FIVE MISTAKES THAT HINDER EFFECTIVE BUSINESS PARTNERSHIPS

           I have always worked with partners and have been the driving force in these business relationships. Despite getting burned now and then, I have never lost faith in the power of partnerships.

           At different stages of the business cycle, the nature and significance of partnerships change. Initially, when things are hard, people unite and charge the goal together, they share tasks, responsibilities, celebrate successes, and support each other when there are problems to overcome. Issues arise when one starts making money and new opportunities and perspectives open up.

           There are two main reasons why partners disagree: either they cannot divide the money or they have different visions for the future of the company – the latter happened to us. I was insisting on manufacturing the parts for our equipment in-house, while my partners supported a different model sourcing ready-made parts externally and assembling the finished product at our plant.

           We went our separate ways and built new companies, each according to their own vision. This happened in 2005. Did I become disillusioned? No. Almost immediately, I entered a new partnership. To this day, I have partners in all of my projects - both business and creative. If you are a partnership-oriented person, you should be faithful to your nature despite painful past experiences. It is wiser, instead, to analyze your mistakes and try to avoid them in the future.
           Here are some of the most common mistakes.

           Owning a business 50:50 with your partner. It is extremely rare for a business to survive this ownership paradigm. Sooner or later, problems arise and can only be resolved through the veto vote. Without it, the business will die. But what if 50:50 ownership structure is unavoidable? Specify in the charter or a memorandum which party has the decisive vote. Agree on everything in advance, write down the main points in a SAFE agreement, and review the document every time the situation begins to heat up. The ideal option is to assign decision-making on operational matters to managing director.

           Starting a partnership with people whose personality, competencies, and temperament are similar to yours. Worse yet, taking on the same functional responsibilities without a clear division of duties. In any partnership, one partner is a “creator” and another a “maintainer”. A union of two creators will tear the company apart, and two maintainers will lead it to stagnation. One partner should generate ideas and the other cover the flanks and hold back the creator, bringing them down to earth.

           A creator is responsible for sales, ideas, negotiations, and expanding into new markets. A maintainer manages the company as a whole, oversees finances, reporting, etc. 

           Today, various personality tests are available to determine the psycho-types and help structure the team. They can and should be used to understand the strengths and weaknesses not only of the business partners, but also of the company’s employees, and to find an effective way of communicating with one another. It is the user manual in the most harmless and constructive sense.

           I know of a very successful company where the partners have created an effective tandem: one owner constantly travels to exhibitions, looks for clients, negotiates, and closes deals. The other is always at the office, overseeing business processes and dealing with operations. They complement each other, directly impacting the business results.

           Keeping convoluted accounting and building relationships based on deception. This is less common in the modern world than it was in the 1990s when we started. These days young entrepreneurs strive to work by the rules, keep clear documentation and reporting from day one. Some twenty to twenty-five years ago, it was enough to know all the numbers yourself and show as little of them as possible in the reports. Seventy percent of all payments were in cash and sometimes that cash came in a bag. You controlled the bag and dipped into it whenever needed. You did not differentiate between your money and the company's money. This is a fundamentally flawed model which becomes twice as flawed when a business partner is in the picture. Instead, the reporting must be as clear as possible and fit on an A4 sheet so that even someone unfamiliar with the industry could follow the calculations. I had a minority partner at PET Technologies for over ten years. He entered the company on condition that he would not involve himself in operations. We have a transparent financial relationship and a dividend payment system, with not a single conflict in all these years.

           Entering into a business with family members, especially spouses. In my entire life, I have seen only two successful cases of such business partnerships. In this case, I am talking about partnership in a large company, not a small family-owned business with ten people. There are always exceptions. But in my opinion, business and family are two distinct areas that should not overlap. For example, I would not want to discuss work issues with a close person 24/7 or over dinner. If you are business partners, you cannot avoid discussing work even if you try to taboo the topic during a family dinner.

           Waging a war with your partner in case of conflicts and disagreements. There are no winners in such a war, other than the lawyers, notaries, and other intermediaries. Divorcing a business partner, especially in medium or large businesses, can be ten times worse, more complex, and more painful than divorcing a spouse. Therefore, you need to take a breath and try to come to an agreement: divide the business, buy out your partner or sell your share. There is no universal recipe. There is one universal advice: do not wage a war. My partners and I discussed everything in two 20-minute conversations and said our goodbyes. We outlined the amounts, made payments, and parted ways.

           I believe business owners are honest people, responsible for their words and actions. I am convinced that building a business with a partner is infinitely more effective than alone. The main thing is to be surrounded by people who are ready to lend a hand and not trip you up.