Decades ago, when I was starting out in commercial real estate (“CRE”), I approached a local businessman named Walt Brashier.
Walt was a self-made man and a real stand-up guy – hardworking, wise, and genuine. And he actually cared about people – both his employees and his community.
Knowing his reputation and his successes, I decided to pitch him for a partnership. That might have been a bit naïve considering the extreme differences in both our experience and wealth levels.
But, as
I wrote back in January, “I knew how much potential there was [in CRE] if I could only tap into it properly.” And while I was doing a pretty good job making my own way, “The right business connections, I knew, could make or break me. In which case, I wasn’t going to settle for anything but the best.”
Unfortunately for me, Brashier didn’t want to settle for anything but the best either. And, for him, that meant no partnerships at all.
“I’ve been there, done that, and found I’m better off without that sort of thing,” he told me. “It has nothing to do with you. I just don’t have partners anymore.”
Undaunted – and apparently more than a little hardheaded – I went on to search out more willing prospects. Only, as I learned the hard way, there was a very valid reason why Walt didn’t do business partners.
Because far too many business partners are busts.
A Hard Lesson to Learn
The way I put it in January is “You have to be careful – so very, very careful – about who you get into business with.” There are simply far too many people who aren’t right for the job.
Maybe they’re incompetent. Maybe they’re unethical. Maybe they’re a combination of the two, as was the case with my biggest partner.
I’ve written about him several times here on Wide Moat Daily – the man who insisted on owning 51% of our collective company and doing 100% of our bookkeeping.
I never saw our financial accounts once. That should have been my first clue it wasn’t going to end well. And it didn’t.
It has been over 20 years since that first big partner stole our shared money, bankrupted our firm, and somehow left me holding all the supposedly shared debt.
That was a hard lesson to learn as a younger man. And it took me more than a few years to dig out of that hole and set right my personal portfolio.
My hope is that you can skip that part and just learn that lesson the easy way.
It’s Not (Just) About Money
Partners should always be open about their mutual holdings – and even their side projects. It’s great if they have wealth to brag about.
However, will they be able to keep that wealth and help you grow your own? Those are the real aspects you want to focus on.
When I began as a real estate developer, I was far too focused on money alone in potential partnerships. In my defense, CRE is a capital-intensive industry. So, if I wanted to expand at a significant clip – which I did – I needed to have solid financial backing.
But a partnership – any partnership – is more than just money.
Today, I know to look beyond a potential partner’s wealth to how they made it and their attitude about it. If they:
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Are too interested in showing off their wealth
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Display a keeping-up-with-the-Joneses mentality
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Have no problem investing in trends without doing their due diligence
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Take on risky loans
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Refuse to take responsibility for past financial (or non-financial) mistakes…
… I walk away.
More often than not, those kinds of people rarely – if ever – work out as business associates.
Always Look for Honesty and Integrity
So what do I look for?
Honestly, I look for people like Walt Brasier, who passed away a few years ago. While he didn’t want to partner with me back then, he did take the time to mentor me – something he had absolutely no obligation or financial incentive to do.
Walt was a good guy on top of being a smart businessman. A man like that isn’t typically the type to swindle anyone out of their hard-earned money.
It’s just not in their nature.
That’s why it’s important to know a man, woman, or group well before you sign any contracts with them. Learn what their financial goals are and their overall opinions about money.
Hear them talk about their husbands or wives, and children if they have any. Ask them about their hobbies, what charities they support, and even their religious beliefs and politics.
Yes, you want to get that personal.
Successfully running a small business or venture involves so much decision-making – what to purchase, who to purchase it from, and in what quantities. Who to hire and fire. Where to cut back and when to move forward…
While no two people are going to agree on absolutely everything, the more aligned you are with a partner-to-be, the better. It’ll be a smoother ride for everyone involved, and probably a much more profitable one too.
An Appetite for Risk
Along those same lines, you need to understand each other’s risk appetites. You don’t want a timid business partner, of course, but you also don’t want a foolish one.
Someone who’s interested in expansion at all costs is someone who’s going to push very foolish business choices: the kind that leave a venture floundering and likely failing altogether.
One of my favorite books is called The Most Important Thing by Howard Marks. As co-founder and co-chairman of Oaktree Capital Management – the world’s largest distressed securities investment firm – he’s a pro at researching companies and individuals alike.
He writes that:
Skillful risk control is the mark of the superior investor.
I want to be in a partnership arrangement with someone who understands risk and who has dealt with overcoming adversity. Ideally, I would like the partner to understand the balance of “playing it safe” versus “going all in.”
If they don’t get that delicate balance, that’s just one more reason to walk away.
When it comes to forming a business partnership, you’ll be much happier in the end if you hold out for the best. There’s too much time and money on the line to settle for anything less than ideal.
Regards,
Brad Thomas
Editor, Wide Moat Daily
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