Collaboration and partnership in business: 7 things to do to avoid a messy ending
Being in the online and small business world both as a lawyer and a small business owner, I often hear from business owners who wish to collaborate with someone else, but don’t necessarily want to merge their businesses. For example, they might want to hold a joint workshop or retreat, co-host a podcast, write a book together, create a product collaboratively, run an online course together or create a mastermind or masterclass in partnership.
Ready to collaborate and need an agreement? Take a look at these helpful legal templates:
All of these approaches can be powerful ways to combine your own expertise with someone who has a complementary skill set. Recently, I created a business collaboration contract for two people who wanted to work together to create a cookbook. One knew how to create recipes for the cookbook, but didn’t have the expertise to make meal plans or do calorie breakdowns of meals. So, in this case, the recipe creator joined forces with a nutritionist. They sought out my help to document what they had agreed on about the creation of the cookbook, the book launch and ongoing sales, among other details. We have also helped people with similar arrangements where they wish to join forces to present an online course or series of workshops.
Collaboration and partnership in business can be an excellent way for business owners to get exposure to another audience they might not have been able to reach before. This is because you are combining the pulling power of both parties in terms of customer and client bases.
But there are some risks involved when partnering with other business owners, as you are putting some of your personal reputation and intellectual property into the hands of someone else. Then there is the murky area of what you bring to the collaboration versus what you create together in collaboration with the other business owner.
A common issue that I hear about is where sales might be split 50/50, but one person in the partnership is pulling more of the weight in terms of workload. So if you are considering collaboration in your business, read on for the 7 things you should do to avoid things going pear-shaped in your future collaborations.
Obligations
From the outset, you need to be crystal clear on what the expectations are when it comes to working together. If you go into an arrangement, it should be with your eyes open and this means thinking of all possible scenarios. This is where having a lawyer act impartially and without emotion, to create a business collaboration contract, can really help.
I have seen cases where someone ends up doing 90% of the work, but they split the sales 50/50 and resentment builds up. Or, it can be a case where someone puts in more effort into marketing the product or service or simply has more people on their email list to market to. There are a number of ways in which partnerships or collaborations like these can become challenging.
That is why I recommend you include a Project Summary in a Collaboration Agreement that details what each person will do. This is about getting down to the granular details of what is involved. As an example, if two business owners are hosting a podcast, there would be a number of considerations such as:
Who is to pay for the production costs?
Who does the recording?
Who locks in the interviews?
What happens if one person gets really busy working on something else and cannot commit to the agreed publishing schedule?
These are examples of the detail that should be articulated and recorded in an agreement before you dive into any collaboration.
Putting money into the collaboration
Considerations such as who is going to put money (or capital) into the product or service to promote it and build it, is important. So when a business lawyer like myself gets involved, we tend to ask questions about what the initial capital is, what each party’s effort is, such as role and day per week commitment along with what the revenue stream split is, based on the other contributions. We also look into a range of other considerations, such as:
How much money does each person need to put in to make this work?
What happens if the partnership gets to a point where they need more money, who will fund that?
At what point will someone indicate that the partnership needs to end?
How much money can one person spend without the approval of the other partner?
What is the ongoing expense budget?
If one person pays for something on their own, how does that get recorded in terms of capital expenditure coming back to them?
What are the obligations of undertaking this collaboration?
As you can tell, there are lots to consider in this area, and sadly when it comes to talking about the finance side of things, this is where even the best of friends can come undone.
Intellectual Property
Another thorny issue crops up around intellectual property, or the ownership of ideas and resources. One person might create a larger amount of the intellectual property in your project, or bring more valuable intellectual property to the project. This can include the disparity between followings on social media profiles, who owns any website, online course or other product or service that may have been developed, or brought into, the collaboration.
To face these issues head-on at the start of a collaboration, I suggest you ask the question, “who owns what”? This will help you work out who owns these pieces of intellectual property. Then consider, can either party take it and put it in their own business or do they only own the elements each person created? If the partnership ends, what can you take to use in your own business? In this case, we usually address intellectual property owned solely by each party and intellectual property owned jointly between the collaborating parties. Think of it like a pre-nuptial agreement (or pre-nup) for your business.
Confidentiality & competition
The issues of confidentiality and non-compete clauses also need to be addressed in a business collaboration contract.
Confidentiality is important to protect both the confidential details shared by each of the collaborators about their own business but also the confidential information created as part of the collaboration.
Non-compete clauses are also crucial to protect you from the other collaborator taking all the jointly created information and using it for their own benefit without sharing profits. Make it clear from the outset what each party can and cannot do.
Record Keeping
If you’re in a collaboration or partnership, I recommend that you look at keeping a detailed written record of the effort you put into the project so you can track it. You want to make sure that you can show you've been doing what you said you would do.
You might think it’s pretty obvious what you have contributed, because, for example, your involvement included posting on social media, and those posts are visible to the world. But, there could be a lot of effort that's hidden in that. Such as talking to people, teeing up sponsors etc. So it's really important to ensure that transparency of contributions, both financial and non-financial, tangible and intangible, is apparent to all.
This is especially important if the collaboration is only a small part of your core business. There is often a temptation not to document it. Documenting these elements means you have metrics to rely upon in the event that something doesn’t work out.
What if the partnership doesn't work out?
When first entering a collaboration, you should discuss the timelines of the agreement. At that point, it is also worthwhile to discuss if either party might be able to opt out at any point.
Then consider, what happens if a party wants to opt out? And if they do opt out, can the other party buy out their shares? If so, how do you value that share?
As an example, an agreement might detail that they give the leaving party back the money they put in. Or, they might pay the leaving party the value that they created to date, in the project.
Sadly, what I often see happening is an agreement isn’t in place, so when someone does want out, it can all get messy quite quickly and even turn nasty. However, for those that consider, plan and document all of these elements, the collaborations work more effectively, and they go on to other fruitful collaborations as well.
Growing beyond the initial phase
Another consideration in a business collaboration agreement should be what happens if the product or service is a great success, how do you determine the success of the collaboration? Working out the indicators of success or significant growth is important. Your indicators of success might be different to your collaborator. It could be an increase in subscribers, additional opportunities that arise as a result of the collaboration such as ambassadorship, or even a determined level of engagement on social media.
A review every six or twelve months can be a good thing to include as well. Setting in place benchmarks can be a great way to grow the partnership beyond the initial stages.
Milestones
It might be the case that both parties initially agree to have another look at reviewing and refreshing their agreement when they hit a certain milestone.
As with all partnerships, both business or pleasure, it’s a reality that great friendships can fall apart and great professional relationships can fall apart. So the more you can document and put in place in a formal agreement, the better chance you have of maintaining a friendship or professional relationship in the future.
This is where getting a lawyer with the experience to draft a business collaboration contract can be worth its weight in gold. We are impartial people who will ask the right questions and provide suggestions for a whole range of potential issues that we know come up in a range of collaborations.
Collaboration and partnership in business can be a good way to get exposure to another audience they might not have reached before. But it’s not without risks. Ensure you cover your bases first.
Related: Keeping it confidential: When to use a non-disclosure agreement
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Take a look at our Business Collaboration Template or to discuss your specific collaboration needs with Emma, book in a free initial call.