Business Partnerships Are Disasters Waiting To Happen

partnership in business

What to do when it’s lonely at the top

partnership business

The 4 things to consider before you team up with someone else

Business partnerships are a disaster.

If you’re considering partnering up with someone:

STOP RIGHT NOW
DON’T DO IT
RUN FOR THE HILLS

I hope I’ve got your attention. I’m serious; before you jump to the conclusion that you should invite someone into your business as a partner, or offer a partnership to an employee, there’s a bunch of questions and alternatives to consider.

I know I know, you’ve probably come across examples of partnerships that work. Most law and accountancy practices operate as partnerships after all, and they can’t all be wrong. True enough I suppose, and some might say that my opening paragraphs are a bit extreme.

But consider this: Business partnerships are by definition intense affairs, you spend more time with each other than you do with your spouses, they can last for the whole of your working life, all the while having to work together towards a common set of objectives and you don’t actually love each other like you do your spouses.

People change

In my experience, ultimately many business partnerships fail because people change. When you get into the partnership you may well be at a similar stage in life and for a while it all goes smoothly, but over time, lives change, priorities change. There is no guarantee that 5 or 10 years down the track you still want to pull in the same direction. You might have young kids and your business partner has decided not have kids. Your children need a lot more of your attention than your partner’s; Your spouse has decided to stay at home with the family, but your partner’s spouse is going back to a full time career. These changes in life’s circumstances can have an enormous impact on the functioning of the partnership.

A client of mine, Chris, was a fifty percent partner in a 3 year old business based in Sydney, when he and his wife had a baby. 2 years later, Chris’s wife decided to pick up her university career again. The perfect job was offered to her at a university in Singapore, and Chris and his wife decided she needed to accept the offer and move the family to Singapore.

The decision caused a rift in Chris’ partnership. Now, a year later, Chris and his business partner only speak through their respective lawyers, the break-up of the partnership has cost buckets of money, the business has suffered and Chris wishes he’d never got into a partnership to begin with.

Many business partnerships are ill-fated from the start:

  • They’re started for the wrong reasons.
  • Alternative options aren’t considered enough.
  • The likelihood of changing circumstances of the partners is not acknowledged from the start.
  • There are no clear agreements about how to go about dissolving the partnership.

Each of these 4 issues are worthy of an article in their own right, and I might very well decide to write those articles, but let me try and sum up the essence of each of the 4 points:

1) Partnerships start for the wrong reasons:

Many small business owners feel alone and overwhelmed, everything is down to them and no one else “Gets It”. Often they fantasise, that having a partner will address the loneliness.

WRONG

There are many wrong reasons to start a partnership, but this is the big one in my experience. The only reason to consider a business partnership is to bring certain skills and experience into the business, that you yourself lack and can’t obtain through other means.

2) Alternative options not considered:

Many business owners have one or more favourite employees who they are afraid will walk out one day, leaving the business high and dry. The temptation is to offer such employees a partnership. I also often see that people offer partnerships to others in the same industry, because it might lead to less competition and cost improvements because of economies of scale.

WRONG

There are many other ways to skin such cats. Offering employees increased engagement in the business through a system of structured bonuses and involvement at the strategy level of the business (see Open Book Management) for example. Joint Ventures are another effective way to join forces, for a specific purpose and a defined period of time.

Partnerships should only be considered as a last option and then, ideally in a separate vehicle (e.g. your business and the other party form a separate partnership company, turning your main business into the mothership that has interests in one or more satellite businesses)

3) Consideration of changing circumstances down the track:

Many partnerships start between two people who want the same things out of life and business. There is a connection and shared dreams and goals and life stages. When the question of longevity comes up, both partners commit to open and honest communication and shake hands trusting each other to be able to deal with whatever hurdles might appear down the track.

WRONG

As they say the only certainties in life are Death and Taxes, but I’d like to add Change to the list. There will be Change in your life as well as in your partner’s. You can count on it. At this moment you may have the same dreams and goals, but down the track that’s much more likely to change than remain the same.

If at all possible, negotiate your partnership agreements in 5 year blocks: “You and I are about to enter into a partnership for 5 years. At the end of these 5 years we will dissolve the partnership and divide the business exactly and definitively. Once the split is completed, we may decide to commence another 5 year partnership and negotiate from scratch, if we both want to”.

4) No clear agreements about how to dissolve the partnership:

Many partnerships are started without a formal partnership agreement and those that do have an agreement have ill-defined and unrealistic clauses about how (and when) to break the partnership up (also see the previous point above). The belief is that because you are both people of good will, and commit to open and honest communication at all times that you’ll work it out when push comes to shove.

WRONG

As long as the partnership operates as intended and the partners are working together happily, they will generally not need a partnership agreement to operate the business happily. But at the point of dissolution, the agreement becomes the roadmap for the partners. The agreement needs to be absolute and watertight, no confusions. It needs to spell out in plain English what the steps are that are to be taken when, for whatever reason, either or both of the partners wants out. It must be clearly stated that the partner who decides he or she wants out does not owe the remaining partner(s) an explanation or justification of any kind. All that is required is that one or both of the partners says: “I am stepping out”.

The document must detail each of the steps that are to be taken at that point, by whom and by which time frames, including the steps that come into play if one of the partners does not meet his or her obligations as laid out in the roadmap.

THAT’S IT

If you must have a partnership, take the time to consider all 5 of these points seriously, very seriously.

It’s time well spent… I promise you.

#businesspassion #businessowners #FunInBusiness #BusinessPartnerships #JointVentures #OpenBookManagement

 

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Slow and Steady Wins the Race in Small Business

Small Business Competition

Get the boring stuff right in your business and make the competition irrelevant

Small Business Competition

It’s not hard to sell more, what’s hard is to deliver on your promises, week in week out

Early in my days as a business coach I read a book by Jason Jennings: “It’s not the Big that eat the Small, it’s the Fast that eat the Slow.”

Besides the unwieldy nature of the title, it became one of my bibles. There are various chapters in the book that I have re-read several times and I often find myself quoting from the book to my clients.

But I’ve decided that Jason Jennings and I part company on one specific idea about business. The premise of the book is that in the modern world, small fast business always outcompetes big slow business. Mr Jennings uses a number of examples to illustrate that every time a big powerful Goliath of a business comes up against a nimble little David, the Goliath gets defeated time and again, and hence the book encourages small business to grow fast and stay nimble.

I’ve stopped believing in fast growth as a strategy. These days, I believe in the “Slow and Steady Wins the Race” principle.

Growth is the easy part

As I have written previously on Smallville, growing your business is the easy part. If you do what you say you’re going to do, for the price you say you’ll charge, by the time you say you’ll do it, your customers will find you and flock to your door… guaranteed. The hard part is doing those three things… under-promise and over-deliver… every time, and make a profit… every time.

It’s relatively easy to deliver on your promises, and control your costs and your income, when it’s just you and a really small team, but once you’re not actually doing the work of the business yourself anymore and you don’t meet every client and see every job and you don’t know how your staff are doing the work every moment of the day anymore, that’s when it becomes challenging to continue to deliver your three promises and remain profitable.

Jane’s worried about the competition

Small Business Competition I’ve written before about my client Jane whose business sells flowers online in little bunches (Read about Jane here). Jane’s has a unique business model and when I first started working with Jane, she was nervous, because she thought others might, steal her business model. She was keen to grow really quickly, expand into other markets around Australia and move to the UK, Europe and the USA in the shortest possible time.

I helped her to stop worrying and to slow down. When we started working, the business wasn’t profitable yet. A lot of details in the business needed ironing out yet, nearly all of them in operations and cost control.

Boring stuff, like finding new couriers and negotiating better rates, working with her staff to increase their productivity, improving the work environment, developing better online systems, implementing better financial control systems, simplifying the admin.

Doing the boring stuff

None of it was very exciting, none of it got Jane’s creative juices flowing, none of it seemed important when seen against the threat of armies of competitors flooding in and taking away her markets.

And a bunch of different competitors did come into the Sydney market and at last count there have been three different competitors trying to get something similar off the ground in Melbourne.

But now, two years later, Jane’s business is consistently making close to $10K net profit every month (That’s after paying Jan and everyone else in the business a proper wage of course).

Because Jane knuckled down and dotted the I’s and crossed the T’s, all the boring stuff, and now the business is humming like a well-oiled machine. Everything that can be systemised is, from going to the flower markets, to making the bunches, to marketing, ordering, delivery and payment.

Jane’s customers love her business, the staff love working there, it’s growing steadily and the bank account is building steadily.

Read all about Money, Profit, cash flow and keeping your fingers on the pulse here

Making the competition irrelevant

The competition is irrelevant. Most of them started up and fell over again, or in any case are not heard from again. The ones that are still there are barely hanging in it seems. They haven’t dotted the I’s and crossed the T’s. If anything the competitors have prepared the other markets for the arrival of Jane’s business.

Jane will expand to Melbourne, and then she’ll make sure Melbourne runs like a well-oiled machine and making money, before she opens in Brisbane, and so on.

That’s how you build a Fun Business that sustains you for years to come… Slow and steady… I promise you.

For more resources, and reading on strategies for growing your business follow this link to the first of The 7 Big Questions that all small business owners want answered

#smallbusiness #coaching #funinbusiness #businesspassion #secretstosuccess #CompetitionIrrelevant

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