Love and Marriage

Given recent events, I thought it would be fun to give some analysis (or a diatribe if you will) of partnerships and how they impact startups. Managing personalities is probably the most difficult thing in any startup partnership and I've certainly been involved in my fair share of issues resulting from strong personalities, definitely notwithstanding my own.

However, I've been extremely fortunate along the partner path, having read and heard of a myriad of unbearable experiences, most of which cease the operation and kill the opportunity of the business said partners were involved in. Somehow, someway, we're still here. It's an amazing journey, this whole entrepreneurial winding road, and although I'm reticent to cite a Mt. Everest expedition comparative, let's suffice it say that partnerships are only slightly less devastating when you lose. Thinking along that line, we may very well still be closer to the bottom of the mountain than the top...

Which is, I believe, a quite unfair way to look at such a journey. In this world, and in our wonderful country (despite all Her faults, She remains The Land of Opportunity), it seems to me that most any effort is almost always some short list of events away from success, or rather, from reaching some plateau on the mountain above that where one is currently located. More practically, I believe each person in each endeavor could probably list, say, less than 5 factors that would very rapidly propel them to the next level. Whether it's funding, deploying through a massive F500 account, or increasing traffic/conversions 10x, there's just a small number of things that might make your startup the next YouTube.

Given that, there are exponentially more things that can make it go wrong, and partnerships are probably responsible for a large number of those things. First, let's look at what a partner can bring:

Complementary strengths. Most of the time, we're cowboys - driving alone, when eventually we see the opportunity/challenge ahead and recognize, "sure could use a couple other hands". Partners can bring complementary strengths that you lack. With coding founders, it's generally people/networking/sales; although sometimes marketing.

Another viewpoint. Having someone else to call bullspit on you when you're headed down some dead-end rabbit hole has a significant impact on how much money/time you waste getting your product to market.

Additional connections. Most certainly, they'll know people that you don't know and can bring those connections to bear in any number of ways from sales to funding.

Another set of hands. When business starts to pick up and the revenue ramp hasn't yet hit, it's important to have another resource that can take on some of the additional work load.

If you're not in a partnership, but considering one, here's my list of things you must do:

Look for value alignment. At their core, your partner must align with your values. Now, let's say you're a deceiving lying sack of poop, don't get someone else like that. My point is - when the feces hits the rotating oscillator (and it will) you need someone who is going to live up to their commitments. This doesn't mean they have to be perfect or some namby-pamby wimps who always tell the truth, but in certain core areas they must meet their obligations to the company and to do the right thing.

Check their references. Call the people that they give you and ask good questions. Don't fail on this, because you need to ask the best questions you can... because these folks are on tap to give a good reference and you have to notice the nuances. If you have the right questions, it's easier to pick up than if you ask silly fluffy questions. Don't be afraid to ask the tough questions either - this is how you figure out if you're going to give away part of your dream to this person.

Check other references that they didn't give you. Find anybody you know and ask about them. Ask their kids' teachers, direct reports at previous employers 10 years ago, whoever you can find that knows them in any way. Listen - you've got to be right on this, so do your due diligence. Ask their dog, check out their neighborhood, look at their yard. Follow them to their local watering hole, see what they say when they're boozed. Background checks... I'm not a big fan of going that route, but it's not beyond the realm of possibility. If you smell anything even remotely fishy, get a background check. It's just that important.

Make sure there's alignment along all areas. If the values align, refs check out, then you have to make sure they align with your vision. In particular, I believe the most important thing here is settling on the corporate identity (check out a future post on this). Since the company is going to take on the life of the Founders, make sure it's the right life! If one partner is settled on having a "nifty product" and another is set on $100M of revenue in 18 months - there's going to be an issue.

Get some solid legal work. The understatement of the century, but I've seen so many folks get tied up in some nastiness that they can't get out of that a decent attorney spending 1/2 hour could have saved them from. Make sure all the docs are tight; articles of incorporation, employment agreements, and especially the shareholder's agreement. This is your only guideline to how the relationship is structured legally. We'll have some more posts I'm sure on the setup of these things. DO NOT short-cut review of any options here - it can mean shares, ownership, company death, and potentially millions of dollars.

Consider merit-basis. More often than not, someone will feel like they are doing all the work. Well, unless you put it in a legal document you have no recourse if this happens. Consider deeply the "for cause" clauses in employment agreements and how that is attached to being a shareholder. If you are particularly wary in this area, make sure you have clear expectations of what this partner is to provide; funding pathways, sales, technology development, etc. Tie it to a legal document if you have to, but be forewarned: this works both ways.

Don't be afraid to talk about exit strategies. The key here is for your prospective partner to understand that you can live without them, and if they screw up, you're going to be successful anyway. Having this attitude will elevate you above "need" and let them know that they are becoming a part of something great - it is important, and they need to understand the gravity of it. You should communicate what the causes for separation are, how they will come to pass, and what will happen. There should be some position where each partner could get booted as an employee (of course) and as a shareholder for actions deemed detrimental to the company.

If you are in a partnership and you think it's going sideways, here are some things to think about:

Pathways forward. There are generally only 3 options: 1) amicable separation, 2) non-amicable separation (nuclear), and 3) modifying their current role. You really want option 1 or 3 no matter what. So do you best to work towards that - anything in the option 2 area is almost certain company death, but... if you took care of legal...

How well did you take care of legal? You could make it. Legal has a big impact on how bad the nuclear disaster will be. If you didn't take care of legal enough, shame on you! It's not unlikely for you to end up in a long drawn out battle that might kill your company. If you did your work there, this can be as easy as a formal letter and keep on truckin'.

Company impacts. How bad is it? There are certain situations where you just need to suck it up and deal with it - if this person is your key revenue generation engine, or your only path to technological prowess, you can't just take 'em out. Think long and hard about the impacts before you send off that blistering e-mail (which is, of course, legally discoverable). Always consult sound legal counsel before making any heady moves. If nuclear is the only perceived option, how bad would it be to manage to keep them around? It's either die or deal with it sometimes, and you just have to figure out what that means to you and your company.

One final note: If you have a good partner, you should feel privileged. Going through these battles is not for the faint of heart - there are times you will feel strangely powerful emotions, like hatred, anger, fear, paranoia... hang in there, take logical steps, do your due diligence. If you align at all in values, you will pull through.