Blog | Entrepreneurship

Choose Your Business Partners Wisely

The people you go into business with directly affects the outcome, so make sure they can pass these three tests

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I have a saying, “Business would be easy if it weren’t for people.” I say that jokingly, of course, because when you have a great business partner, life is so much sweeter.

When it comes to business — and life — good partners are worth their weight in gold.

Robert and I became business partners at first sight, and now he’s my number-one partner in everything. We are business partners, investing partners, marriage partners, and play partners. Is it always peaceful and happy? Ha! Far from it. No true partnership is. If the partnership does not allow space for one partner to disagree, to speak her or his mind, and to question the other partner’s ideas, then it’s not a real partnership. As I’ve had to remind Robert on several occasions, “I am your partner, not your employee.”

To me, good investment partners and good business partners have aligned values. An associate of President Donald Trump once wrote, “You can’t do a good deal with a bad partner.” That is so true. No matter how good the project is, if you have a partner who is unethical, greedy, and uncaring, then that deal is doomed for disaster. A bad partner can break the deal. A good partner can make the deal.

As you’ve probably guessed by now, an important part of reaching your goals for financial freedom is finding the right business partners to help you. Good partners can help you move forward quickly, increase your financial education and be ready for opportunities when they become available. On the other hand, bad partners can cause significant hardship, setbacks and stress.

3 rules to on business partners

My former mentor, 91-year-old Frank, taught me two invaluable lessons about choosing partners wisely. I’ve added the third one here based on my own experience — and you’ll soon find out why:

  1. Never take on a partner who needs money.

    Frank explained to me that if a prospective partner’s number-one goal is to put more money in her pocket, then she will make and support decisions to satisfy her immediate need for money versus doing what’s best for the investment or the business in the long run. So, if her primary purpose is to make money for herself, then we are not aligned from the start — she won’t care about the partnership and the goals of the business partnership as a whole. And why would you want to have a partner like that?

  2. Never give up equity to a person whose services you can buy in the marketplace.

    Let’s say you own a duplex. Between your full-time job, your two kids, and assisting your aging mother, you decide to hire someone else to manage the property.

    Your girlfriend says to you, “Instead of paying an outside company to do it, I’ll do it for 10 percent of the deal.” You now have a choice:

    • Keep 100 percent of the property equity for yourself (since you put 100 percent of your time and money into acquiring it), and pay a monthly fee for a property-management service.

    • Or, give up 10 percent equity of your duplex instead of paying the monthly fee.

    By granting equity (a percentage of the property) to someone else, that person is now your partner. It’s a good guess that they are offering you their services because they have no money to put into the deal — thereby violating Frank’s first rule. Also, by giving away 10 percent of your cash flow and 10 percent of the profit when you sell, this option may end up costing you a lot more in the long run.

    You can always hire an outside service to manage your property, handle your accounting and run your marketing. And this way, you get the services you need while holding on to 100% of your asset.

  3. Make sure you enjoy spending time with this person

    Good business partners want to work together so that everyone prospers. They should have aligned values and be generous. When doing a deal, you work closely with your partners so it’s important to me that I enjoy being around them. You’ll spend a lot of time dealing you’re your partner, on phone calls, in meetings, over text and email — frankly, if I don’t want to go out to dinner with these people, why would I want them as partners?

My greatest business partner mistake

I’m often asked, “What’s the greatest investment mistake you’ve ever made?” I’ve made many, but as I sorted through the myriad blunders and mishaps throughout my career, I found one common thread among them all: not trusting myself. It may have been driven by fear or wanting the too-good-to-be-true story to come to fruition. Here’s the most memorable:

Years ago, Robert and I attended a weekend seminar on stock trading in North Carolina. While there, we met Stewart, who founded and operates a hedge fund. If you aren’t familiar, a hedge fund is a private investment fund that uses investment strategies to allow the funds to make money in the ups and downs of the markets. Hedge funds are unregulated.

We spent three days with Stuart and discussed his fund. Several knowledgeable investors we knew were investing with him and telling us about the incredible returns they were receiving. That certainly seemed promising. We were interested — so interested, in fact, that we made a special trip to his firm in Florida to do our due diligence on his company.

The man claimed to have designed a unique and confidential trading system that was at the core of his success. We met his executive team, the traders, his administrative assistant, and the receptionist. He had just moved into very plush offices. I made a mental note of the high overhead. It all appeared to be as we were told.

That night, he and some members of his executive team took us out to dinner at an upscale steakhouse. We were enjoying our evening. But after several glasses of wine, Stewart and his cohorts turned into the most obnoxious, rude, womanizing and embarrassing people I’ve ever been around. It was like Jekyll and Hyde. Diners seated near us literally got up and walked out because of their crude remarks and antics. I should have walked out too, but I didn’t.

The next morning, I justified the entire evening in my head by convincing myself that maybe it was just a fluke. Maybe this man was just letting off some steam. “Can I really judge a person’s character from one incident?” I asked myself.

So why didn’t I trust my gut at that point? Well, it simply came down to greed. The returns on his investment were far beyond the averages. People I spoke with who were investing with him sang his praises. I could certainly overlook this one flaw if it meant I’d make a lot of money, couldn’t I? I rationalized it all.

So, Robert and I did invest money with him. The statements we received did show beautiful returns — on paper. We were about to invest more money into this hedge fund, when Robert brought home a copy of a well-known investment newspaper. On the front cover was our friend, Mr. Hedge Fund, sitting in a beach chair on the beach with the headline: “Would You Trust This Man with Your Money?”

At first, I was shocked. Then I began defending the guy, thinking it was probably a disgruntled employee wanting to get even. I assumed it would all turn out to be a lie.

Well, there was a big lie — his. This man conned his investors out of millions of dollars. He spent their money on a new house, new boat, country club memberships, new office digs and more. The bottom line: He’s now in prison for many years. The investors got about 10 percent of their money back. That’s all.

The lesson for me? Had I trusted my gut at that defining moment at dinner, I never would have joined Stewart as an investor partner. I learned from then on to trust my gut, my intuition, my instinct. Because of that event, I decided that I will only have business partners with whom I want to go do dinner — and that’s how rule number three above came to be.

Who are your business partners going to be?

Each partner should contribute to all aspects of the business, including money, property, labor or skill. And in return, each partner shares in the profits and losses of the business.

Before moving forward with any business partnership, it’s important to take the time to think about your goals, the people you are considering, and what they bring to the table. A good partner is priceless. I am very fortunate to have very good partners around me today.

Original publish date: February 27, 2014

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