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Top Ten Developer Considerations When Choosing a Business Partner

1. Talk to people you trust - ask for recommendations - a business person's reputation will generally follow him/her.
2. Talk to people who have done it - Talk to other coders that have partnered up. Ask who they talked to and if there were any other good candidates.
3. Network - Coders, I know this may be hard for you, but talking to people at events is a great way of identifying people to work with.
4. Twitter Network - Call out to your followers for advice.
5. Interview Candidates - take your time talking to candidates. Look for ability, accomplishments, personality fit, and similar views on how businesses operate. I can't stress personality fit enough. You will need to have great rapport and trust with your partner, so look for someone you can work with.
6. Candidate's Business Network - I like business candidates who have an extensive list of people to call on. Those networks will accelerate your business development process.
7. Skin in the Game - Sweat equity is nice, but a person willing to put some of their own money into the venture demonstrates their commitment to the project.
8. Ask for a Strategic Plan - If sweat equity is a big deliverable for your business partner or you have uncertainties about their ability, protect you interests by having an equity vesting schedule based on certain targets (I am ignoring the concept of equity options since we are talking a novice business). Ask your business person to deliver a high level strategic plan for your business. It doesn't need oodles of detail, but it should indicate where the business will go, how it will get there, and certain metric targets at various points in time (ie, revenue or install base in year 1,2, and 3. Use those metric targets to create a equity vesting schedule. Therefore, you don't need to immediately grant equity in the company - it will only vest if he/she delivers on their promises (and we know how business can promise).
9. How Much Equity to Give Up - There is no easy answer; it is a function of how far along the business is, revenue coming in, and how badly you need additional capital or skill set. My rule of thumb (please don't take these as correct or precise instruments): Idea/rough prototype stage (50/50); Working Product no or little revenue (60/40); Working Product modest revenue flow (65/35); Working Product good revenues (70/30); Great Product and strong revenues (80/20). Careful, you don't want to drop the equity interest to an early partner too low - you need a partner who stands gain substantially from the business's success.
10. Get a Pre-Nup - Give some thought on how you will separate if things don't work out. Likely, you will want to buy him out to keep the company assets. Your agreement should stipulate this and reference a formula or process to value the company for the buyout. For example, maybe you both agree you will value the company at a multiple of operating cash flow over the past 12 months or you agree to have a designated person conduct a valuation. By setting the rules of how to handle a difficult situation while relations are good, you will minimize future headaches.

I wanted to write a brief comment on a topic that I hear frequently thrown about: Developers would prefer not to deal with people on the business side. I definitely heard this perspective at GSP this past week. I strongly believe, like it or not, we need each other. Business people who love the software arena know we need coders (most of us can't code). Developers like to think they don't need business help, but monetizing cool programs take a different skill set. It was certainly evident at GSP that developers waste alot of time thinking about monetizing the product. I ask you, would your time be better spent coding while someone with those skills focus on that side? Many great businesses realized they needed people with complementing skills - where would Sergei&Larry be without Eric?

As with all relationships between very diverse personalities, the main thing we need to do is improve how we communicate with each other. Coders like to code cool challenging things that interest them and feel that business's requests are not important. Business people want coders to code things people will pay money for and feel that coder's interests will lead to feature creap; creating user-unfriendly products. In reality, the world is not so black & white; the truth is in the middle. A great benefit of my career is the opportunity to communicate with many different functional areas. This exposure has taught me to appreciate their unique perspectives.

Business people need to work hard to understand the world of a developer. Try a little coding. Research development styles. Ask them what is new and cool in their areas - you may find some information that could improve your product. When dealing with coders, the best lesson that I have learned is to take an interest in their world; their opportunities and challenges. Don't expect trust to immediately form, but if you put an honest effort it will grow over time and make you more effective at your job. If coders like to work with you, they will make you look like a star to the other suits.

Now coders, I know business can be a pain in the butt, but look at it from their side - They need to deliver numbers to their superiors. If they are a good at their job, they are obsessed with the consumer's point of view of the product. While I know you can easily navigate the software, but you wrote it! You need to consider how a person unfamiliar with the software (or possibly any software) would respond. Your business guy should be gathering survey responses, feedback from sales, etc. Leverage that data to make your code better!

Developers and Business may speak different languages, but if effort is made by each side to understand the other's perspective great improvements in the quality of the software can be made. Further, developers, let business handle the monetization of your products. This is a big job and if you want to grow the business, you must choose to focus on one or the other. So, if you love to code - code. Let the business person bring in the money. Of course, you will need to find ways to ensure that business performs. Another topic.