Why Partnership Business Fails
Write. Period! All deliberations and their conclusions must be in writing. This saves your partnership in case one of the partners forgets or misinterprets the minutes of a particular meeting. So if you put everything from the most important things to things that we often don`t think are so relevant for it to have value in the future and be enforceable in court. A successful business partnership is exciting, invigorating and useful. This is one of the most enjoyable personal relationships you can have in life. Don`t worry too much about why business partnerships fail. Instead, focus on your success and your ideal outing. Every business owner leaves in one way or another. Fast forward in 10 years. With planning, balance, and a successful business partnership over time, you and your business partner can find yourself and your business partner on beach chairs and toasting beer to celebrate the sale of your business.
In his book, Piercy identifies ten reasons why partnerships can fail. Knowing them can help you avoid breaking off your business relationship or perhaps realize that it may be time for your ectomy partner. Below are Piercy`s ten reasons, as well as some of our experiments that confirm the author`s observations. Here`s one that is often (and surprisingly) overlooked: What happens when a partner dies? Are you suddenly a partner with the surviving spouse – you know, the crazy guy your partner wanted a divorce but could never bring himself to leave this guy. I can`t tell you how many clients I`ve had who start business with people and don`t have: (a) a written agreement that defines their respective roles in the business; (b) do not have agreement on how well-established decisions would be broken (if any); or (c) do not address how the buyouts would operate or how their respective business interests would be valued in connection with a buyout. I can continue with the predictable opportunities that some clients should have, but I can`t argue with their partners before starting the business – let alone reach agreement on how these issues would be handled. To avoid long-term conflicts between partners, the company`s vision should be agreed upon and described in advance in a vision statement, and sections of the business plan should be used to formalize the organization`s long-term goals. A good partnership contract is like a good marriage. The process of negotiating the agreement is a wonderful opportunity for you and your potential partners to discuss the types of disputes that might arise during the operation of the business and negotiate a way to resolve those disputes – all before you start the transaction and those disputes actually occur.
For example, what if one partner wants to make a profit distribution and the others don`t? What if a partner wants to sell their business stake to someone you don`t like? Are you stuck with a new partner that you never accepted and didn`t want? Do you have a right of first refusal? Can you just veto the sale? “Unlike marriage, business partnerships should end. Attorney William Piercy offers this insight in the opening chapter of his book Life`s Too Short for a Bad Business Partner. Piercy, along with the law firm Berman Fink Van Horn in Atlanta, Georgia, specializes in breaking up and dissolving unwanted business partnerships – a field sometimes referred to as “corporate divorce.” Many entrepreneurs expect their relationship with their business partners to last forever, when in reality, these affiliations are not supposed to be permanent. All business partnerships should end one day, hopefully with a successful exit, with the “partners leaving as friends with full bank accounts,” as Piercy observes. In the real world, this doesn`t always happen. Many business partnerships fail, some quickly and others after an otherwise long and fruitful cooperation. You`re starting a business because you want something more than the average job. You want to make a personal impact and feel fulfilled in life.
The same goes for your partner. You all have a lot to do, individually and in partnership, as you navigate the many keys that entrepreneurship will throw in your way. There will be challenges like the ones we started this article with. Don`t ignore them, don`t hide from them, and certainly don`t dwell on them. Take them calmly and work to solve them together. Adversity makes success all the more rewarding. Whether you`re starting a business with a friend, family member, colleague, or acquaintance, you really want to fully understand who they`re doing. What motivates them? What inspires them? Are they introverted or extroverted? What are their skills? What about their weaknesses? It may be easier or harder to answer these questions, depending on how close you are to your potential business partners.
Even if working with a friend or family member seems obvious, make a conscious effort to consider personality traits and how they can be translated into business. You really need to know someone to trust them, respect their opinion, and communicate effectively in a partnership. “Without outside help,” Piercy writes, “entrepreneurs face problems that are far beyond their capabilities. The bullets are dropped. Fingers are shown. Relationships that are fraying. Some owners never fully recognize the need to hire professional management and hire expert consultants. Other owners see this need, but then struggle to find, hire, and manage these people.
The lack of a competent team not only hinders the sustainable growth of the company, but also jeopardizes the partnership. Strong communication, clearly defined objectives and measures, clearly defined roles and complementary competencies are essential to building a strong and successful business partnership. It is important to know the stage of your life and that of your partner. For example, if you are an empty nest and your business partner has two toddlers, your two stages of life are radically different. That doesn`t mean any of you can`t add value to the business. It just means that you will both have different priorities in life. You can`t expect a parent of two young children to drop everything and fix something. On the other hand, you shouldn`t expect an empty nest to have the energy to pull all night for business. Simply knowing and acknowledging the effects of different phases of life can alert you to possible challenges. We all need money to survive and provide for our families. And when we go into business, we expect to earn and take that money on our terms.
But businesses also need money for cash flow, expenses, and financial growth. Many entrepreneurs earn a lot less than you think because they are constantly pouring money into their businesses and business-related things. If a partner needs or wants more than the company can support, we have a problem. One of the partners and/or the company will have to make sacrifices. This, coupled with one or all of the above reasons, could exacerbate the financial conflict. Done right, a business partnership with family or friends can be rewarding and profitable, but unsuccessful partnerships can break up families or destroy friendships for good. Starting your own business can be very romantic. However, people often don`t take into account that navigating your own ship can be difficult. Not everyone is a risk-taker or a cougher. Longer periods of drought often lead partners to leave the company. As a precautionary measure, it`s a bad idea to work with someone who feels uncomfortable about not receiving a regular salary. When people get together to start a business or join as partners, they usually share an understanding of what they each want from the business and each other.
However, over time, these expectations may change and priorities may change. They may both be committed to starting businesses at first, but things can change over time. Personal life gets in the way of you or maybe your partner is starting another business and can no longer devote 100% of their time and attention to your business. These can be difficult problems to overcome. For example, let`s say a situation where you start a small business with a good friend as your partner. You each own 50% of the business and there is no written agreement – after all, you have been close friends for years. Unfortunately, two years after starting the business, it turns out that you do 75% of the work and maybe even invest your own money in the business to cover operational bottlenecks. Your partner seems to be missing out on the action.
She shows up a few times a week (maybe??), but she seems to have lost interest in the business or have other distractions in her life.