Your business partnership is destined for failure
You and your best friend have the best idea for a new business. (insert champagne popping)
Perhaps you are colleagues who have come up with plans to leave and take on the world. (insert champagne popping)
Both of you are excited entrepreneurs and can’t wait to throw yourselves into the deep end of being self-employed. (insert champagne popping)
It can’t fail…we love and respect each other…our skills complement each other…(insert champagne popping)
However… A business partnership is just like a marriage. It takes work and commitment, patience and persistence. Resentment and money issues can kill a business partnership like they can kill a marriage.
If you are going to have any chance of success, you need to look at the good, the bad and the ugly before entering into a business partnership. This is because all these things will happen, and the vast majority of business partnerships end, and they end badly.
If you both have the same style, this may not work?
For some partnerships, each partner brings a different style to the business.
One is task orientated, and one is chilled.
However, what happens if the task-orientated partner starts to resent the other chilled partner?
Do you think that the same style or complimentary styles would work better?
A lack of face to face communication can lead to a breakdown of all communication.
Emails and text messages just don’t cut it as it leaves room for interpretation.
Regular face to face meetings is essential if you are going to keep your lines of communication open and working. Set a plan and ensure that any issues, big or small, are brought up as and when they occur.
If one partner looks after the financials, does the other partner have access to see what is being done?
Your partnership can get into trouble without transparency as trust may erode, and one partner may become suspicious of the other.
Remember that this is for all business areas; everyone needs to be an open book.
When you are getting started on your business, you will love the shared vision that you both seem to have for the business. Excitement and champagne popping fun is at the top of your mind.
However, over time this may change, and business partners may start to have different ideas about where they would like to take the business.
Without a formal business plan and clear goals, each partner may begin to steer the business differently. This can cause confusion, doubling up on work, and your clients may not understand where your business is heading.
If your shared vision starts to take two different paths, it is no longer a shared vision.
How will you ensure that the business vision remains the same?
Both partners like short days — Is this practical when you are getting started?
Both partners like long days — Will you both burn out quickly?
Different working habits — One likes to work at home whereas the other needs an office!
How can these different styles be managed and the business remain on track to achieving its goals?
What happens if one partner contributes less or is perceived to be contributing less? The other partner is likely to get annoyed and frustrated as they feel they are doing everything while the other partner is slacking off. How will this be addressed?
Partnerships are not always 50/50. Sometimes one partner puts in money, and the other contributes expertise. Can the financial partner begin to resent the expertise partner if the money is not flowing?
Perhaps it is a 70/30 split. Does the 70% owner do 70% of the work? How is the equity of the business going to be agreed upon?
Is it better to have an unequal partnership so that the more dominant partner can be in charge? Or is this a recipe for resentment?
Does a 50/50 split mean that there is more chance of a deadlock in decision making? How would this deadlock be broken?
There are no friends in the business.
Starting a business with a friend can seem like a great idea.
It can also be a bad marriage with an equally lousy split.
If you are friends, will you take things personally that are said and done in the business environment or can you separate professional from personal?
Similar to a financial commitment, what will be the time that each partner spends working on and in the business.
What roles will each be taking? Does one partner need to keep working elsewhere while the business gets off the ground? Or will there be enough funds to sustain you both for several years without income from the business?
It is much easier to figure all this out before getting started and ensure you put it all in writing.
Skills and roles
Who brings what to the business table?
How will this be divided if you are both similar and offer similar things? Who will do what, and who will decide who does what?
Without clearly defined roles, there may be times of overlap that can cause frustration and resentment. This can disrupt the other partner and cause issues both in the short and long term.
The legal stuff
Very few partnerships set themselves up with a legal partnership agreement.
Surprising, I know…
Most people are too busy with their rose coloured glass on and champagne poping ideas.
These rose coloured glasses are focused only on the positives — our idea is excellent, we are fantastic together, and we will be superstars and take on the world together. (insert more champagne popping)
The reality is that you WILL disagree, and there will be issues; just like a marriage, there will be some rocky times.
For many, a business divorce is the only option, and without that initial partnership agreement, it can get messy, legal and ultimately expensive.
A partnership agreement is like a prenuptial agreement — If it all goes terrible, how do we deal with it while protecting our interests and dissolving everything as quickly as possible.
It is also there to help you through any tough times. You made these initial decisions in the partnership agreement when you were happy and feeling positive.
It should include:
- Responsibilities of all parties
- Who will make decisions
- A vision for the business
- What happens when there is a disagreement
- What happens when one party wishes to leave the other
- Anything else that your lawyer suggests that may be relevant for your business
Without a partnership agreement in place:
- Mediators may need to be brought in to resolve any conflict
- Emotions can get in the way of coming to an agreement
- There may be trust issues that are difficult to resolve
- Communications may breakdown and become unrepairable
- The business may fail because you cannot agree
Remember that in business, there are no certainties.
There is no guarantee of success, and this lack of guarantee can also place pressure on a partnership.
Building a business takes time, patience, persistence and a long-term commitment.
If the business takes longer than planned to get off the ground, there is a lack of clients or a dip in revenue; there will be a strain on the business partnership.
Remember that even the best-laid plans with the best intentions and agreements can go wrong. However, by planning for this, you may avoid both financial and emotional issues should it happen.
My 2 cents
Avoid business partnerships as there are very few success stories compared to the sheer number of massive disasters. You may know of a success story or two, but they are few and far between. For every one success, many thousands have ended incredibly badly.
However, if you are still determined to go into a partnership after reading this, ensure that you have a professional legal agreement.