When A Key Employee Should Become a Partner

Learn how to direct this process at an upcoming event in Nashville on September 23, but let’s look at the timing, first. Things are going well at your firm and for several years a key employee has demonstrated unusual leadership. They’ve taken over some of the roles that you’ve never been able to let go of in the past, and you’d hate to lose them. The team at large already respects their role and they’re functioning as if they owned the place (in a good way) already.

There are keys to help you know when and if you should move forward in making them a partner. You should consider moving forward:

• When they are pushing for it. If they are insisting on it, danger lurks ahead and they may harm you by taking clients and employees. But if they aren’t pushing for it in a kind way, don’t consider it. The best partners are confident and they want to lead from a partnership perspective.
• When they are willing to take risks. I use a specific tool that I’ve validated across 1,340 successful entrepreneurs at creative firms, and it’s been accurate 99.7% of the time, but there are other ways to measure this. Are they willing to put some money on the table? It could be money they bring from the outside, or it could be money that you give them before they decide to buy shares or spend it on a boat. But who would say “no” to an offer that requires no sacrifice on their part? No one, which is why no-risk partnership arrangements are such terrible indicators of success.
• When you are willing to publicly anoint them. Secret anointing is a phrase that describes a special arrangement with someone outside public scrutiny. You want to benefit from that secret anointing, but you don’t want anyone else to know that you’ve singled that person out. Partnership doesn’t work that way. When you select someone for a special arrangement for the right reasons, you can’t wait to let everyone know. In fact–and this is another interesting test–it will hardly surprise anyone! That’s a great sign that you’re making the right decision.
• When there are no financial secrets. Chances are good that this person already knows the top line, everything about client relationships, and what people make who answer to him or her. But anyone singled out for actual partnership will have to know everything, including what you make and what everyone else makes. This is a simple but useful checkpoint on the path. By the way, if you’re nervous about that key employee knowing what you make, stop it already. If you have a good culture and people are being treated fairly, great leaders will not resent what you are making. They’ll respect it and look forward to the day when they can make that much, too.

So you’ve been reading this and checking your key person against these four criteria. If partnership doesn’t make as much sense as it did 5 minutes ago, there are some other options between the two extremes. I think of the progression like this:

1. Employee.
2. Key employee, manager, or leader.
3. Partner in training or principal.
4. Partner.

I’m very much against moving anyone onto the fourth tier except as a last resort and after thorough vetting, careful planning, and detailed partnership arrangements. For every great story you’ll hear about a great partnership track, there are five stories of exhausting failure. Do it carefully, and start by understanding when the timing might be right.