What kind of partnerships is acceptable and which ones are to be avoided? This question should be asked long before considering a venture together with someone. You should have your principles set before you consider anyone, because once you are engaged with someone your judgment becomes flawed. Partnerships can be as successful or unsuccessful as any marriage. Hopefully people take careful consideration on who they should marry before they even meet someone, because once we are involved we will begin deceiving ourselves. If someone leaves the choice of a spouse to chance encounter or surface appearance it will greatly reduce the probability o survival. Objectively, choosing a business partner is very similar.
Owning 49% of a private Canadian company can, in the end, have little to no value. I have witnessed a 49% minority partner end up with nothing after two years of multimillion dollar revenues and thousands of hours of contribution. Businesses have many methods at their disposal to drain value, it is not just cash, sometimes it’s asset depletion, or simply minimizing effort.
Several years ago I read the story JR Simplot the founder of Simplot, (A billion the hard way by Louie Attebery). It’s a fascinating read. The part of his story that leapt out at me was the 1960’s. It was a busy decade of JR’s business life. In his early years JR found boundless opportunities to build and expand his business. As with all entrepreneurs raising startup capital was very difficult. In order to take advantage of opportunities JR chose to initiate multiple partnerships. They were many, varied and often times not well thought through or even documented. In fact one agreement he went into required his partner to purchase a piece of equipment for potato farming. The partner delayed so long in supplying the capital JR eventually found another way to purchase the equipment. The business provided a substantial return and, even though the partner didn’t provide anything he agreed to, he demanded his portion. A law suit was filed where money and precious effort were wasted. This was just one example of the complex partnerships JR found himself untangling during the 1960’s. His close friends said that during the 1960’s JR aged two decades. The point of the story is that sometimes money is the least lost in a bad partnership. Time and effort is often the greatest expense, in JR’s example he lost ten years of productive time.
As an independent operator in Canada, there should be little to no reason to go into partnerships. Too often I’ve witnessed a partnership created for the simple purpose of keeping an “employee” loyal. It’s nearly always just an illusion that ends bad. One partner has an acceptable credit rating while the other is just a driver (all-be-it a good one). With little in the game other than driving a truck the partner with all the credit holds all the cash and then controls the other partner too much or not enough. Things break down trip after trip. The vast majority of earnings as an operator is when all debt is paid off (as my research showed). Owning a portion of a highly depreciating unpaid asset is somewhat of a fantasy of expectations, a chasing after rainbows. The true value of the business and asset is only known once it is sold. Very few partnerships last long as an operator.
Being a fan of Dave Ramsey and Ramsey Solutions has also given me a more practical approach to choosing a business partner. It may not be everyone’s approach but I think it’s a very good start. A person should not begin to qualify for a partner unless they have been in baby step four for no less than a year. That means the person is out of all personal debt (not including their mortgage) and they have a full 3-6 month emergency fund for an entire year. The reason I use this standard is because people who have a fully funded emergency fund THINK and act differently. They are far less prone to financial panic. They are able to live by principles rather than by short term circumstances. It’s only when people “HAVE to do something” that they end up making mistakes. Similar to JR Simplot compromising his businesses with individuals of ill character, people who live paycheck to paycheck loose grip on solid long term business choices.
The answer to the question who can make a good business partner is, a person with character, a person who doesn’t NEED to be a partner. A good partner will honor their commitments no matter what the hurt, therefore they must have deep enough pockets to do so.
The biggest problem with finding an honorable person is that they must be proved honorable first. The great equalizer is time and pressure. When a person honors their commitment over an extended period of time and through difficult circumstances there is an increased probability they are trustworthy. If their circumstances were too easy and without conflict, any loss or opportunity to offload liability may not actually be truly tested. If a person has never been truly tested, who could say they would make a good partner?
Integrity must be tested over time, not just a short period. Scam artists prep a mark (a potential victim) by first displaying their short term trust in the mark. Human nature instinctively will trust someone who first displays trust in them. People become vulnerable when they only look at short term character. Time and crisis is critical to testing a person’s character.
Even so, if someone has carried themselves with great honor over many years it will not guarantee ethical behavior. Warren Buffet once said “…a person can lose a stellar 20 year reputation in five minutes.” Past performance is not always a guarantee of future behavior.
Partnerships, especially in the independent operator industry, is not only unneeded, they are usually based on false or desperate perception.
Character aside, do both partners understand the Key tenents of the industry? Do both understand fuel consumption? Fuel costs? Maintenance issues and asset values? Almost universally there is one partner who does not engage in the key issues. They blindly trust the other. It’s almost assured to end in failure within a year. It’s sort of like telling a friend who just got engaged that you don’t think their choice was wise. Usually people just let their friends make a mistake.
As with all mistakes it consumes life’s greatest commodity, TIME. To recover from a failed partnership takes time and time is something we can never get back once spent.