Dear Workish: I’m starting a new business with a good friend. As we establish a partnership, what should I keep in mind?”
—Frank from Calgary
Let’s start with the basics: according to the Workish New Business Initiative, a consortium that doesn’t really exist, it’s always better to enter into a business agreement with someone you’ve already met. Signing onto a new company with a complete stranger isn’t considered a “best practice.” So, there’s that.
When good friends team-up to bring a business idea to life, rose-colored excitement can blur a cloudy forecast across the horizon. For start-ups where weekly revenue is balanced with sales, product development, delivery, staffing, accounting, and other “side gigs” to finance a bootstrapped environment, new partners rarely have time to consider what might go wrong.
Accordingly, here are a few Workish mousetraps to avoid when forming new businesses, followed by actual insight and advice.
Partner with a Robot
The easiest way to avoid early-stage misunderstandings is to start a new company with a robot. Since machines aren’t human, they won’t get cranky, disagree, or slack on those pesky co-founder obligations. And with AI on the rise, androids are great at chatting…and might even help lead venture capital financing with other like-minded robo investors. But beware: since robots can’t even be trusted with the pod bay doors, avoid sharing any passwords or personal information. Especially if they insist they’re “online.”
The Pumpkin Contract
Avoid tedious, time-consuming specifics in the early stages by replacing paper contracts with actual pumpkins.
The process is simple: visit your nearest Staples and ask the clerk for a pumpkin. They’ll usually keep a few in stock for customers looking to execute pumpkin-based agreements. Using a Sharpie, knight one of your partners as the designated “note taker,” then ink business terms directly onto the orange holiday fruit. Depending on the size of the pumpkin, the writ may serve as more of a high-level understanding than a detailed contract, with financial terms and guidelines for new investor acquisition. Best executed around October.
Invent a New Type of Partnership
While you should always consult at lawyer to determine the most appropriate partnership structure to adopt, consider forming your own newly-invented type of corporation. Weigh options for incorporating a “BLT” (similar to an LLC, except that lunch always consists of a bacon, lettuce and tomato sandwich). “EOD’s” ensure that workdays end at 5, while ’90s throwback “HTTP” corporations require use of the unnecessary “Hypertext Transfer Protocol” moniker when referring to web domains.
And now, some serious advice from an actual, real professional
We spoke with Balinder Ahluwalia, Director at Strategy&, for concrete insight around partnerships in business.
Is there a “path of least resistance” for creating new partnerships?
“Not really,” Ahluwalia begins. “Each has pros /cons, and should be considered independently every time you have to create a new partnership. For example, a Corporation is a legal entity on its own, and is not directly tied to the founders, it’s all about the shareholders. But because it is a separate entity, the CRA ensures that it files its own taxes. There are also Public and Private Corporations, each with their own restrictions (i.e. not able to sell shares publicly, or that the shareholders have to live in Canada). Lots to consider.”
Are handshake deals ok? Do start-ups need contracts and lawyers?
“It’s all about protecting against the worst-case scenarios. The advantage of spinning up a contract means that you’ve discussed (and hopefully agreed on) key terms, which is a good thing. It can be expensive, and slow down the momentum a little, but it’s worth it.”
Let’s say someone has the next big idea. When’s the time to “shop for investors?”
“Investors can come with demands (equity, board seats, etc.), so a smart thing to do is consider what you need the money for (new product, new markets, “supercharging” growth, etc.) and balance what you will get, with the trade-offs you’ll have to make. Could you do what you were planning without the investors? Maybe do that first.”
What should start-ups watch out for when partnering with new people or corporations?
“It’s all about people, and working with people is all about trust. No matter how good the idea is or what the partnership looks like, consider the team and if you feel comfortable building something new with them. If the answer is no, I would think long and hard before diving in.”
Any advice for people starting new companies?
“Entrepreneurship is a journey,” Ahluwalia concludes. “But building a company is like building a house, so you have to make sure you build a strong foundation first. Without that, all of your hard work can be washed away with the spring rains.”
And above all, talk to a lawyer. They’re great at carving pumpkins.
Originally published in Canadian Business magazine.