Ask Us How: Winning Partnerships

Posted by Michael Derin

Published on October 16, 2013 under NSW Business Chamber Partnership

It’s clear that some of the wealthiest men and woman in business today did not start from scratch alone.  It has been their partnership with others that has helped take their empires from a small business to multi-million dollar corporations.

They say the road to success can get lonely and greater rewards may result from forming a winning business partnership.

There are many ingredients that go into creating a successful and viable business and it is important to know how you can succeed from creating a valuable partnership.

IMPORTANT OF PARTNERS IN BUSINESS

I always say the power of 2 minds is better than 1 and building a business can be more rewarding and profitable in a partnership environment.  

In my view, if you are able to go into business with someone that compliments your skill set and adds value to your company then you’re more likely to be successful and create a viable, profitable and long lasting business.

Business today has changed significantly and there are many more options available that allow for an individual to still control a majority of their business whilst have the benefit of capital or expertise that they lack when going it alone. 

You mentioned earlier that some of the wealthiest business men and woman have succeeded because of the people they partnered with and that is true.

Partnering with others means that you can bring skills into your business that you lack.  The most successful business people recognise this and act by surrounding themselves with the talent they need to make their business a success.

HOW AN INDIVIDUAL SHOULD GO ABOUT ESTABLISHING A BUSINESS PARTNERSHIP

It’s important to recognise that there are various types of relationships that are set up in business and each one requires a different shareholder or partnership agreement. 

For example:

The obvious relationship is that you go into business with another individual who like you is integral to the day to day management of the business

Funding may be a big issue in starting your business so you may decide to get key Investors instead that are removed from the day to day management of your business but do take a stake in the businesses success. 

You may decide to do a combination of both and partner with 2 or 3 other people.

The key to any of these business relationships is the agreement that goes with it and what is also critical is that you have developed a formal understanding around: 

Amount of equity invested by each partner/investor.

  • Type of business.
  • How profits and loss will be shared.
  • Partners pay and compensation.
  • Distribution of assets on dissolution.
  • Provisions for changes or dissolving the agreement.
  • Dispute settlement clause.
  • Settlement in case of death or incapacitation.
  • Restrictions of authority and expenditures.
  • Length of relationship/agreement

Ultimately you want to cover these points and put down in writing through either a shareholder or partnership agreement that all sign and abide by.

SHARING RESPONSIBILITY IN YOUR ORGANISATION SO IT IS FAIR

It’s common knowledge that a partnership works if you are able to exploit the skills and talents of those involved.

If each business partner takes on a defined role and there is general agreement on the business plan, goals, and visions from the outset, success will follow.

I always suggest to my clients whether new or old, that they should clearly define who is responsible for what and put KPI’s and measurements in place to record success/failure.

The way to do this is to set out your organisational structure considering the core elements of your business including:

  • Operations
  • Marketing
  • Administration / Facilities
  • Finance
  • IT
  • Sales / Client facing

From the organisation chart you can then clearly place yourselves across the divisions that fall in your immediate strengths.

For example:

One partner may be an exceptional Marketer with strong human relations and staff management skills while the other excels in finance and accounting. Recognise the strengths of each partner and define the roles accordingly.

As you grow the business and employee more staff that fall into the organizational structure the more you can filter down to those individuals but from a reporting point of view and to ensure you are both not doing the same roles it is imperative to have this sort of understanding in place when first going into business.

WHAT CONTRIBUTES TO BUSINESS PARTNERSHIPS FAILING

It’s well known that Business partnerships are one of the most unique and trying relationships we will ever enter.  Some work, but most fail!

A major issue in most businesses is equality and financial contribution made to the success of the business.  Normally you find that one partner is disgruntled with the other due to effort or investment.

The reasons business fail are endless, speak to one person and they will tell you one story, speak to another and it will be something completely different again.

In my view, most businesses starting out are so bogged down with just getting a business off the ground that they actually forget about putting the right framework in place and taking the steps to make it work and ensure they are on the same page with others that it is a recipe for failure on the outset.

In saying that there are common themes in business partnership failure that include:

  • No legal agreement in place amongst the partners that clearly defines the business relationship
  • No formal understanding of who is responsible for what in the business therefore you have people doing the same tasks and ultimately trouble surfaces
  • You have partner pride in a certain respect – when business is good everyone is happy – when business is bad you may have a situation where one partner isn’t willing to acknowledge this shift and it accelerates the businesses demise
  • Compensation, profit distribution, equity sharing are major areas of discontent amongst partners and if you’re not all on the same page can immediately impact the relationships
  • Partners not agreeing on where the business is going and / or where they want to take it
  • Lack of effort by one partner due to personal issues and them not doing what they promised to do

DO BENEFITS OUTWEIGH THE NEGATIVES IN ESTABLISHING A BUSINESS PARTNERSHIP

I think what’s important here is that people realize it is very very difficult to build an extremely large business on your own.

There is a clear limit to what an individual is capable of doing on their own considering their skills and experience.

You might find that you are extremely savy on the marketing side but lack financial skills, or you are extremely savy in IT but lack marketing skills.

If you are wanting to create a long term, successful and sustainable business which has real potential then I would say partnering with someone is definitely the way forward.

 

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