What I Learned After Countless Failed Business Partnerships

Summary

• Don't bring on a business partner unless necessary; partnerships are only needed if they have a skill, money, or time that you lack.
• Define all potential future issues with a partner before starting, including exit strategies and clear roles.
• Consider phantom equity or profit-sharing agreements over traditional partnerships to avoid unnecessary dilution of your ownership.
• Ensure the relationship with a partner is performance-based with specific incentives tied to tangible milestones or results.
• If a need in your business arises, such as lead generation, it doesn't mean you should give away equity; hiring a specialist might be a better option.
• Assess the true motives behind a potential partner's desire for equity; if the goal isn't control or a profitable exit, equity might not be the best option.
• In partnerships, set clear performance agreements, which can include revenue splits or profit sharing, rather than direct equity stakes.
• To dissolve a partnership amicably, address issues directly and honestly, asking what the partner thinks is fair and suggesting equitable solutions.
• Utilize promissory notes for any debts to be handled post-separation, and define the terms clearly and concisely.
• Recognize that equity and debt issues should be handled separately, first transferring equity, then addressing the debt owed.
• In situations where a partnership ends, consider allowing the former partner to sell your product for a commission, avoiding unnecessary complications.

Video

How To Take Action

I would suggest sitting down with your business partner to talk about all potential future issues, including exit strategies, before you get started. It's like planning for a storm before it happens. Make sure you define clear roles and what each of you brings to the table. Remember, you only need a partner if they offer a skill, money, or time that you don't have.

If you're considering giving equity for something like lead generation, think again. Hiring a specialist might be a better choice than giving away part of your business. It’s like hiring a gardener to mow your lawn instead of giving them a piece of your house.

Now, if you’re looking at splitting profits or sharing revenues, that's smart. Set up a performance-based agreement with specific incentives. It's like baking a bigger pie together and then sharing the slices based on who did what.

To end a partnership smoothly, have an honest conversation about what seems fair for both sides. Use promissory notes to handle any debts cleanly. Keep it simple, like making a promise with details on paper.

And if your partnership does end, letting your former partner sell your product for a commission can be a good way to keep things friendly and simple. It's like staying pals after a breakup because you both love the same dog.

So, to sum it up, talk about the tough stuff with partners early, keep equity in your pocket unless it's absolutely necessary, tie rewards to actual results, and always look for the simplest solution—whether you're coming together or moving apart.

Quotes

"The only reason to have a partner is if they have skills you do not have or they have money you don't have or they have time you don't have"

– Alex Hormozi

<<<

"Just because you have a need doesn't mean they have to be equity owner"

– Alex Hormozi

<<<

"The only reason someone would ever want equity is if they want control or they want to be able to make money on an exit"

– Alex Hormozi

<<<

"Equity sucks because then you just have liability which blows"

– Alex Hormozi

<<<

"The biggest hack in all of relationships is the way that you talk about someone behind their back is literally what you should just tell them"

– Alex Hormozi