Over the years, I have received a lot of questions about taking on a partner, either at startup or after years of consulting. To be clear, I am defining partner as a person at a similar professional level as you who will share at least part of the ownership of your firm. Typically, the consultants I've worked with are seeking a partner for one or more of three potential reasons. First, it's to expand their client base. In this case the partner has access to connections or possible projects that could greatly accelerate the growth of the organization. Second, the potential partner will bring a skill or capacity that the firm currently lacks. Usually this is more about accelerating the current body of work and being able to serve existing projects more effectively than it is about opening up new business. Third, thought partnership is desired – the reality is that nonprofit consulting is dominated by small businesses. Running these businesses can often be lonely, even when you have other staff as they may not be at the level where they're sharing some of the weight in leadership, both on projects and operationally. The desire for help in even thinking through key issues related to your business and the clients you are serving is a very real desire and one where you can benefit from a partner.
This all said, in my experience, rarely does the potential of a partner meet expectations. This is not to disparage the partner or partnership, but rather to be pragmatic about it. Partnerships are often somebody you know well and you're very excited to work with, accordingly there's a tendency to get carried away with the potential impact the partnership may have. However, partnership can be a game changer, especially if you are new to the business of consulting or they are.
Alternatives to Partnership
One consideration I would entertain before pursuing a full partnership is whether there are ways to gain the alliance without the legal constraints of an actual partnership. For example, can you bring them on as a contractor or employee who gets a percentage of the net profit or a share in new revenue that they bring in? This can help to provide the incentives of a partnership, but without the long-term commitment that a legal partnership requires such as surrendering of equity and control. You could also contemplate joint ownership of a product or a subsidiary. This can provide the partner with the benefits of equity without having to give up equity in every aspect of your business. As well, you would not be giving controls of business decisions that may be beyond the scope and impact of the joint ownership.
If You Still Want to Partner…
If you do decide to further pursue a full partnership I would consider a few steps before this undertaking and giving up the equity that you've built. The first step I would take is to ‘test drive’ the partnership - an opportunity to try and gauge ahead of time what kind of advantage you’re going to have together. A ‘test drive’ can be achieved by bringing the potential partner on as a contractor or in a similar capacity in which you could pursue some projects together. This provides an occasion where the two of you can work together while preserving your separate entities. This can be a little awkward since typically one of the organizations will be the lead and the other will be a contractor. But this can tell you a lot about the potential partner’s humility and ability to work with others. If this becomes a huge sticking point that can be a warning sign about how things will go into the future. If seeking work together is another partnership aspect you desire then that also needs to be included in the test drive. I found that potential partners often resist this, seeing it as "beneath them". However, even if you know the potential partner well, your organization is one in which you have invested a lot of time and energy into and it is crucial to have some experience of what it's like to partner with this person. If they're not willing to explore it, this is yet another indicator to you about happenings to come with this individual. If the ‘test driven’ partnership is something that is comfortable and well received by the market then you may want to further consider becoming partners, but you can now do so having a much better sense of how you're going to work together and the results that it's going to have for your sales and profitability.
Is the Sum of Parts Greater?
As you assess the results of the ‘test drive’ I would try to make sure that the potential is going to be greater than the ‘sum of the parts’. For example, let's say your company is bringing in $500,000 in sales a year and your potential partner has another $200,000 in sales. If working together you firmly believe that you'll bring in $700,000 then I would have some serious hesitations about the potential partnership. This is because you are not really making more money and you're losing control and equity. In contrast let's say the same situation results in a powerful new ability to position and sell your work because together you and your new partner are much more attractive to customers than you were separately. This partnership, you believe, will result in about $1 million in sales therefore this is a potential partnership I would seriously consider. In this case the surrendering of your equity and control will result in more sales than you could do on your own. Since you're giving up so much you need to make sure there is going to be tremendous value for the company because of the synergy created.
Bringing in the Suits
If you do decide to pursue a partnership I would strongly recommend engaging legal counsel to help you craft a partnership agreement. I would make sure that you are clear on the roles and responsibilities of each individual – what your contributions will be and how you will each benefit. It is also important to clarify who has the control of decisions and the weight each partner carries with them. If you are an existing consultant, I would also contemplate whether you're going to ask that person to provide cash as part of the partnership agreement to compensate for equity - is someone going to pay you a million dollars for a stake? Probably not, but that doesn’t mean the value isn’t $0 either. Can you get your business appraised or mutually come up with a cash number with your potential partner? This is not just about compensating you but also gives them an equal stake in the business. If providing cash is not mutually agreed upon then perhaps full partnership is not a viable option. Perhaps you should hire them as a contractor in which you will pay them more or give profit incentives, but keep control. Covering these aspects of the partnership agreement will be uncomfortable especially since this partner is somebody you most likely know well - maybe even someone you called a friend.
The commencement of any partnership is usually positive – a thought partnership with expanded markets, and additional help. The attraction to partnership is three fold: a) the partner can provide senior level support; b) thought partnership is obtained and c) there is less of a drain on cash flow since you pay them a lower salary (which pulls on cash) and instead defer compensation until profits are realized. However, with all that said, you should take a great deal of time considering a potential partnership. Remember when you take on a partner into your established consultancy you are giving them part ownership in your business. That means all of the hours and time – the blood, sweat and tears that you've put into your business are now partially owned by them. They also, depending on your partnership agreement, get some sort of say in what happens to the business – so it is no longer solely yours. For the consultant starting out, taking on a partner can be a drain on profitability, which may increase the risk of issues when a new firm is at it’s most vulnerable - at start up. The analogy I like to use with clients, which can sometimes be unsettling, but I think it's important to keep in mind is you need to view the partner as a new potential spouse. I know that can be disconcerting – but the reality is that they are going to have part control over your financial destiny, and they are going to share in the progress you've made to date and have an influence over the future course and reputation of the organization. Accordingly, this way of thinking can help to really drive home what the partnership means in terms of your leadership and life.
As always if you have any questions that you would want answered in the blog or just want to ask directly don’t hesitate to email: email@example.com.
With more than 15 years of management and consulting experience, Gary has the expertise and skills to help public serving organizations move from vision to implementation. He is currently CEO of Civitas Strategies, where he helps clients establish realistic strategies that connect to communities’ needs and strengths.
Gary has consulted with a wide array of organizations including: the W.K. Kellogg Foundation, The Annie E. Casey Foundation, Take Stock in Children, The University of Florida Lastinger Center for Learning, and SmartStart Georgia. Gary has also been a line manager in science and engineering firms, (the Battelle Memorial Institute and Shaw Environmental & Infrastructure) and WestCare, Inc., a regional substance abuse prevention and treatment agency. Gary has lectured on human services project management at Boston College and the future of early childhood education at the W.K. Kellogg Foundation.