Why a business partnership may fail.
There is more to business partnership than two people coming to form and run a business. People enter into business partnership for different reasons. But whatever the reason may be, the common denomination in every business partnership is the desire of the partners to enjoy synergy which the relationship may bring. The synergy advantage of business partnership is enough motivation to bring in partner(s) into a business. But unfortunately, there have been cases whereby business partnerships have been the undoing of some businesses.
Business partnership can be likened to a marriage. Everybody goes into marriage with the hope to live together as a couple until death part them. But unfortunately, you discover that many marriages end in divorce. In most cases, such divorces are not without pains and regrets. The same thing applies to business partnerships. Therefore if you want to go into any business partnership, you need to exercise caution so that the whole relationship will not bring pains and regrets at the end of the day. You may need to ask yourself why you want to go into a business partnership in the first place. This will help you determine whether it is even necessary to enter into such relationship at all. Some of the reasons why people go into business partnership are discussed below:
Why Business Partnership?
Finance: Every entrepreneur has stories to tell when it comes to the issue of sourcing for funds. Entrepreneurs need funds in order to transform their ideas into a profitable business. It is not uncommon that entrepreneur will not have enough capital to start his dream business. In order for the dream not to die, he may like to seek funds from external sources. However, it is not easy for startups to secure loans from the bank. They may not have any or adequate security to tender as collateral. For this reason, they may decide to bring in partner who can inject fresh capital into the business.
Complimentary Skill: A founder of a business may not have the skills to run the business profitably. For instance, an originator of an idea may not have skills to market his products. Therefore, such person may choose to look for a partner with complementary skills so that he can share responsibilities with him. Instead of entering into business for the purpose of gaining access to complementary skills, another option is to hire somebody who is skilled in the area of deficiency of the business owner. But in most cases, money is usually a constraint.
Shared risk: Business involves risk taking. No matter how bright and promising a business idea may be, there is no guaranty that it will not fail. With this in mind, a business owner may like to play safe by not investing all his resources in a business. By bringing a partner on board, the partner will not only share in the profits of the business; he will also have a share of the risk.
Increased Capacity: A business owner may discover that there is a good growth potential for his products. In order to speed up the growth of his business so that he can quickly gain the larger share of the market, there may be a need to go into business partnership with someone who can help him achieve this objective. On the other hand, when a business lacks capacity to handle substantial big projects, going into partnership may be a good option.
Lack of Time: There are instances where an entrepreneur will have more than one business running at a time. It may even be that a person with a good business idea equally has a lucrative paid job and he is not willing to give up his job for the new startup. Such person may look for a partner who has time to do all the running around when he is not available.
Reasons for Business Partnership Failure
Having gone through the reasons why some entrepreneurs may choose to enter into business partnership, you must have discovered that all the reasons are genuine enough. Unfortunately, this does not mean that such business partnership cannot collapse. Below are some of the reasons while business partnership usually fails:
Different Values and Culture
Our values determine many things about what we do. We have different backgrounds and the ways we were all brought up are different. Two people with two opposing values may not be a perfect match in business partnership. For this reason, some people may decide to partner with a member of his family who share the same values and ideology with him. However, the danger with this is that, if the partnership does not work out, it will not only affect their business relationship. It can create a strain within the family.
No Decision Making Process
In business, different decisions have to be made. Every aspect of the business requires decision making. In a situation whereby we have two or three partners, it may not be that easy to arrive at a decision. All partners may have different opinions but the way each of them will present their case may be different. In a situation where a partner is bossy and very assertive while the other partner is introvert, if the partners do not have an established decision making process, decision making will always be one sided. The bossy and assertive partner will always like things to be done in his ways. If this situation persists, it will not take much time before the other one explode in anger. And if they fail to manage the situation well, this can lead to the end of the business partnership.
No two partners can be aggressive the same way when it comes to bringing in of business. If a partner sees himself as a rainmaker, being the one that always bring in more jobs, this can bring pride. He may believe that without him, the business cannot move forward. He can also go as far as threatening the other partner that he may leave the business to start his own. He may want to take all the customers he brought into the company away with him.
Lack of Trust
How would someone bring a partner he cannot trust into a business? It happens at times especially when a person is so particular about raising funds for his business. If the only main reason for bringing in a partner is money, this type of business partnership cannot last. It may not be long before the new partner starts exhibiting some behaviour which you may not like. You may not even know the true character of a person until money is involved. If you can’t trust a partner with company’s money, it is better to end such business partnership.
If a partner is prudent while the other one is extravagant, doing business together as partners will be difficult. For example, a partner who is prudent may suggest that business profits be ploughed back into the business. The extravagant one may have the opinion that it is time for them to buy expensive cars so that people can know that their business is booming. If this happens in a business partnership, such relationship will soon collapse. At least, I have witnessed two business partnerships that ended on the ground of flamboyant lifestyles on the part of one of the partners.
No Regular Contacts
If two partners handles two separate projects or possibly one is not always available, there should be adequate feedback and progress reporting. In a situation where a partner operates a closed system, there will be misunderstanding no matter how good his intention may be. The other partner may start suspecting that he is hiding something from him. This may raise question about trust.
Life is not a bed of roses. In business, there will be some times that things may not go smoothly as expected. Though they say that tough times don’t last but only the tough people do. Not everybody can endure hard times. It is easy for a partner who is not used to hard times to quit during business downturn.
There are other reasons why business partnership may fail. But with the ones mentioned above, you will agree with me that business partnership is not a thing that one should rush into. However, if you still feel that you need to enter into it, I recommend that you should at least ask a lawyer to help you draft a Partnership Deed. This will guide the modus operandi on how the business should be managed. Also every partner will be able to understand his, roles, responsibilities and rights.