Creative partnerships are compared to a marriage, but many startups begin as a conversation among friends, a quick bond over complementary skills or another result of convinence. It's like nuptuals without the courtship, and it's often the first mistake is the co-founder contract.
How much do each of you own? In what ways will you deal with impasses? What happens when one or all of you want to walk away? Business failure and, more notably, business success can expose all the issues between you and your partners, and those only expand when your business faces stress or growth.
Your first question should be, "How do I create the smartest partnership contract possible?"
My first bootstrapped startup was so casual that everyone involved didn't have a formal contract. When things went in a different direction, I had to go back and define the terms with a law firm. I essentially paid a lawyer for an Intellecual Property (IP) class.
For my second bootstrapped startup, we began early with the founder agreement. Our first product became one of the biggest apps of that year. We sold 11 months later. Our decision to sell took five minutes, and not a second was spent on how we would split our proceeds.
The best contracts prepare for not necessarily the worst scenario, but the inevitable one. Seth Godin says that every founder commitment ends: One of the founders leaves the company through a decision or through death, or the company dissolves or is acquired by another business. Every single agreement is essentially finite.
The wisest move is to concentrate less on how partnerships begin and more on how they will be eventually wrapped up. So here's how to make sure your partnership agreement is a good one:
Call it a disagreement.
Author of the purpose-focused best-seller The One Thing and Keller Williams real estate founder Gary Keller says you need to prepare for the end of the commitment. He should know: He got out of numerous bad founder contracts before turning his real estate business into a success.
On The Tim Ferriss Show, Keller broke down the idea in the book: "Your agreements should be called disagreements because you only read them when you disagree with something!" Keller said.
To paraphrase an old adage, the best medicine men aren't well known because they don't have repeat customers; their stuff works the first time. Similarly, you don't think about what's under the hood until something really goes wrong.
Founders are especially susceptible to this challenge. Many of us start our business with friends, family and long-time colleagues. The established relationship gives us a false sense of security. The contract helps us create the boundaries for the new relationship, which, like a marriage, is exactly what we are creating.
As you devise the partnership, pay attention to how you handle conflicts, decisionmaking, and impasses. As Tony Robbins' late mentor Jim Rohn explained, if you have tough dynamics handling $5 in profit and 10 customers, then you'll have the same issues when you have $500,000 in profit and 1 million customers - except the potential failure will be worse.
Work out the kinks early, as the devil is truly in the details.