May 24, 2021 Launching

The Top 5 Reasons Why Business Partnerships Fail

A business partnership may arise when two friends come up with an idea. Finding a business partner is easy, but finding the right business partner is difficult. Neither party goes into a business relationship with the intent of failure. Unfortunately, it happens way too often. And once they do fail, the battles are seen to be uglier than divorce settlements. No matter the case, people naturally have differences as no two people are alike. What may start all good and candid, may easily succumb to matters big or small. These differences can be easily overlooked if the time and due persistence is not done to identify and address them beforehand. For a business to be successful long-term, it requires arrangement between the two parties and stable management.

1. Lack of communication

Communication breakdowns among business partners are the most common cause.

This can take place at any point in time. To begin with miscommunication arises when agreements are not put into writing and roles and responsibilities are not clearly spelled out.

Write It Down. Period! All the discussions and their conclusions must be in writing. This helps to save your partnership in case one partner forgets the minutes of a particular meeting or misinterprets. Thus, writing everything from the most important things to the things we often consider not so relevant, put everything to paper, so that in the future it hold value and is actionable in the court of law.

Another contributing factor is that many co-owners do not allocate time to meet and address ownership issues and shareholder-only meetings are held irregularly or never at all. This bad habit inevitably leads to communication breakdowns. It is a good idea to talk. Never leave or avoid difficult or curt discussions. Clear the air sooner than its too late.

When communication breaks down, at least there is some option to figure out what went wrong, but a lack of communication is a symptom of a lack of planning. Even with planning, a partner can take a lead role and not keep in regular communication with partners, staff and other stakeholders.  Many instances of dissatisfaction and mistrust find their roots in lack of defining and following a good communication plan.

2. Misaligned end goals and differing values

Before getting into the partnership, everyone involved should outline the end goal for the business. Is it to create sustainable long-term profit? Is it to sell? Is it to pass on to your kin? Knowing the end in mind will make moving the business forward a lot easier. End goals can change as well. A few years into the business, one party may want to remove themselves, so ensure that you cover how you’re going to deal with these possible scenarios in the partnership agreement to avoid a bitter end.

People make decisions based on their values. Every person consciously and unconsciously prioritizes their own set of values. For example, you may value saving costs to improve profits, while your partner values spending on marketing. The end goal is the same but the manner to achieve it is different. Ensuring that your values are somewhat aligned will save you a lot of arguments. It is often recommended to bring to table people who share your values as they will eventually reflect in your organisation.

In the long run, values shows up as a contributing factor to partnership failure. A partner with a strong family values set will eventually come into conflict with a partner that puts the business first.  These differences may not be touched upon at the start, but will quickly become a sticking point and possible deal breaker. Hence, it is important to choose a partner who has similar goals and values as you. And if the partnership is not what you expected, end it on a lighter note before it turns too bitter. After all you have to survive the same industry, thus, leave room for cordial relations. Dragging onto a partnership that is difficult to keep up is a bad idea.

3. Lack of Transparency

In healthy business partnerships, there must be a division of labour, which usually means that some partners have a more regular need than other partners to interact with data like, financial records and reports. This may be necessary for day-to-day operations, but all owners must have unrestricted access to important company operational and financial performance data. When this is not the case, that is when partnerships can get into trouble as accountability, communication, and trust wear down.

This is an all too common partnership breaker as many believe “whoever controls the money holds the power”. All too often, we hear about partners who drain off funds and leave the remaining partner(s) with significant debts.

Similarly where partnerships are entered into with transparent agendas, they can work out for the better of the company. However, things turn sour when it becomes evident later on, that there is other, less than noble, reasons for entering into the partnership venture.  Be clear up front. Define the roles, obligations and financial divisions on the onset. Agendas discovered later will inevitably lead to mistrust and partnership breakdown.

4. Too much, too fast

A partnership venture that moves too quickly without inclusion of internal stakeholders is heading for trouble.  Moving too quickly without good reason slows down the process. A strategy that incorporates change enablers and a change management plan is more likely to succeed.

Starting a business and leading a business demand a different set of skills. Many founders struggle with recognizing the transition and making it work. If one co-founder is not effective at leading a maturing organization, it can stress the relationship and the company. With changes in your organisation, each partner should know when he/she ought to switch roles if they no longer serve the purpose of furthering the business. For instance they should know when to hire professional help of a Chief operating officer, rather than cling to the chair! Without a good plan, change gets drowned in resistance led by fear. It takes time to integrate systems and resources. But if not done on time, they can damage the efforts of other partners, thus, causing resentment.

5. Disparity in Contribution

When one partner is contributing less to the organization: less time, effort, money, results, etc., the seeds are planted for conflict within the relationship. This awareness can be a natural development within many partnerships. If one partner is significantly older than other(s), his or her energy and engagement may decline earlier than the other’s. If this situation deepens and the partners fail to address it, a complete breakdown may occur where others are left feeling over used.

This is where one partner alleges to be putting in more time and energy than the other(s). Much of this is down to the alleged value of the partnership venture and the time and resources available.  Any conflict of these arrangements should also be dealt with via the terms of the agreement. Average performance doesn’t cut it in business anymore. Both parties should have a high level of performance to give the business the best chances of thriving. The environment is way too competitive to keep underperforming businesses afloat. For the business to perform at its best, both partners need to be performing at their best.

Having laid out the 5 most common and perhaps important reason for failure, they are in no way conclusive. Many at times even the smallest disagreement can lead to a business/corporate divorce and surprisingly many partners make the most challenging issues work out for the furtherance of their business dream. Hence it all depends on the right choice of partner and then also putting in every fibre of your strengths and patience to make it work. Let us be your partner in making informed choice for your business, at startup.pk.

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