Generally people who have had business partners don’t recommend them.

You can never both be exactly 100% committed and do exactly 50% of the work. Like a marriage, they only work if there is tremendous flexibility on both sides.

But when is the best time to learn to work with partners?

Entrepreneurs with skills to develop and manage formal and informal partnerships grow fast and large enterprises.

Partnerships are an essential part of geographical and market-segment diversification. Eventually joint ventures become attractive. Do you really want your first ever partnership experience to be a $5Million JV with an Indonesian manufacturing company?

One popular exit strategy for a successful entrepreneur is a trade sale with a generous multiple on earnings. The entrepreneur sells the business to a larger player but stays with the business. The entrepreneur drives profits because they reap huge financial rewards (as a multiple of the increased earnings).

Now you may not aspire to create a company with that size, complexity or headaches. In which case enjoy owning 100% and controlling your destiny. Make a choice and execute the plan.

That leads to a major draw-back on partnerships. Most startups give away too much equity for a partner’s contibution to effort, cash or growth.

How can we create incentives for contibutors? Try income splitting or commissions. Some entreprenuers hire staff on base salary plus performance bonuses (tied to profitability). If you need PR agent, offer them a percentage of the revenue increase and no equity? Be prepared to pay more for successful performance based service than you’d ever pay for salaried staff.

If an essential person demands equity insist on an earn-out. Value the business at $X for your 100%. In order for them to own half, they either must pay you 50% of $X or grow the business to twice $X valuation. They then have earned 50% of the company. Keep and eye on liquidation preferrences and those other VC tricks.

Legal aside:- never, never, never structure a business as a legal partnership. That allows each partner to make the others jointly and severally liable. So when you get a partnership, get structuring advice (hint: companies or trusts are ok).