5 Business Partnership Advantages when Starting a Small Business or Side Hustle
If you’re ready to start a small business or side hustle, you need to consider the advantages of a business partnership, which can skyrocket results and reduce risk. It’s time to decide exactly how you’ll execute. But if you go it alone, or will you holding yourself back?
People are almost always the largest cost of a business, but that doesn’t mean you need to go it alone to keep costs down. Business partnerships can be astounding and may make or break your success. Even if you’re just thinking of a side hustle at this point…there’s no reason you can’t make that explode with the right partner.
More money, more success, and more personal growth are the outcomes of a great business partnership. Find out if a partnership is right for you.
“Great things in business are never done by one person. They are done by a team of people.” ~Steve Jobs~
Article Table of Contents
Principle – To Form a Partnership in Business or Not
I’ve done certain ventures on my own, but most with a business partner. I’ve always been a “do-all-it-yourself” sort of guy, and I suspect many people who want their own business are too. But as I’ve built more experience, I value the benefits of partnerships more and more.
Business Partnership Advantage 1 – Skills compliment
If you’re starting a venture, hopefully you have a realistic understanding of your skills and you have an idea of where your strengths are. How do your strengths line up with these, which I consider the Big 4?
If you’re missing very strong skills in some of these areas, you will have a hard time launching a successful business. There are of course many other areas to consider, depending on your type of business. So from here, you have three options:
- Build your skills
- Hire someone to fill skill gaps
- Partner with someone to fill skill gaps
Over time, you will undoubtedly build your skills.
Second, you can hire someone to fill gaps. The problem here is you will quickly find that filling any of the top-level skill gaps I mentioned with good people is expensive. I mean really expensive. People who have strengths in those areas are in demand–they can grow businesses. That set of skills are required to run businesses successfully, and the market recognizes that. Additionally, those areas are not one-time engagements. Sure, you can pay someone a flat fee to create a website for you–but the reality is, you will need to constantly tweak, adjust, and enhance your entire online platform. All of those areas I mentioned require ongoing attention.
Business Partnership Advantage 2 – Top talent without the overhead
Your third option is to form a small business partnership. You find someone who has aspirations like you. You bring your idea and show them your work in the Business Evaluator (if you don’t have this, get my free 5-lesson course here). You’re sold on your business idea, so you sell them on it too. This is what they’ve needed…an idea and a motivated partner.
Business partnership example
Let’s say you have a very unique investing strategy and you want to create an online course. You are excited to write the content and create videos. You are enthusiastic and can sell the idea to anyone you talk to. You have the first two skills (creative and sales) down.
But, you’re not the type to figure out how to create an entire online system to actually deliver and sell this course. Further, the more look into online marketing, the more you realize how sophisticated it really is. You talked to a few people and realize hiring an agency to do this is insanely expensive…and can you really trust them? Perhaps you try anyway and don’t really get the results you want. You’ve spent a lot of money and your sales aren’t where you know they can be.
Now, what if, thanks to your habit of making calls every week to build your network (take this quiz to see if you have the right network of people), you find someone in your network who has these skills. She’s been wanting to start his own business, but doesn’t really have an idea or the desire to write content and sell. She’s looking to break into the business of designing online platforms and doing marketing, but doesn’t have a portfolio. She’s trustworthy. She’s willing to put it on the line and make your idea happen…and she doesn’t get paid unless you do.
This sort of scenario happens all the time, and in fact, is exactly how I’ve grown most of my businesses. Your interests are directly aligned with her interests–you both make money when the same goal is achieved.
This is example is pretty close to a real-life small business partnership of mine. I was the “she” here and brought the technical and marketing skills. The original owner had a very high quality product. He was great at live discussions and could sell in person beautifully, but struggled gaining any traction online. He spent a lot of money with a local marketing agency, but never really got anywhere.
Business Partnership Advantage 3 – Synergistic results
After partnering with me, we begin getting things off the ground. We both learned from each other. And certainly, we were both in a position we’d never be alone. Ultimately we grew the business by 700% pretty rapidly and it’s still growing. We’re both making much more money than had we not partnered and we’ve both gained a lot of other benefits as well.
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Business partnership definition–the interesting part
A small partnership is “A legal form of business operation between two or more individuals who share management and profits.” I’m not going to dive into that definition any further, nor will I cover the various types of partnerships; that would be boring…and that’s what attorneys are for. Rather, I want to dive into a few words in that definition: “Share management and profits.”
Sharing: It’s very important to note that you don’t need to share management and profits 50/50. If you have the great business idea, I want you to be the primary owner. I want you to have more than a 50% stake–and more than 50% of the profit. But if you need help, don’t fail at launch. Share in the profits and you will likely make multiples more than you would alone.
Management: When you write up your small business partnership agreement, you’ll decide how decisions are made, but at the end of the day, the majority holder typically has the majority vote. I like to retain this ultimate control, but the reality is, if you have a great working relationship with your business partner, you will compliment each other and come up with much better decisions than had either of you gone it alone. If you have to rely on an agreement to override business partners all the time, you might not have the right partners.
Profits: I hope you’ve decided to pursue this business for much more than money. And I hope your business partner has much more to gain from this venture than just the profits. But, money is all powerful, so it’s good to know how this works. In a business partnership, you need to split the profits (typically in accordance with the same percent as management vote). Profits come after expenses, so there may be months of no profit. Because of this, you also need to consider costs, particularly big capital costs upfront. If you have a 10% partner, are you expecting them to pay 10% of that big 10-year hosting expense?
Business Partnership Advantage 4 – You can retain control
A business partnership, to me, is really about aligning interests, completing skillsets, and building your leadership team without spending upfront money (remember that profit now thing?). Done properly, a business partnership can set you both up to make residual, passive income for the rest of your life. Business partnerships will get you places you never expected to go. Doesn’t that sound great?
PS – this article on negotiating variable pay, equity, and ownership will help you dive into various structures – read here »
With whom do you partner?
This is the elephant in the room. How many horror stories have you heard of partnerships going horribly wrong?
A business relationship is in fact very intense by nature, so you need to be able to get along with people and you need to find someone you know you can get go through ups and downs with. This means you must know the person.
Business Partnership Advantage 5 – You network may be your best asset
While it might not always work out to partner with a friend, you know them. You should have a good idea of whether or not the relationship will work. All of my partners are also friends, and I wouldn’t have it any other way.
Here are some criteria to consider:
- Are they trustworthy?
- Do they have goals like yours?
- Are their values similar?
- Do they have more to gain from this partnership than just money?
- Do their “Big 4” skills complement yours (creative, sales, marketing, technical)?
- Is this someone I can learn from?
- Do we brainstorm well together?
- What’s their level of dedication?
- Are you financially compatible? How good is their credit?
What if you don’t know someone who meets these criteria? Network! If you don’t have someone you trust, you need to find a referral through your network. As you talk to this referral, spend the time to get to know them upfront. Consider paying them as a contractor to get a sense of their style, work ethic, and personality. If things work out and you have synergy with them, you can then move to a partnership level.
Money, taxes, and liability in business partnerships
The first concern I hear almost everyone bring up about partnerships is the paperwork and added complexity. Look, even if you operate as an individual, you need to deal with these issues and you still should engage a CPA and an attorney. So if having a partner will help your business be massively more successful, then don’t let administrative paperwork stop you…you’re going to have it regardless.
Diving into the details is out of scope for this article and is well covered by many other people much better suited to do so than I. But let me just assure you that if the benefits I’ve discussed so far entice you, don’t let little hurdles prevent you from taking this home.
Here are some articles that can kick start your research:
- How to start a business with a partner (WSJ)
- Business structures – partnerships (SBA)
- Everything you need to know about business partnerships (entrepreneur.com)
Exercise – Is a Small Business Partnership for You?
If this article resonates with you, you might consider a partnership. If you answer “yes” to any of the questions below, get partnering.
Question 1: Am you missing one of the “Big 4” skills (creative, sales, marketing, technical)?
Question 2: Are you unable to pay the salaries needed to help launch your business successfully (including the critical times early on when your business isn’t yet profitable)?
Question 3: Are you sold on your idea, yet still having trouble moving forward? Do you find working with another person closely provides you with motivation and accountability?
If you’re itching for your next great business idea, be sure to read 13 Real Small Business Ideas for Side Hustle or Full-Time Entrepreneurs »