Choose your business partner – CAREFULLY!

By | July 12, 2007

One of the best pieces of business advice I ever got was “You can’t do a good deal with a bad partner.”Having had many partners over the years, I can say that this statement holds true. So I thought I’d offer some personal experiences I’ve had with partners both good and bad. Finding the Right Business Partner by Robert Kiyosaki.

A new line of business

We’ve been considering expanding our business to include ‘after school’ classes for students as a way to supplement our main program and stench defections to other schools that already provide ‘after school’ classes. We have lost a fair number of good students on this issues, students who were making great progress in their language development, but whose parents didn’t quite understand what we were doing, and how our student development programs differ from the more ‘traditional’ programs.

After school classes
In Taiwan, there are many schools that provide these kinds of services; in fact, the ‘industry’ hires thousands of workers to provide for tens of thousands of students. We already know that this is a viable business. And, if we wish to grow our main program further, it may be something that the market requires us to do. However, none of the partners have the skill set to provide this kind of teaching to students, and we’re already quite busy anyway. Inevitably, this means we are forced to choose between hiring an employee or finding a partner.

Finding a partner
We’ve already investigated the possibility of finding a partner, and we found a person who might be very suitable. Unfortunately, she didn’t have any cash to invest in the business. While investing your labor is, indeed, a well recognized form of investment in many countries, it had repercussions for the person concerned. So she brought in a friend of hers, a self-confessed business woman, who had BIG plans, much bigger than we could afford, much bigger than we imagined, and much bigger than we felt viable in our market area.

Therein lies the problem: in finding one partner, we’d have unwillingly gotten into bed with two partners, one of whom was an unknown entity to us; and one who would certainly have wanted a larger piece of the pie.

Cashflow, cash low and rosy predictions
But that wasn’t the only problem: it is likely that the addition of an extra staff member and partner combined with the additional cost of running a business on life support would have drained our primary business beyond what we could have reasonably handled. We’ve always been quite conservative in our predictions from day #1. In fact, when the school managed to pay a full rent on its first three months in business and pay nominal salaries, too, we were all QUITE surprised. We’d budgeted for six months of full rental payments and expenses, until the business started generating cashflow.

Cash, loans, cashflow: Going, going, gone…
In Taiwan, over the years, I have seen so many businesses come and go. In fact there are several slots on the main street near where we live that regularly change business. In some examples, the businesses are gone in just two or three months. In one location near here, the first business started out as a baby or children’s clothes store, then it became a woman’s clothing store, then it was empty for a while. Now it is a hair salon.

In other places, I’ve seen supermarkets open and close in less than six months, bakeries come and go, etc.. Perhaps in some cases, the business owners have misunderstood the market. In many situations, though, insufficient provision for cashflow while business is building has been the principle problem. Combine this with overly rosy income projections for the first six months, and you’ve got a recipe for disaster. In some cases, I suspect the initial capital was borrowed from friends, family, banks, etc., and once used, there was nothing to follow up!

It pays to be cautious…
So, choosing a partner who understands your business and your own situation, who accepts the risks of running such a business, and who has the financial wherewithall on their own account (without borrowing the cash) is crucially important.

Have you experience working with unsuitable partners? Or suitable partners? How did you find them? Did you deal with the problems?