What should one look out for when looking for business partners?

Sasibai Kimis

Founder, Earth Heir


I'm not a marriage counselor, so I'm not really qualified to speak to the soft side of partnerships, so I'll focus on the process of selecting and entering into a partnership. Entering into a partnership is a scary, high-risk event in any business' life. How do I know they are the right person? Will they work hard? Will they fit with the culture? Are they trustworthy? The answer to all of these questions is they might. They might be your best friend, but a total disaster as a partner. They might be a complete stranger, and the perfect partner. There is a lot of uncertainty in the partnering process and there is no magic bullet, but a process helps.

The first step in the process is to establish criteria for a partner. The point of bringing on a partner is to make the business better, and the new partner has to have the skills to do it. So what skills does your business need? Develop a set of criteria for the new partner based on the needs of the business.

Once you have the criteria, start screening potential candidates. This means reference checks, background checks, credit history, interviews, etc. The screening process should answer three questions: Do they have the skills you need? Are they trustworthy? Can you work closely with them? Do a great job of screening, and you have a chance of getting a decent partner, but only a chance, which is why the third step is critical: structure.

Partnerships must have governing documents — partnership agreements, employment contracts, etc. People seem to think once an offer is accepted, the process is over. In my experience, the most important part of the process is just beginning: structuring the deal. While there are a lot of potential terms, the most important is a vesting clause that transfers ownership in the business over time, at least a year, preferably two. Given all the uncertainty, you do not want a new partner to vest immediately and walk out in a month with one-third ownership. Transfer ownership over time, based on achieving specific milestones.

About the author

Dave Deeds is the entrepreneurship chair at the University of St. Thomas Opus College of Business.