Statistics show that more than half of partnerships usually end up in failure. This is a reason enough to discourage many would be partners from getting into business with partners. However, it doesn’t have to be this way. Given sufficient precautions the partnerships can not only avoid failure; but can thrive.
There are a number of successful partnerships at a larger scale that have worked well. For example, the triumvirate at the helm of Google – Sergey Brin, Larry Page and Eric Schmidt has grown the company’s sales to more than $23 billion in 2009. So what makes a partnership successful and how can you use it in your situation? Below we have identified several traits of successful partnership from our own experience and that of others.
- Set Clear Expectations.
Before you jump into any partnership all the partners should have a candid discussion about what they want to get out of it. We have discussed why people establish partnerships in the previous blog here. Some are there to invest money and get a decent return; some are there to learn from others and some want to grow from their current base. These are all valid reasons; however all the partners should be open about it; so that there is no potential of conflict in the future. After all, expectations drive behaviors; so discussing the expectations upfront will give clear idea to all partners about how the operations will be run after the honeymoon period is over. - Put Everything in Writing
There are many cases of failed partnerships that were formed on a gentleman’s handshake. The sad part is that it doesn’t stop with the end of partnership; but the squabble continues in the form of litigation and broken friendship. It is unfortunate to have it end this way. A better way to avoid this situation is to put all the details in writing – who will manage the business, how will each partner get paid, who can make what type of decisions and so on. It is best to hire an attorney who has experience in writing these types of contracts. - Define Exit Strategy
It may seem too early to talk about the exit strategy before the partnership is even started. However, there is clearly a need to put this in writing. We have seen many cases when one partner wants to exit due to change in circumstances; while the other one wants to continue. Having clearly defined exit strategy that shows how each partner can exit will end the partnership on an amicable basis. - Ensure each Partner has Skin in the Game
It is possible to have one partner invest all the money while other provides sweat equity. Our experience has shown that this situation can result in a failure simply because the partner with sweat equity doesn’t have anything to lose if it ends. Our recommendation is to have each partner contribute at least part of the equity; so that he/she has reasons to give his best shot due to fear of losing his investment. - Put Monetary Value on All Efforts
This is particularly useful when one partner is more passive than others. The best way to do this is to find out the market value of the tasks that are being performed and compensate the partner performing at the market rate. Without this someone will feel being taken advantage of and failure in the long-term. - Establish Operating Model
By this we mean defining who will be in charge of what duties, how decisions will be made, how the gridlock will be resolved in case of disagreement, etc. etc. Again, it is best to put this in writing in the form of contract.
It is tempting to move forward with the partnership without taking care of these items; particularly when you are enjoying the honeymoon period and when the partners have known each other for a long time. But not establishing these rules may mean failed partnership and hurt feelings in the end.
Do you have experience with failed or successful partnerships you would like to share? What made them failed or succeed? Let us know in the comments or via email.
It’s a nice topic! There are variety of successful partnerships at a bigger scale that have worked well. Business partnerships withstand a spread of forms. they will be an extended term formal legal commitment or an easy short term venture to check a market concept. a similar principles apply in all cases. verify what your partner expects from you within the partnership. Share your expectations additionally. Possess an product for when personalized or mercantilism circumstances or interests adjustment therefore, when required, expectations is readdressed.
On the opposite hand, every person’s experience, motivation and temperament are completely different, it is important to possess this discussion before something is committed contractually.
@Mike – Very much true. That should actually be looked at first before you even engage in partnership. Just as in marriage; if the personalities do not match it will most likely result in divorce (in the business sense).
Excellent ideas. I also believe you need to not have the right personalities. Having two partners that are controlling or want to be boss can be a problem. I myself am controlling and my partner was willing or did not want any part in the managing aspect of the business and just wanted to do their normal job that made the company run.