Eventually your business will reach the limits of its ability to expand without your bringing someone else into the picture. But you might not be able to hire or borrow money without creating a strain on resources. That’s why many startups choose to take on partners instead. Read on for the different types of partnerships you can arrange.
A general partner is the form of partnership people most typically understand. Here you bring someone into your business who owns half of the company and has equal control over the operation of the business, access to its assets, the share of profits, and authority over the management of the operation.
In order for a general partnership to work, each partner has to be roughly equal in terms of abilities and contributions. That doesn’t mean that you have to have exactly the same skills, but whatever skills you have need to be in relative proportion to those of your partner. You also need to be on the same wavelength as far as management and direction of the business are concerned.
If you’re both in sync in regard to running the business, and you bring in equivalent resources and skills, general partnerships can work very well.
A silent partnership can work extremely well if one partner is rich in financial resources – to fund the operation – and the other is rich in skills and management ability.
People with money will sometimes seek out promising business ventures to invest in. Meanwhile, there are many talented business owners who lack the capital to grow the company. The marriage of the two types can be a recipe for fast-track success.
Let’s say that you are running your business and doing well, but want to expand and don’t have the capital. You can bring in a silent partner, who will provide that capital in exchange for an equity stake. But since the partner will be a silent, you’ll essentially operate the business is if you are a sole practitioner.
This type of equity split doesn’t need to be 50-50, it can be whatever you agree to. It’s even possible the silent partner’s primary concern will be having a stake in the business when it is sold for a large profit in the future.
Use of a silent partner is a way of bringing capital and talent together to create a stronger business.
You might partner for just a specific purpose. This is an arrangement that can be either formalized through a written contract, or maintained on a casual basis. What you’re doing here is working with a partner who will handle a specific aspect of your business.
Let’s say that you have a significant area of your business that you don’t have time to work on, but you don’t have the money to hire an employee or even an outside contractor. You might be able to bring in a partner who can handle that side of your business, in exchange for a minority equity stake in the company.
The possibilities here are endless. You can bring a partner to handle sales, marketing, billing, purchasing, computer functions, or just about any task that’s critical to your business. You compensate your partner with a minority stake in the business.
This can be a business that’s in the same industry you are, but in a different capacity. This kind of arrangement will allow you to do what you do best, and the partner to do what he does best.
The arrangement doesn’t need to be formalized, nor does it necessarily need to involve equity sharing in any way
Both businesses can prosper as a result of the revenues they collect from mutual clients. The advantage comes in that you recommend each other for the same clients. Both partners win.
Networking is perhaps the loosest form of partnering, even if we don’t think of it as a partnership arrangement. You’re keeping contact with various people who are engaged in a similar business, and sharing resources, referrals, and even industry secrets.
Networks provide a real opportunity for its members to gain business as a result of participation in the group. They work particularly well if all or even most of the members of the network actively attempt to enhance and promote each other.
Partnerships at whatever level offer an opportunity to leverage a small business, without the necessity of hiring employees or securing business loans. Before pursuing either, it may be worth taking a serious look at some form of partnership cooperation, even on a very loose basis.
Have you tried partnering to grow your business?
Jackie Cohen is an award winning financial journalist turned turned financial advisor obsessed with climate change risk, data and business. Jackie holds a B.A. Degree from Macalester College and an M.A. in English from Claremont Graduate University.