Corporate Feature: Picking your Partners

So you’re ready to plan out your new MLM business with must-have product, the hottest comp plan to hit the streets, a rock-solid business plan, and startup financing. You are going to work for the next few months on getting ready for your launch.

Wait. Before you go one step further, you need to make one of the most important decisions to impact your future business: Who will your business partners be?

Leaders of startup MLMs regularly ask me for the top reasons why MLM startups fail. Invariably, they’re trying to gauge their chances for success by making sure they have covered their bases. They are usually surprised by part of my response: From my experience, the second-most common reason why MLM startups fail is that the business partners realize they clash on too many points (it should come as no surprise that inadequate financing is the most common reason for failure). There is a strong tendency among prelaunch businesses to focus on the sales, infrastructure, and operational elements of their companies while giving woefully inadequate attention to identifying those who will be the best fit in the organization.

Don’t fall into this trap. Here are some critical issues you should address before choosing your partners (the term “partners” is used collectively to include shareholders in a corporation, members in an LLC, or anyone else with an ownership interest in the business):

• Do your prospective partners share a common vision and mission for the company? You must write these down and discuss what they mean. Find out if any of your prospective partners don’t believe in the vision and mission and are just tagging along because they see a significant financial opportunity. If a partner does not grasp the mission and vision, there are likely to be clashes down the road.
• What skill set does each partner bring to the table? Sure, it’s nice to bring family members into the business. But, although Uncle Joe enjoys reading PC magazines in his spare time, does he really have what it takes to oversee IT operations? Aunt Sally can keep the family entertained with her stories, but can she be equally mesmerizing in front of an audience of skeptical prospective distributors?
• Will the partner be content in a subordinate role? Among those companies that fail due to management clashes, collision of egos is a common problem. Everyone wants to be the big boss. Avoid this by clearly delineating the roles of each partner.
• Never assume that things will always be rosy between you and your partners. They seldom are. One of the worst things you can do is assume at the beginning of the relationship that you will be able to sort everything out if the partners eventually part ways because they can’t agree on important issues. This can result in the demise of the business. Create a specific exit strategy and include it in your operating agreement.

You plan on being in business a long time. Picking your partners is one of the most important and long-lasting decisions facing your business. Treat the decision accordingly. Be deliberative and impartial, and if things don’t work out, be prepared with a well-thought-out exit strategy that is properly documented in the businesses operating agreement.

Spencer M. Reese  Grimes & Reese, PLLC

Idaho Falls, Idaho, Office

615 Hoopes Avenue, Idaho Falls, Idaho 83401-6106, Tel. (208) 524-0699, Fax: (208) 524-5686E-mail: sreese@mlmlaw.com