Potentially the most important decision you’ll make in your business’s early days is whether or not to bring in partners to be co-owners alongside you. This could include searching for someone who complements your strengths and weaknesses. It could also include someone who informally brainstormed or created a rough business product or service idea with you. If you choose to go that route, you need to give as much thought to whom you take on as a business partner as you would when you decide to marry your spouse.
Some partners seem to have been made for each other. A man named Irv Robbins grew up working in his father’s ice cream shop. Irv’s brother-in-law, Burton Baskin, also knew ice cream pretty well; he enjoyed making it for the troops while serving as a lieutenant in the navy during World War II.
After the war, Robbins started Snowbird Ice Cream in Glendale, California. Burton Baskin, who had married Robbins’ sister Shirley during the war, ran a menswear shop in Chicago. When he and Shirley moved to Los Angeles, Robbins convinced Baskin that selling ice cream would be more fun than selling clothes. Baskin agreed and decided to open his own ice cream store.
As Robbins once told a newspaper reporter: “I was about to sign a lease on a store in Pasadena, and I said [to Burton], ‘You take it. You go into the ice cream business and do the same thing I’m doing. And as soon as we have enough stores open, we can open up a little ice cream factory together.’”
So they opened two ice cream stores in the same neighborhood. They decided to compete rather than becoming partners because both felt that if they joined forces, the compromises required of a joint business venture might get in the way of their creative ideas.
Over the next few years, however, as each built a successful business, Baskin and Robbins started to recognize there might be significant benefits in banding together rather than competing against each other. They shared a similar vision and had several “aha” moments along the way. They agreed wholeheartedly to sell nothing but ice cream but make lots of different flavors. They also realized they had complementary skill sets, as one excelled in operations, and the other in sales and marketing. Both had networks that, put together, would enable them to reach out farther and faster when trying to grow.
They decided to become partners in their new ice cream venture and selected the order of the names in their new company, Baskin-Robbins, with a coin toss.
They were also early pioneers of one of the great retail concepts of the past century: franchising. Within five years, they had 40 shops in Southern California; soon after, they trademarked their 31 Flavors concept. Today Baskin-Robbins has more than 2,800 shops in the United States and 5,000 worldwide.
There’s no single model for partnerships, but the Baskin-Robbins story is a great example of how, with a shared vision, similar temperaments, complementary skill sets, nonoverlapping networks, and hard work, a partnership can succeed.
If you’re thinking about seeking a partner to join your business, be sure to consider these factors:
- Vision. Your potential partner should share your vision or complement it with their own ideas.
- Temperament. Often one partner is a natural leader, while the other is more of a functional expert. Successful enterprises require a balance of both.
- Complementary skill sets. Partnerships work better if your skills diverge. Thus, a great salesperson and a great web developer may make a powerful team. Investors don’t like to pay twice for the same position. Expertise in different aspects of business is a plus, and it helps when partners can approach problems from different perspectives.
- Nonoverlapping networks. You each have a network, and the less they overlap the better—enabling you to gain access to the widest range of possible investors, partners, and vendors.
- Experience. You’d be better at your job if you had twice as much experience, right? Partners can pool their years of experience to create a deep well of knowledge and skill to draw from.
It’s also critical to have a written partnership contract. At the very least, a partnership contract should address the following:
- Ownership. Who owns what percentage of the company’s equity? It does not have to be a 50/50 split!
- Financial commitment. What will each of you put into the company? If more capital is needed, what’s expected of you? Is the company financially responsible for contracts and accounts, or are you as individuals?
- Time commitment. How much time and effort will each side give to the company? If you’re not expected to contribute evenly, then adjustments should be made in terms of ownership and compensation to account for that fact, unless you balance time investment against financial investment.
- Cash compensation. How much do you get and when will you get it? Is it based on hitting certain milestones or hours spent? Will compensation be in the form of salary or distributions? Do you have to take cash, or could you exchange it for more shares instead?
- Expenses. What’s your policy on expenses? How much entertaining can you do? Who writes the reimbursement checks?
- Voting rights. If one person has more shares, do they make all the rules? If you’ve split them 50/50, how do you break a tie? Do all big decisions need to be unanimous?
- Vesting schedule. What happens when one partner leaves the business? Make sure you have a vesting schedule in place that outlines how equity is distributed.
- Buyout. Under what circumstances can you sell your interest in the company? What will the terms be? You should agree upfront. Make sure you include a provision that one partner can only sell to another partner if the other partner expressly approves.
This article originally appeared on Entrepreneur.com. Minor edits have been done by the Entrepreneur.com.ph editors.