Partnering with the American Dream?

Classic lines in the film “American Dream in China”: “Don’t play mahjong with your mother-in-law; don’t sleep with a girl smarter than you; don’t start a company with your best friends.” In other words, don’t partner with your best friends. Is this true?

Research conducted by Perth Leadership Institute shows that companies that are based on partnerships seem to be more successful than those with a single founder. But research also shows that many, if not a majority, of partnerships fail. Many partnerships that are based on friendship break up. Even if they don’t fail immediately, many do fail later, often much later. In the US probably around 50% of business partnerships break up within 10 years. That’s probably the same in China too. Just like marriages, it’s often difficult if not impossible to say who is to blame for the failure. Human relationships are complex things. 

Breaking up is just part of life. It doesn’t matter if it’s a marriage, a business partnership, or a trip to mars in a spaceship where we have no choice but to get along, human relationships often don’t last a long time. And that is often a good thing.

In business partnerships, one of the two is usually the real founder of the company, which we called Alpha partner, like Bill Gates of Microsoft and Steve Jobs of Apple. However, Alpha partner needed the Beta partner who is often stabilizers, serious, committed, relatively sane people that the Alpha has chosen because he needs some sanity around him to compensate for his own, sometimes manic personality.

Alpha partner get tired of the fact that he is responsible for 99% of the success of the company but only gets 50% of the returns or gets tired of having to take into account the views of someone who he knows could not be successful. But there are benefits to a Beta of being with an Alpha, even if they eventually split up. The chances are that the Beta could never have started any company on his own. Even if he did it would probably have failed. If he teams up with an Alpha he drastically increases his chance of success.

Generally business partnerships are good at the beginning and not so good at the end, just like many marriages. But some actually improve over time. Successful partnerships last longer than unsuccessful partnerships, for obvious reasons. For the successful ones, the founders usually have a productive relationship for many years, even if, over time, they start to get on each other’s nerves. But even many successful partnerships break up over the longer haul as their life interests gradually diverge and strategic objectives change.

Choosing, Even if Not Wisely

Dr. Ted Prince is not very sympathetic to the view that if a partnership fails, someone is at fault. But there are some rules that might be able to help you anyway if you are contemplating entering into a business partnership with a friend. These include:
	If the partner is a close friend, do you have complementary skills and personalities? If so, that’s good and you should consider it.
	Do you respect the person you are considering as a partner?
	Is the potential partner an Alpha type – if so, consider whether he will be a successful Alpha – if you think he will be you can go ahead on the assumption that in a number of years he will force you out of the company. So do a pre-nuptial agreement specifying what will happen in the case of a split, just like in any marriage.
	If you are the Alpha, make sure that your pre-nuptial agreement is fair to the other person so he won’t try to destroy you if you ever want him to leave
	Sign a buy-sell agreement when you set up the company – that if either partner wants to leave he must first offer his stock to the other party at a reasonable price set by an objective third-party
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