Every business starts with one or two people and, if it grows, soon new people need to be added to the team. Carefully selecting who to work with and how to structure that relationship can mean the difference between success and failure of the business, and how likely you are to end up in a courtroom some day. Developing smart business collaborations doesn’t have to be complicated.
There are simple pre-planning steps that greatly increase your likelihood of successful working relationships with others. Use these steps to create a plan and then reduce it to a written agreement. Having a lawyer help you is a best practice, but even if you don’t involve a lawyer, get it in writing, even if it’s just an exchange of emails. Whether through forgetfulness or bad faith, someone is later going to dispute what the agreement was and you’ll need a written record of it.
Be specific about each side’s contributions
Whether you are starting up a catering business with a friend, creating a strategic partnership with another company, or are working towards an IPO launch, you need to decide up front (1) what you are trying to accomplish; and (2) what each collaborator (including you) brings to the table. Are you bringing expertise, capital, connections, or something else? What is the other person contributing that is of value to you? Write these things out because they will become part of your written agreement.
Determine the legal structure of your relationship
As you take a look at the list of contributions that both sides are bringing to the table, you may realize that you don’t need a business partner you may just need an employee. Think through these questions. Do you want to share business ownership with someone else? Do you plan on sharing revenue? Sharing liabilities? Who will own the result of your efforts? Who will control the outcome or the way things are done? Who is required to contribute revenue to the project?
If you want maximum control over the work and other person, odds are you want an employee. Sometimes an independent contractor relationship is appropriate; you have less control over how, where, and when they work, but can determine the outcome you need. Sometimes a strategic partnership between two businesses is the way to go. Sometimes you want (or need) a fellow business owner.
Plan for problems (and endings)
Finally, plan for problems to arise and how you will resolve them. What if you and your business collaborator disagree about how to proceed on an operational issue? a financial issue? If you want to make decisions jointly, what do you do when there is an impasse?
First, test your working relationship. Don’t even consider a collaboration that involves shared company ownership (such as a corporation or LLC) or long-term obligations without a tryout period. Think courtship, not immediate marriage. Some people work very well together, some don’t, and it’s hard to know until you have tried it out for a short period of time.
Second, agree up front on a decision-making process in the event of an impasse is one of the easiest ways to avoid disputes that could end up in court. Something simple is always best. For example, you can specify in advance that collaborator A gets the final say on financial matters, and collaborator B gets the final say on operational matters. Or you could designate a trusted friend (with their consent) to act as a tie-breaker. Or you can use the time-honored game of Rock-Paper-Scissors.
Finally, plan in advance for endings, a sort of business prenuptial agreement. Every collaboration is going to end at some point, either because it no longer works or because it has fulfilled its purpose. What happens when the collaboration ends? Who gets the mailing list? Who gets the money? Who gets the bills? Decide in advance, or you will surely fight over it later.
Following these simple steps will get you well on your way to having smart and productive collaborations with others.
Melody A. Kramer is a business trial and transactional attorney, Founder of Legal Greenhouse, and Hera Hub Guru for legal contracts. She is also a speaker and author of the book “Why Lawyers Suck! Hacking the Legal System, Part 1.”
Follow her on Twitter – @MelodyAKramer