10 Questions to Ask Before Entering a Business Partnership

Originally published by Harvard Business Review.

Many people compare business partnerships to marriage. But they’re just not the same. Business partnerships are harder. It’s true: some 50–80% of partnerships fail in the first few years.

What is similar to marriage, however, is how much is riding on the success of a business partnership: important personal and professional relationships as well as financial success are wrapped into one. And chances are, business partners will spend more time together than with a potential spouse. With increasing numbers of business partnerships, the issue of failed partnerships is more consequential: in 2020, partnership businesses filed 4 million returns, representing 28 million partners, a 12% increase from the previous year.

But people — often friends — jump into business partnerships and get caught up in the excitement, without taking a sober view of potential problems. There’s a high risk for friction to emerge — with a lot of pain — down the road. For that reason, it’s incredibly important to ask direct questions early that might mitigate or prevent potential problems and avoid unnecessary grief.

1.  Do we want the same things?

Money is usually a shared motivation, but how much people want and how badly they want it, as well as how it fits within the mix of other motivations (like work-life balance) is a key discussion. Often partners come in with meaningful financial differences. We know two people who ventured into a start-up, where one had partner had already had a successful financial exit. For that partner, this start-up was a bit of a lark. The other partner didn’t have that security and really needed the venture to work. There was tension from the beginning before they ultimately split.

2. How hard are we going to work?

Relatedly, two people will inevitably have differences in when and how much they will work. Amidst all the excitement of exploring a potential partnership, it may seem a buzz kill to ask: “So, how many hours a week will we work? What about emailing at night or on weekends? Will we work while on vacation?” Getting past the generalities is critical to form concrete expectations and agreements. Equality is not equity, as differences in work habits can be managed in other ways, like compensation.

3. How will we value contributions?

In a clothing company we know, one partner handles the design end, one the business end. The company is successful, but the partners do have their moments of tension and feelings of being underappreciated. “Without my designs,” one says, “we’d have nothing.” “If I didn’t get the clothes made and sold,” says the other, “your great designs would be worthless.” There’s a natural tendency to value one’s own contributions higher; partners need to come to peace that all the contributions matter and are worthy of partner status.

4. How will we make tough decisions?

Tough decisions in a partnership tend to come later. Before they arise is the time to figure out how to make them. Partners will often divide decision-making rights: if it’s in the marketing realm, it’s your call; if it’s in the people realm, it’s mine. That’s fine, but it’s important to figure out what will happen with a difficult, high-stakes decision where the partners strongly disagree.

5. How do we handle conflict?

Some people are entirely comfortable with vigorous debates that others might experience as scary or jarring. Before the first serious conflict is the right time to assess one another’s conflict management styles. We know two consulting partners who had a big gap on this front: one grew up in a family with a lot of unhealthy conflict that was scary to her as a child. She needed conflict to be calm, controlled, and respectful. Her partner felt like conflict without some yelling was not genuine. They were successful in finding a middle ground, with some clear boundaries. A non-negotiable, though, is a commitment to surface issues early and not harbor resentments.

6. What’s the plan?

Core business strategy might be one of the more cerebral business questions, but it still has the potential to drive a wedge between partners who see things differently. Strategy done well comes down to making tough calls and saying no to things that some partners are excited about or even attached to. These questions might not bubble up until later, which is all the more reason for prospective partners to anticipate and answer them. This raises the related question, “How will we respond when the plan doesn’t work or when things change?”

7. Where’s the inequality?

The phrase “equal partners” can roll off the tongue in a “mom and apple pie” spirit, but the reality is that there is intrinsic inequality in every partnership: some are material, such as relative contributions, and some are interpersonal, like power differentials. The question is how to maintain trust and mutual commitment despite these inequalities. It may even come to asking, “Are we actually partners … or something else?” We know a woman who founded a health-related start-up. She worked with another person in the early phases. Eventually they dropped the idea, and the second person invoiced the woman for their time — a true shock to her, as she considered them partners. The other person said, “No, this was always your thing.”

8. Who gets what?

To build on the prior question, gain sharing and compensation is generally the stickiest of questions. It drags in all kinds of issues of fairness and respect, along with practical questions of people taking care of themselves and their families. People’s life partners will weigh in. And this is all around a topic as sensitive as politics, religion, and sex for most people. We have worked with several partners who early on established key principles for gain sharing, and — more importantly — deciding what’s more important than money for them. We know two partners running a boutique consulting firm who decided simply to pay themselves exactly the same, irrespective of their inevitably different contributions. Their choice was to accept inequality for the sake of the partnership.

9. How will we keep track?

It sounds small, but documenting agreements is critical. Two reasons why: first, people can think they have agreed about something, but then writing it down reveals differences. Second, people forget or have different recollections, and that is just like having no agreement at all. We know an executive search firm where the partners literally sign (via electronic signature) any significant agreement, for example how to split fees on an engagement. Find a way to keep track of your agreements and store them in a place that all partners can easily access to jog their memories.

10. How will it end?

Every partnership ends, in cheers or tears or some combination. It’s inevitable. It’s a lot easier to figure that out early. Who gets what? Who owns what? What if only one or a few partners want out? What intellectual property, relationships, or other assets did people bring into the partnership that they expect to take with them? What are the agreements about the communication protocol around their departure or non-solicitation agreements? Having clear agreements can help partners part ways amicably when the time comes and prevent headaches, stress, and protracted legal battles. The two of us were business partners for several years, and when Jonathan left eight years ago for a great opportunity, these agreements provided a blueprint for us all to follow. (It also helps when the departing partner is a high-integrity person, like Jonathan).

All these notes of caution notwithstanding, for many, a successful business partnership is among their most positive and significant relationships. Good partners can have a lot of fun together, become intertwined in one another’s success, and be great friends through life’s ups and downs. Overall, it’s worth taking the risk. It’s also worth being prudent and intentional at the outset so that you can immunize the partnership against future problems or end a flawed partnership before it begins. Either way, you can save yourself immeasurable pain down the road by asking these tough questions early.