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 businesscycle, the nature and significance of partnerships change. Initially, whenthings are hard, people unite and charge the goal together, they share tasks,responsibilities, celebrate successes, and support each other when there areproblems to overcome. Issues arise when one starts making money and newopportunities and perspectives open up. There are two main reasons why partnersdisagree: either they cannot divide the money or they have different visionsfor the future of the company – the latter happened to us. I was insisting onmanufacturing the parts for our equipment in-house, while my partners supporteda different model sourcing ready-made parts externally and assembling the finishedproduct at our plant.
We went our separate ways and built newcompanies, each according to their own vision. This happened in 2005. Did Ibecome disillusioned? No. Almost immediately, I entered a new partnership. Tothis 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 naturedespite painful past experiences. It is wiser, instead, to analyze yourmistakes and try to avoid them in the future. Here are some of the most commonmistakes.
Owning a business 50:50 with yourpartner. It is extremely rare for a business to survive this ownershipparadigm. Sooner or later, problems arise and can only be resolved through theveto vote. Without it, the business will die. But what if 50:50 ownershipstructure is unavoidable? Specify in the charter or a memorandum which partyhas the decisive vote. Agree on everything in advance, write down the mainpoints in a SAFE agreement, and review the document every time the situationbegins to heat up. The ideal option is to assign decision-making on operationalmatters to managing director.
Starting a partnership with peoplewhose personality, competencies, and temperament are similar to yours. Worseyet, taking on the same functional responsibilities without a clear division ofduties. In any partnership, one partner is a “creator” and another a“maintainer”. A union of two creators will tear the company apart, and twomaintainers will lead it to stagnation. One partner should generate ideas andthe other cover the flanks and hold back the creator, bringing them down toearth.
A creator is responsible for sales,ideas, negotiations, and expanding into new markets. A maintainer manages thecompany as a whole, oversees finances, reporting, etc.
Today, variouspersonality tests are available to determine the psycho-types and helpstructure the team. They can and should be used to understand the strengths andweaknesses 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 usermanual in the most harmless and constructive sense.
I know of a very successfulcompany where the partners have created an effective tandem: one ownerconstantly travels to exhibitions, looks for clients, negotiates, and closesdeals. The other is always at the office, overseeing business processes anddealing with operations. They complement each other, directly impacting thebusiness results.
Keeping convoluted accounting andbuilding relationships based on deception. This is less common in the modernworld than it was in the 1990s when we started. These days young entrepreneursstrive to work by the rules, keep clear documentation and reporting from dayone. Some twenty to twenty-five years ago, it was enough to know all thenumbers yourself and show as little of them as possible in the reports. Seventypercent of all payments were in cash and sometimes that cash came in a bag. Youcontrolled the bag and dipped into it whenever needed. You did notdifferentiate between your money and the company's money. This is afundamentally flawed model which becomes twice as flawed when a businesspartner is in the picture. Instead, the reporting must be as clear as possibleand fit on an A4 sheet so that even someone unfamiliar with the industry couldfollow the calculations. I had a minority partner at PET Technologies for overten years. He entered the company on condition that he would not involvehimself in operations. We have a transparent financial relationship and adividend payment system, with not a single conflict in all these years.
Entering into a business with familymembers, especially spouses. In my entire life, I have seen only two successfulcases of such business partnerships. In this case, I am talking aboutpartnership in a large company, not a small family-owned business with tenpeople. There are always exceptions. But in my opinion, business and family aretwo distinct areas that should not overlap. For example, I would not want todiscuss work issues with a close person 24/7 or over dinner. If you arebusiness partners, you cannot avoid discussing work even if you try to taboothe topic during a family dinner.
Waging a war with your partner incase of conflicts and disagreements. There are no winners in such a war, otherthan the lawyers, notaries, and other intermediaries. Divorcing a businesspartner, especially in medium or large businesses, can be ten times worse, morecomplex, and more painful than divorcing a spouse. Therefore, you need to takea breath and try to come to an agreement: divide the business, buy out yourpartner or sell your share. There is no universal recipe. There is oneuniversal advice: do not wage a war. My partners and I discussed everything intwo 20-minute conversations and said our goodbyes. We outlined the amounts,made payments, and parted ways.
I believe business owners are honestpeople, responsible for their words and actions. I am convinced that building abusiness with a partner is infinitely more effective than alone. The main thingis to be surrounded by people who are ready to lend a hand and not trip you up.
