Business partnerships come with many advantages.
- They allow pooling of skill sets
- They allow the sharing of start-up costs
- They allow the distribution of risk
- They create an extended marketing network
Unfortunately, up to 70% of business partnerships fail.
It’s important to realize the common reasons business partnerships break down so that you can ensure success in your own.
Mixing Business With Personal Relationships
Business relationships can be challenging between friends, family members, or spouses. The notion of starting a business with someone you trust can be very attractive. However, money can change everything. And sometimes personal relationships change, like with divorce.
Successful business partnerships should be based on complementary strengths, personalities, talents, and experiences. Not on convenience and the personal relationship that stands between you.
To maintain a successful business relationship with someone you have a personal relationship with, be sure to keep business and personal lives separate. That way you can have honest business discussions that don’t impact your personal relationship and vice versa.
Also, don’t overlook a partnership agreement that details out finances and division of work when you’re starting your business. A simple handshake is not sufficient.
Unequal Commitment
Starting a business comes with huge financial and personal commitments.
A sole proprietor is the only one responsible for the success or failure of a business. But in a partnership, you’re dependent on the contribution of your partner for the success of a business. If your partner is unwilling to make the same compromises you are, then it will result in conflict and resentment.
Make sure to detail out the financial and “sweat equity” investments of both partners at the beginning of the relationship. Don’t just say they’ll be “equal”. Be specific and quantify this out in the partnership agreement.
All partners are legally liable for the partnership which makes decisions made by one partner impact the other. When there is an unequal contribution this means both partners are impacted.
Lack of Success
Business building takes a long-term commitment. There can sometimes be periods of declining revenue. This can take a toll on business partners and lead to conflict. Especially if the business becomes a drain on personal finances. If one partner second-guesses the business and goes back to full-time employment it can destabilize the business and cause it to fail.
Thorough business planning before the startup of a business can help ensure that this doesn’t happen. Download our free Ebook The Ultimate Guide to Australian Business for your step-by-step guide on how to start your own business.
Different Values
When one partner is not aligned with the values of the business, this can become a source of friction.
Business partners should articulate before they start the business:
- Their vision for the company
- Why they want to be entrepreneurs
- Long-term objectives
- Ability and willingness to invest in the start-up of the business
- Goals for the partnership and organization
Personality Clashes
One of the advantages of business partnerships can also be one of it’s biggest minefields. When different partners bring in different personal advantages that can be productive and valuable to the company. However, those exact personality differences can also create conflict.
Things to consider before forming a partnership are:
- Are we both risk-takers?
- Are we both highly motivated?
- How do we handle difficult situations?
- How do we handle conflict?
- What are our expectations of one another?
- Do we both have patience and perseverance?
Broken Trust
Trust is one of the most foundational aspects of a business partnership. Without it a business is unviable.
Each partner must have faith that the other will act with integrity and ethics in the business.
To develop this trust its important to thoroughly research your business partners ahead of time.
- Has this person had legal difficulties in the past?
- What’s their marital history?
- What’s the community reputation?
- What’s their employment history?
- Have they had a former business? If so, what was the outcome?
- Have they ever gone bankrupt?
At the end of the day, the single most important thing to do is to do your homework before you develop a business partnership. Be sure to sign a partnership agreement no matter who’s your prospective partner. And be sure you’re both on the same page.