One of the frequent assignments we receive involve either finding a Partner or evaluating a possible Partner for companies going from business plan to actual operations.
Questions such as: “How much Equity” or “How much to Pay” tend to overshadow the more basic issues when trying to find the right Partner to help you with your Start-Up.
While the basic qualifications are, or should be a given, we have found that looking deeper into the candidates nature is a must if the partnership has a chance to be for the long-term.
The items we look for when evaluating a potential partner for our clients, without neglecting the standard due diligence, are described below and may be useful to you to consider before signing any partnership agreement:
1) Character
If a candidate fails on this step, the process should come to an abrupt end. Instead of meeting in an office, we meet several times in different environments. Seeing how a person treats a waiter or reacts to a panhandler will give you clues as to what they are like when they are not selling their persona. While we also do the standard credit checks and employment verification, we are much more interested in the person’s character over time. Social media may give you a lot of clues, but losing a pool game or trivia quiz while discussing a business plan is another matter altogether.
2) Courage
This is a very difficult trait to measure and a lot will be based on the candidate’s resume. As recent news has shown, just because you are a former Navy SEAL does not necessarily mean you have moral courage, but it does say a lot abut your ability to persevere. To make a good match, we will have long “What If” conversations that are focused around business situations and possible conflicts with the founder over matters such as quality or customer complaints.
3) Commitment
In many ways taking on a partner or co-founder mirrors a marriage. When we talk to the candidates, we are looking to find out how they feel about the company (i.e., is it a resume puffer or are they really into the product or service?). We also look at their background and will question why they stayed at company X for only 3 months or at company Y for 8 years. What we want to make sure that they are in it for the long-haul and won’t bail out at the first sign of trouble.
4) Compatibility
Often overshadowed by skill sets the founder does not have, we do think that there must be a certain level of compatibility if the company is to succeed. We do not believe in compatibility tests (especially Internet based ones) when it comes to the Executive level of a Start-Up. That often ends up leading to “Group Think”, which is not what you want. What you do want is two people with different skill sets and way of thinking, who still get along and respect each other’s opinions.
We have found that the best way to evaluate compatibility is to take the candidate and the founder to a series of social events outside the business environment. It always includes a few meals during the evaluation period and usually one out of the ordinary event (golf, paintball, fishing, etc), that is conducive to dropping the interview facade.
5) Credit
Yes, we do check the candidates credit rating. Bad credit is usually a very strong signal that something is off. If it does not look like a serious issue, we will look a little deeper and also discuss it with the candidate.
Summary
None of the above steps are a guarantee that things will work out. Consequently, we insist that a partnership agreement must include a separation clause that covers personality clash and public moral issues, which are among the standard points your lawyer needs to include. A partnership agreement must not be written down on a napkin but must be prepared by an attorney. Nobody wants to be the couple in the “War of the Roses”.
Update: If you are in California this is an important read: