** 73rd book of 2020 - 同床异梦 - Same Bed, Different Dreams **

‘It’s easier to hire an employee than to find a partner.’ Partners in business are a dicey proposition. If you were to ask me to hire employees I couldn’t fire, or bosses that I couldn’t leave, I would simply say ‘no thanks’ and look for the next opportunity. There’s just too much that could go wrong, and I’d prefer to take either complete accountability, or none at all.

But this isn’t how the world works. In investing, partnerships seem to be the norm and in the last few months I’ve found myself embroiled in a few partnerships that presented opportunities too good to pass up. In VC, it’s considered a red flag if a founder has not been able to convince at least one other person to share the risk and reward. Key lessons I took away:

  1. Monitor partnership health with all the tools you would use for employees: This means performance management, feedback, roles and expectations, and aligning about key goals and deliverables.
  2. **Build charters to align on expectations **up front: An operating agreement is great, but better is a partnership charter that lays out different areas of potential disagreement. Ideally it will include strategy for the partnership such as how the business will grow, and long term roles for each member of the partnership. The smaller the partnership, the more similar the goals need to be for each member in the partnership.
  3. Fairness will be rectified, even if it is not addressed. a. When one party feels like they are getting a raw deal, it is easy for them to adjust down their amount of commitment in order to even the scales. This can often lead a death spiral for the partnership as the partner getting the better end of the deal ends up more frustrated with another’s lack of performance. The death spiral leads to arbitration or litigation, both of which can be the death of a partnership. b. A good way to ensure fairness is to make sure that capital commitment doesn’t get misaligned with ownership.
    c. Fairness is in the eye of the beholder: “A lion, a jackal, a leopard, and a gazelle kill an antelope and prepare to devour their kill. The lion roars, “We must divide our antelope into four parts. The first part goes to me because I am king of the beasts. Due to my strength, I deserve the second part. The third part goes to me because of my courage. Regarding the last quarter, any one of you who cares to dispute it with me can do so at his own risk. ”
  4. Plan for Ownership Changes: If things are successful, you’ll want to plan for the following contingencies: death, divorce, disability.

None of this makes me think that partnerships are an inherently unstable proposition, but at least there are good ways to mitigate risks, now we’ll wait a few years and see if the advice proves useful.