Yale Case. By: Lacey H. Wismer / Billy Bennett / A. J. Wasserstein
This study explores the dynamics of entrepreneur partnerships within the SF ecosystem, highlighting the importance of partner selection, the impact of friendships, and strategies for maintaining successful business relationships. It is hard not to invoke the marriage metaphor when considering entrepreneurial partnerships.
According to the 2024 Stanford SF Study, 19% of the new SFs in the past 2 years were partnerships, down from 41% in the previous two years. In 2008–2009, partnered searchers reached a zenith at 64% of total searches for the cycle. Furthermore, partnered searches have historically generated a 40.5% IRR compared to a 30.3% IRR for solo searches. The partnership decision for searchers is crucial and requires careful consideration, though we can’t yet confirm it’s the superior choice.
This case note explores 4 key considerations related to partnerships:
1. Positive Aspects:
– Increased bandwidth: Partners offer more capacity to handle tasks and challenges, speeding up industry exploration and deal management.
– Complementary skills: Partners with diverse skills can balance each other’s weaknesses and enhance confidence and effectiveness in managing the business.
– Emotional support: A partner provides crucial emotional stability through the ups and downs of the entrepreneurial journey, reducing individual stress.
– More and diverse perspectives: Partnerships bring varied viewpoints, improving decision-making and reducing the risk of narrow, biased analysis.
– A true equal: A business partner is the only equal who fully shares and understands the challenges and emotions of the venture.
– Expanded networks: Two partners double the professional and personal networks available, offering more resources and opportunities for the business.
2. Counterarguments:
– Diluted economics: Partners often receive less equity individually compared to solo entrepreneurs, potentially reducing their share of financial returns.
– The need for a larger deal: Partnerships may require pursuing bigger deals, which can lead to increased competition, higher costs, and operational challenges.
– Processing decisions bilaterally: Partnerships necessitate joint approval for decisions, which can slow down processes and introduce friction.
– Testing relationships: Partnerships based on pre-existing friendships can strain or even end those friendships due to business pressures.
– Considering spouses’ deeds: Two partners mean accommodating the needs of four individuals (two entrepreneurs and their spouses), complicating decision-making and creating potential conflicts.
– Possible success disparity: One partner might outshine the other, leading to unequal compensation, board support, and potential emotional and professional issues.
3. Selection Criteria:
– Locating a partner: Ideal partners can often be found among business school peers, college friends, and professional associates, where existing relationships provide a foundation for vetting compatibility.
– “Dating” a potential partner: Assessing a potential partner requires extensive discussions and tests to ensure alignment in values, goals, and work styles.
– Deciding whether the partner needs to be a friend: Partnering with a friend can ease initial interactions but may complicate professional boundaries and performance feedback.
– Considering non-traditional partners: Familial partnerships offer deep familiarity but come with unique risks and potential investor concerns.
– “Divorcing” a partner: Discussing potential separation terms early is crucial to managing expectations and avoiding contentious disputes later.
– Expanding the partner-shopping pool: For those without a ready partner, exploring broader networks, attending ETA events, or using matching platforms can increase the chances of finding a suitable collaborator.
4. Thriving Partnerships:
– Establish a clear, mutually-agreed-upon north star: Agreeing on common goals and expectations from the start aligns partners and helps prevent conflicts.
– Divvy up the pie and stay in the right circle: Clearly define and respect each partner’s responsibilities to avoid encroachment and maintain effective collaboration.
– Communicate: Regular, honest communication prevents small issues from escalating and supports a healthy partnership.
– Work with a coach: Engaging a neutral coach can provide objective feedback, de-escalate conflicts, and aid in ongoing partnership development.
– Check the egos: Managing egos and embracing humility helps prevent personal issues from undermining the partnership’s effectiveness.
– Respect each other’s tics and quirks: Accepting each other’s idiosyncrasies while focusing on shared goals prevents minor annoyances from affecting the partnership.
Conclusion
In an ETA project, a partnership can provide valuable skills, support, and reduced isolation, but it also comes with challenges like potential equity costs and the need for a decisive leader. If considering a partner, thorough and frequent dating is essential to find the right fit, and partners should be open to candidates beyond their current circle. For a partnership to succeed, proactive efforts in communication, working with coaches, and respecting each other’s roles are crucial. Read the full case in: https://yale.app.box.com/s/fk88ef1ri1fl70xo5njeylvmfl6vgvdh
