The Perils of Business Partnerships

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Partners or Competitors?

Just like marriages, business partnerships can be sublime.  Statistically, married people are happier than unmarried people, after all, and in some cases, that’s true for business partnerships.  Interviewed entrepreneurs with happy partnerships most often cited the following reasons for their success:

1) Each partner brings a unique and complimentary talent to the organization.  The most common talents described were the visionary, the partner with technical prowess, the partner with financial and operational skills, and last but not least, the sales person.  No amount of vision, technical skill or financial ability will win customers and investors without salesmanship.

2) The partners trust each other completely.  No one has to check up on the other, and the partners are entirely motivated by the goals of the company.  Partners don’t compete, they team.

3) Similar values.  If one partner values family time on weekends, it is vital that the other partner(s) does too, or friction can grow over time.  If one values a positive company culture, then they all need to value that culture.  If customer service is the highest valued asset of the company for one partner, it had better be for the other(s).  Disagreements among partners over the core values of the business regularly result in a breakup of the partnership.

4.  The business partners are happily married, and the management of the business is an extension of that marriage.  Note:  see 1 through 3 above, because even when the business partners are partners in life, those success criteria apply.

We all know that more about 50% of marriages fail.  And, for the same reasons, business partnerships also fail.  In many cases, the businesses went down with the partnerships.  Like divorces, the perils of business partnerships can be treacherous and expensive!

Take for example, the business partner in a startup who went behind his partner’s back to upgrade the company’s fleet, costing money the company didn’t have and pushing the break-even point back another year.  One partner valued the features of the new fleet; the other valued the bottom line.  The bond of trust was broken, the partnership ended and the company went bust.

In another case, one partner brought in over 66% of the revenue, and then was the only one working weekends to fill the orders.  The two partners had agreed to spilt the profits 50/50, but were clearly not splitting the time invested evenly.  The relationship dissipated.  Fortunately, their partnership contract included a clause describing how one partner could buy out the other, and the partner who brought in most of the revenue bought and saved the business.

In one case, a visionary had a mission to create a profitable business that allowed life balance among the employees.  A second partner wanted faster growth, more customers, bigger projects, and more time commitment from employees to the company.  In his view, life balance was unimportant to the goals of the company.  The two partners competed to win over the third partner and friction grew.  The visionary was ultimately squeezed out, legal battles ensued, and neither life balance nor business success were achieved.

Finally, there is the one about the business partners who were so similar that, while their vision may have been exquisite, their ability to implement and operationalize the vision was too limited, and the company bled money until it closed.

Among more than 100 lessons learned from interviewed entrepreneurs, the perils of business partnerships are common.  Getting to know your business partners well and having a carefully thought out buyout strategy for individual partners down the road is highly recommended.

All the best!


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