Before you add a “partner” – answer these questions.
In service oriented businesses (Sales Agents, Insurance Agents, Brokerage Agents, and others) hiring new employees - especially employees who have the long term opportunity to become “partners” – is fraught with danger. Many times the founders of these businesses are successful “sales entrepreneurs” who by their nature flow with energy and exude optimism of gigantic proportions. They have strong visions of the future. Like Superman’s x-ray vision, they see through walls, bumps, and obstacles to stare straight into the eyes of a 5, 10, or 20 year successful future. In their mind every qualified candidate is trustworthy, loyal, and hard working and every business deal ends in success. That’s just the way they are.
My own observations differ: The founders possess qualities that the normal person does not and when they interact with others problems arise. I know of several such entrepreneurs who created a successful business, brought in “partners” to grow the business, and then were forced to leave their own company and start from scratch because they did not plan for some very common problems. When Theodore Rubin said, "The problem is not that there are problems. The problem is expecting otherwise and thinking that having problems is a problem.” He was talking about psychiatric health. I believe it applies equally well to business.
As you plan your future and the future of your company – here are some questions and comments (and problems) to ponder.
Why do you want a partner?
- There are a number of reasons for partnerships. You should make certain you have yours on paper and you have discussed it with your business coach, mentor, and advisors.
- Why would an employee not work just as well?
- What do you know about your future partners?
- Work Ethic
- Family Status
- Finances /Credit histor
Don’t use the word partner, when discussing the role with a potential candidate.
- What does the word partner mean to you? This is one of the most over used and little understood word in business. Partner to some implies equal partner. Do you intend to instantly give the new person the same power, prestige, salary, vacation, and ownership that you enjoy? In most cases, the answer to that question is no.
- Use the words like team, associate, or (my favorite) colleague. It is ok to talk about your vision of the future, but be sure to set time lines. If you say, “someday this whole place will be yours” - I may hear, “Next year, you will own half and 3 years from now you will be president.” Think about and talk specific time lines.
How do you differentiate between the founder – owner – you and minority owners?
- Establish a job description for the new person – before you hire them. The Lone Ranger and Tonto did not have job description. Neither did The Cisco Kid and Pancho. Remember, they both were destined to drive a horse and live outdoors, so if you like driving a nice car and having a nice house – set up job descriptions.
- How is vacation, working hours, holidays, and other business scheduling handled?
- Who is in charge of what aspect of the business? Eliminate disagreements over division of labor before they start.
Future Employment issues
- What happens if you bring the person on and in 1 year it does not work out? I suggest establishing a “probation period” where both parties can test the waters of working together.
- What happens if you bring two people on and in 5 years one is a superstar and the other is just ok? You need to be prepared. In small companies these are real issues. No doubt you will establish a bond with everyone you work with – think about the steps now that will minimize the future pain.
- How do you decide when and if it is appropriate to bring in yet another colleague?
- Will bringing in a second colleague affect your income? Will it affect the income of the other colleagues?
- How will the expenses of training and getting started by handled?
How do you differentiate between employee status and future partner status without alienating existing employees?
- There are also state and federal laws which come into play in this arena – especially with benefits.
Define expectations of ownership and working status
- What happens if one or the other of you decides to leave the company?
- What happens in 10 years if you pass over a percentage of company ownership and the person is diagnosed with cancer? Can their family move to Florida and collect a percentage of the profits even though the partner is not working in the business?
- If you have children what happens if they decide to join the business? I can rattle off at least a dozen successful businesses that were destroyed when senior partners disagreed on where their kids fit into the business.
- Some industries have issues with things like compliance and potential for malpractice (its not just a Medical thing these days), how is the corporation protected from ill-advised actions of new colleagues?
Establish rules for non-compete and non-disclosure
- How do you protect your existing clients and future clients?
- Non-compete clauses “stick” when they are part of the original agreement.
- The government allows for very stringent protection against those who steal trade secrets and other information. Do not hire anyone without a non-disclosure agreement in place.
How do you eliminate the squabbles based on whose client belongs to who?
- I have a good friend who owns a successful service business with employees who are paid a salary, commission, and productivity bonus. She works along side the employees and to the person walking in the door they are all equal. Issues are created when one of her long time clients is “taken over” by an employee. The employee feels like they deserve commission – my friend disagrees. It is better to address this issue up front before you get started.
How are decisions for major investment in the business handled?
- One “partner” needs cash and W-2 income, the other doesn’t and instead wants to invest in a new computer system, office furniture, or advertising promotion for the long term good of the company.
How is the company valued? How are assets valued?
- When establishing a value, don’t let book values derived for tax purposes tie you to something not realistic.
- Don’t be fooled into believing that you have to be incorporated to establish a value. This needs to be well thought out.
Invest some of your mental energy in thinking through each of these issues. I suggest written notes. Notes direct your thought process and allow you to re-visit each point on multiple occasions and in a variety of daily moods.
Frank Hurtte (firstname.lastname@example.org) is a consultant to distribution, the sales channel, and manufacture’s agents at River Heights Consulting. He has 28 years of real world experience and is available as a speaker and executive coach. He has written a number of articles and white papers on management, distribution, and the selling process. Frank has helped a number of businesses and not-for-profit corporations through the strategic planning process. You can contact Frank at 563-514-1104 or through www.riverheightsconsulting.com.