I have been in every kind of business partnership. Good ones, bad ones, the ones that started good and got bad, the ones that were bad from the day we signed and I just didn't know it yet. I wrote a whole book about it. The book is called Founder Fallout. It is one hundred questions every entrepreneur should ask their potential partner before they share equity. I wrote it because I have paid the tuition on almost every one of those hundred questions personally.
This essay is the shorter version of what I think most entrepreneurs get wrong about partnerships, and what I would tell my younger self if I could sit him down before he signed the first one.
The first mistake is treating a partnership like a hire
Entrepreneurs interview their first hires for months. They call references. They do trial projects. They negotiate offers over weeks. Then they sit down with a friend at a bar, agree to be partners in an entire company, and shake on it the same night. The imbalance is insane and almost nobody sees it while they are doing it.
A partner is somebody who can't be fired without a legal fight, whose personal disasters become your company's disasters, and whose opinion on every major decision has weight equal to yours whether you want it to or not. You are marrying somebody's judgment and their calendar and their credit report and their spouse's opinion of the business, all at once. And the whole marriage runs on documents that most first-time entrepreneurs can't read carefully because they are too excited to slow down.
The fix is to build a real courtship period before you agree to anything. Six months minimum, working together on something real, with money at stake, before the word partner comes out of anybody's mouth. If your potential partner will not do six months of paid consulting or co-project work before you talk about equity, you already know the answer. That is a person who wants the safety of being a partner without the accountability of showing up first.
The second mistake is assuming your values match
Entrepreneurs use the word values to mean twenty different things and rarely bother to define which one. Values on paper are cheap. Values in a hard week are the only ones that count.
Here is a test I run now. Ask your potential partner what they would do if the business had a cash crunch that could be solved in one of two ways. Way one is to lay off ten percent of the team, keep everybody's benefits paid through the year, and be honest with the layoffs about why. Way two is to keep everybody, cut benefits for the whole company, and blame the vendor whose contract change caused the shortfall. Both are legal. Both are common. If you and your partner don't answer the same way, you don't have matching values. You have matching vocabularies.
The version of this that hurts more is the money version. Ask your potential partner what they think a founder should pay themselves when the business is scraping by. Ask what they think a founder should pay themselves when the business is doing well. If their answers are far from yours in either direction, you are going to fight about founder pay every six months for the life of the partnership. Better to know now.
The third mistake is avoiding the bankruptcy conversation
Most entrepreneurs will not talk about failure with their potential partner because they think it is bad energy. That superstition costs more than any other superstition in business. The bankruptcy conversation is one you must have before you sign anything, and you must have it in specifics, not in generalities.
What specifically would you do if the business ran out of runway and there was no more capital available. Would you personally guarantee more debt. Would you pay employees before vendors, or vendors before employees. Would you file, or would you try to work it out with creditors. Would you resign, or would you stay. If your partner has never thought about these questions, that is a bad sign. If they have thought about them and their answers are far from yours, that is a worse sign.
I have been through two bankruptcies before Murphy Door. I know exactly what my answers are to every one of those questions. I know because I have had to live them. My current partners know my answers before we sign, and I know theirs. That conversation is one of the most important two founders ever have, even though nobody enjoys it.
The fourth mistake is fifty fifty
Fifty fifty feels fair, but it guarantees you will not be able to break a tie when the tie matters most. The first serious disagreement will either freeze the company or it will destroy the partnership. Sometimes both.
I understand why entrepreneurs do it. It looks like the friendly answer. It looks like the answer that says nobody is more important than anybody else. What it actually says is that neither of you was mature enough to have the harder conversation about who is really the operating partner and who is the supporting partner, and now the company gets to pay for that immaturity every time the two of you disagree.
Somebody in a partnership needs to have the last vote. The person with the last vote is not necessarily the person with more equity. But the last vote needs to be assigned before you start, in writing, and both partners need to agree to it in a room where they are calm. Once you are in the middle of the fight, you cannot fairly assign the last vote. You are already too angry.
The fifth mistake is not writing down the exit
Partnerships end. Every partnership ends. Sometimes by a sale, sometimes by one partner buying the other out, sometimes by death, sometimes by a fight so bad it makes the news. Every partnership will end one of those ways, and the paperwork you sign at the beginning is what determines how much that ending costs you.
Most first-time entrepreneurs sign a boilerplate operating agreement without reading the buyout clauses. Then five years later, when a partnership is ending, they discover that the buyout formula is going to cost them their house because nobody thought about it when they were excited about the launch.
Have the exit conversation before you sign. Write down the buyout formula in real numbers. Write down what happens if a partner dies. Write down what happens if a partner wants out for a personal reason. Write down what happens if the business gets an offer that one of you loves and the other one hates. All of these happen. You are being honest about the future in a room where nobody is angry yet, not pessimistic.
The sixth mistake is thinking friendship protects you
Every entrepreneur I have ever met who ended a partnership badly was surprised. Not because they didn't see the risk. They saw the risk. They believed the risk didn't apply to them because they and their partner were friends. Friendship, they thought, would keep the partnership honest even if the paperwork didn't.
Friendship does the opposite. Friendship is what makes you skip the paperwork in the first place. Friendship is what makes you not want to have the bankruptcy conversation, because it feels rude. Friendship is what makes you take fifty fifty. Friendship is what makes you shake on it at the bar and figure the operating agreement out later. Everything friendship does inside a partnership makes the partnership more fragile, not less.
The best partnerships I have ever seen were between people who liked each other but didn't need each other's approval. Those people signed clean paperwork, had the hard conversations up front, and stayed friends because the paperwork removed most of the reasons to fight. The worst partnerships I have ever seen were between best friends who thought paperwork was cynical. Those partnerships ended in silence and lawyers.
What Founder Fallout is actually for
I wrote Founder Fallout because I wanted a version of the courtship period on paper. Not a book about partnership theory. Not a book about how to network. A book of one hundred questions you and your potential partner sit down and answer together, out loud, before you sign anything.
Some of the questions are boring. What time do you start work. Some of them are hard. What is the largest sum of money you have ever lost, and what did you tell your spouse about it. Some of them are direct. Would you fire me. Under what conditions. What would you say to me first. What would you say to the team.
The book is a hundred of those. Founder Fallout is a workbook you fill in with the person you are thinking about tying your business to for the next decade, not a self-help book. If both of you can sit through the whole book and still want to be partners after, you have earned the partnership. If either of you cannot make it through the book, you have saved yourselves years of pain and probably a lot of money.
Founder Fallout is out now. You can get it direct on this site for twenty-four dollars and ninety-nine cents. It is also on Amazon in paperback and Kindle.
The shortest version
Do not treat a partnership like a hire. Do not assume your values match. Have the bankruptcy conversation. Do not do fifty fifty. Write the exit down before you sign. And don't let friendship talk you out of any of the above. The best partnerships I have ever been in look, on paper, like the least romantic ones. They are also the ones that lasted, and the ones that let the friendship stay a friendship after the business either grew or ended.
If you are considering a partnership right now, the assignment is simple. Read Founder Fallout together before you sign. If your potential partner will not read it with you, you already have your answer.