a partner in a business comes with some risk – including the chance that you may be pushed to take an action contrary to your views on risk/results or that the two of you just generally aren’t aligned. Some helpful questions to maintain good alignment include:

• What do you (as the existing owner) want, and what do you expect to get from a partnership? What does your partner want?
• Does this partner expect to have an active or passive role in the business?
• How much risk does your partner believe they are taking? What voice and vote do they expect in exchange for the investment and risk they are taking?
• Why are you bringing them in? Money? Wisdom? Network?

Reconciling your goals and needs with what you must concede to them requires compromise. When thinking about your partner’s involvement in the business, be practical and reasonable. Understanding how the potential partner operates – and what they expect to get out of the partnership – is an essential ingredient to maintaining a good relationship.

Finding comfort in the uncomfortable

Now come the circumstances that no one wants to think about – but discussing this early helps ease tension and issues later.

When setting expectations and establishing a decision-making framework for a partnership, remember that there is no right answer. It is more about discussing these potential situations upfront so you have a plan and insight. The preparation discussed earlier will prove invaluable if – and when – you are faced with navigating some of the more difficult elements of a partnership, including the following.

• A standstill: You and your partner may reach a standstill in the decision-making process. What happens next? Part of your framework needs to include thinking about how to resolve deadlocks before they happen. Always have a way to move forward – don’t leave this up to chance, as the consequences of not thinking about this means it could get elevated to a place, person, or government that won’t handle it how you want it.
• Trade-offs: Another unwelcome reality of partnership is trade-offs. Think of an only child getting a sibling – he must now contend with learning to share and navigating the feelings, motivations, and thought processes of another. Involving a partner in your business and your decision-making processes introduces a similar dynamic.
• Changing interests: Further, the person you bring on may originally say one thing but then actually want or do something else after you have committed to each other. How do you deal with this?

It’s important to take preventative measures in the face of potential issues like these. Have a clear understanding of how the decision-making process will work: Set up an agreement before, or have a defined way to part with each other should a mutual decision be impossible. Have confidence that you have devised a plan that you can actually act on if a situation arises.

While it is uncomfortable to think about a partnership ending, know that it is always a potential reality. Take time at the beginning to develop a viable exit plan, and acknowledge that you may be the one who has to leave if it doesn’t work out.

Finally, when going into a partnership, you can’t forget how and why it came about in the first place, in terms of decision-making leverage. In some cases, you have a lot of leverage. You get to set the terms of how the partnership will work. In others, you may need a partner so badly that they have all the leverage.

There’s no perfect world where you get to control every aspect of your destiny – there’s a reason you need a partner. You just have to think about if the trade-offs are reasonable so that everyone feels okay with what they get in the end.

Conclusion

Deciding to enter a partnership is not something to be taken lightly. Between the potential for deadlocks, tensions over control (or lack thereof), and unmet expectations, the stakes are high. However, the right preparation, including the establishment of a decision-making framework, can set you, your partner, and your business up for success.