As we’ve been running our thought experiment, imagining what it might be like to present our creative practices on Shark Tank, we’ve had to face the reality that finding an investor for businesses like ours is never going to happen. We’re on our own in business. But while the investor path may be closed, we could find help in the form of a business partnership. Not only can a partner provide business or marketing skills that we may be lacking, partnerships often appeal to creatives simply because of the loneliness of being a solo-prenuer. Thus a partnership may seem like the perfect solution—but before you go down that path you might want to think about this major decision like a Shark.
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Personal Intro: [Music: I’m Eric Holter, and I’ve been a serial creative entrepreneur for over three decades. After graduating from Rhode Island School of Design in 1991, I could cut and print beautiful wood engravings. But I had no idea how to run a business. They just don’t teach enough about business in art school. End music.]
Running a business is hard work, especially when you’re learning by doing, rather than having been prepared for it. Most creatives follow their passions into business, rather than a well thought through business plan. It’s not until we’re already far down the path, facing difficult business realities—we didn’t consider at the outset—that we realise we might need help. And finding a business partner may seem like the perfect solution—but as with love, only fools rush in, where angels fear to tread. And a hastily formed business partnership may very well come back to haunt you.
Of course there are partnerships that mutually benefit both parties and contribute to a successful business. But thinking through all the implications and long-term consequences of forming a partnership, and spending time to formalize a well-constructed agreement, are prerequisites for making one work.
Before you enter into a partnership there are at least three main issues to consider. First, the kind of partner you’re looking for, second how much equity you’ll have to give up (and what the value of that equity is), and third, what will happen if and when the partnership needs to dissolve. Let’s consider each of these questions in turn.
What kind of partner is best for you? Should you look for another creative who can help you get more work done? Should you find a business expert who can handle all the non-creative aspects of running a firm? Or are you looking for a sales expert who can keep clients rolling in? Making this decision largely depends on your long-term goals for how big of a practice you’d like to have. If you want to keep things small another creative might be your best bet, if you want a handful of staff then a marketing person might be a good fit, but if you want to grow as big as you can, then you’ll need someone with a lot of business experience.
Of course, as soon you begin negotiations with a potential partner you’re going to have to decide how much equity you’re willing to give them, and at what valuation. Even if the partner isn’t paying cash for equity, but rather will contribute their services, they will still pay tax on whatever your paper valuation may be, so one way or another you’ll need to establish value. Which, as we’ve considered in previous episodes, can be quite difficult for a creative practice, especially when the process reveals that your business has been running on an essentially break even basis for years.
When it comes to the equity distribution question, be weary of 50/50 partnerships. While most creatives aren’t terribly concerned with the profit distribution aspects of equity ownership, the control side of equity is where all the conflict is likely to come. And if you make a 50/50 deal, it’s only a matter of time before a strong disagreement threatens the very survival of the company itself.
In the early stages of negotiation, it can be hard to think about the possibility of a partnership failing, since both parties are excited and optimistic. But in reality most partnerships do fail. And so you should plan on working with an attorney, to lay out all the possible ways things could go wrong—which lawyers are great at pointing out—and how those eventualities will be resolved. If you wait until a conflict occurs, it could be too late.
Partnerships are common for creative entrepreneurs. But so are partnership failures. So when you consider this option, go slowly, plan thoroughly, and think like a Shark so that you’ll have a strong platform for success.
Until next week: don’t let the business of creativity overwhelm your creative business.