Relationships can be tricky. Put the right steps in place before you hook up with a partner
PARTNERSHIPS are attractive models for operating a design firm. They can also be tricky business models to run successfully, because in addition to keeping your clients happy, you need to ensure your partners are happy too.
Write it down
Don’t underestimate the value of a document that outlines all of the key issues that are important to your business. In a true partnership, the partners share the risks and rewards of operating the company in proportion to the amount they own and control. But partnership agreements extend beyond simply the percentage of ownership; they should also address issues such as succession planning, key roles and individual responsibilities. This level of business planning must involve an open and honest discussion with your potential partner. Unfortunately, emerging designers often make the mistake of jumping into business partnerships without fully exploring, discussing and agreeing on ways to handle these important issues.
That’s the mistake I made with my first business alliance. We joined forces on a handshake, registered a partnership and started our business. When we ended our relationship in 2003, we divided our assets and the clients easily and amicably. We were fortunate – it doesn’t always go so smoothly. Had we had a binding partnership agreement in place, we would have avoided any potential conflicts over which client belonged to whom and how to split company assets.
Don’t overlook the importance of engaging outside professional help to structure and draft a proper agreement. While many emerging design firm owners balk at the costs associated with legal fees and lawyers, it is better to agree on key business issues up front so that everyone is on the same page. Since people tend to only remember parts of conversations that benefit them, make sure any agreements you do make are put in writing and the copies are provided to each partner.
That’s what Scott Christie of Toronto’s Pylon Design did. Before bringing on his first business partner in 2000, Christie made sure lawyers and accountants drew up a partnership agreement to ensure that both parties were treated fairly. “I had to get the lawyers and the accountants involved early,” notes Christie, “to make sure we did things properly.” While Christie admits that the first partnership agreement took longer to put in place than the second, it became the template for subsequent agreements. Indeed, Pylon added its third partner last year.
What agreement?
The word “partnership” gets thrown around a lot in design circles. Most notably, people like to talk about “strategic partners.” While a client might like to hear that you have strong relationships with talented individuals, they aren’t real business partnerships. A true partnership must have some type of agreement that binds you together in the business.
That’s not to suggest that forming strategic relationships with other providers isn’t a sound business decision; generally speaking it is. A strategic relationship is like dating; a partnership is like a marriage.
Relationships evolve over time. And, just like dating, things can get serious and ultimately lead to a broader, deeper relationship. At Pylon, this is how it found its third partner.
Bringing new partners into a firm can be challenging. One tried and true method is to have them purchase a percentage of the company. Essentially, one partner is selling a proportion of the company to the other. Before you can fairly determine the purchase price, you need to have your business properly assessed by an independent party. Once you have agreed on a price, ownership can change hands. In the case of multiple partners, the methodology for adding new partners to the mix should be clearly spelled out in any agreement.
Ideal partnerships are those where the total value created exceeds the sum of the individual’s contribution – both financial and sweat equity. And remember, you pick and choose your partners. If you find the right people who share your vision, consider a partnership. As your business grows, you may appreciate the company.
Article originally published in Design Edge Canada magazine. www.designedgecanada.com
