What’s the most important feature of a good partnership?

Most people instinctively react to this question with one of two responses:

• A partner should complement your skills and experience, filling in the gaps and adding greater breadth so that together you can cover more bases.
• You should choose a partner that you get along with at a personal level because being in business can be quite an intense experience. You want to be confident your partner will stick by you through thick and thin.

Both of these points are valid but in my experience they may not be the most important feature of a good partnership.

Critical to the success of any partnership is the alignment of interests.

I first learned this lesson (yes, there were many subsequent reminders) in the context of the first company acquisition I witnessed back in 1988.

A local technology company was acquired by a European multinational in order to expand their footprint in Australia. The owner of the local company was paid a significant lump sum for the company and was placed on a salary with some (but limited) upside.

Whilst the owner was a decent fellow, he was an entrepreneur at heart and was constantly looking for new opportunities. Now wealthy in his own right, he was focused on his own future and his interests were not properly aligned with the parent company.

It wasn’t long before instead of securing new opportunities for the parent company, he took advantage of his situation to create a new business for himself on the side.

One can argue the ethical issues associated with his behaviour but the problem with the situation was that the acquiring party failed to ensure alignment of interests between themselves and their new local chief.

The very nature of an entrepreneur is to seek out and exploit business opportunities. Partnering with an entrepreneur therefore requires an honest appraisal of each party’s motivations to ensure that mutual interests remain aligned. Importantly, as business circumstances change, you must constantly reappraise alignment.

It sounds easy but, in fact, the more you think about these issues the more you realise that it is not something that can be taken for granted. Most people consider themselves ethical in their behaviour but it doesn’t take much for parties’ interests to diverge, even though superficially they may appear aligned. The aggrieved party invariably interprets the divergence as an ethical failure. Maybe so … but the challenge is to remove “unethical” motivations.

I have since seen misalignments in investment deals as well as new business ventures and have spent considerable time negotiating shareholder agreements, Memorandum of Understandings and Term Sheets with the express purpose of teasing out underlying motivations to ensure alignment can be achieved.

It doesn’t always work, but understanding what needs to be achieved is a great start.

Doron Ben-Meir has been an active venture capital manager for the last eight years. He founded Prescient Venture Capital and prior to that was a consulting investment director of Momentum Funds Management. He was a serial entrepreneur over a 12 year period, co-founding five new technology based businesses.

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