It’s easy to feel good about the idea of a business partnership. Friends, acquaintances, or professional associates share a vision, so they start a business and set out to conquer the world together. Someday, they’ll be able to tell the story of their partnership and how they couldn’t have achieved what they did if they hadn’t partnered with each other.
It’s too bad almost no partnerships end up that way, but it’s not that surprising either. Most partnerships aren’t built to last because businesses and people change. Sometimes, one of the most unproductive things you can do is try to preserve a 50-50 partnership in a business that’s evolving away from it.
I’m not opposed to partnerships per se. I have simply observed over time that almost all of them end up dead at some point. If you’re thinking about becoming one-half of a partnership, maybe what I have to say here will help you prepare for some eventualities many others in your position have faced.
If you decide not to join a partnership because of this post, that’s fine, too. My goal here is not to persuade you one way or the other. Rather, I want to make sure you’re aware of what has happened to many who have come before you.
One of the fundamental weaknesses of partnerships is that they tend to be set up by lawyers. Now I have nothing against lawyers. When lawyers set up a partnership, they deal with the logical aspects of the partnership. They invariably miss the psychological aspects, and those are usually the seeds of the partnership’s demise.
Legal constructs don’t run partnerships. Entrepreneurs do. And while entrepreneurs can be great visionaries and hard workers – and without a doubt, high achievers – they can also be naïve.
Partners often don’t face the reality that the partnership is probably going to end at some point, especially when they’re just getting started. Partners want to express all the confidence in the world that they’re in it for the long haul. Perhaps they feel like it would be a betrayal to include exit protocols in their partnership agreement.
That’s a huge mistake, because things change.
Let’s say you’re in an equal partnership. You want everything equal because you want everything fair. However, equal doesn’t always mean fair.
Maybe your partner is really good at sales, while you’re really good at operations. At the start of your partnership, you’re perfectly happy with both sharing equally in the combined rewards of your respective efforts.
But people are different. Maybe your partner has more success with selling than you do with operations. Maybe the selling partner has so much success that the company’s operations grow beyond your ability to handle them. What do you do then? Do you still get 50% of the rewards, even though you’re struggling to keep up with your partner’s sales success?
Situations also change. It’s common in the early days of a partnership for the partners to take modest salaries to keep costs low. I once consulted with a company whose partners took pay cuts at first, but soon after, one of them became a parent. This partner felt he needed to draw a higher salary to support his wife and baby. The other partner was single, and saw no need to take a raise. However, they had to make the same money because they were 50-50, so the issue of what the partners’ salaries should be became a point of conflict.
Neither partner was right or wrong, they were just in different positions and had different priorities. The partner whose wife had a baby wasn’t wrong to become a father. The other partner wasn’t wrong to remain single. It was just who they were, but it made the partnership structure harder to sustain.
(They didn’t make it past three years, by the way.)
Partners who don’t talk through the complexities of the partnership – including different scenarios that could affect the business and their roles together – are setting themselves up for a difficult dissolution down the road.
But even if you do have that discussion, there are some things a legal agreement can’t prepare you for: Humans get offended. They have egos. They want things. And they change over time. What made all the sense in the world to you at 30 makes no sense at all when you’re 45. What you’re sure of now may not seem so certain in the future.
Once, you were willing to work 24/7 to build the business. Now you want a vacation. Perhaps your partner doesn’t care about taking a vacation, and you’re concerned you’ll seem like the lesser contributor if you go on one.
Once, you were ready to work until you had both feet in the grave. Now you’re starting to think retirement doesn’t sound so bad. However, you didn’t really structure the partnership to account for that, so what do you do?
It’s not only people who change. Businesses change too. Often the basic structure and value proposition you started with changes as you learn things – positive and negative – from your experiences.
Let’s say you were originally going to sell auto parts to local retailers. Your partner had great connections with all the retailers, so they got the job of selling. But soon after, you realized the industry didn’t work the way you thought, and there were better strategies for distributing your product. So you had to make an adjustment, nothing wrong with that. It happens all the time. However, your sales partner doesn’t have connections with people in the new distribution channels, so suddenly his role has become something neither of you expected. This new role probably doesn’t justify 50% of the profits.
But he’s part-owner, so what do you do now? Your partnership is no longer as complementary as you first envisioned, and it’s not so easy to retrofit it for new realities.
Finally, there is this uncomfortable reality: Partnerships that start with friendship can’t necessarily be sustained over the long-term with that same friendship, because friendships evolve based on experiences.
Your best friends in college might not be close once you’re married and raising kids, because you’re at a different stage of life and you’re sharing different kinds of experiences with other people. If you become business partners with a friend, your friendship isn’t going to be the same in two years because you’ve both been through different things. It might be better. It might be worse. But it won’t be the same.
Keeping that relationship strong is something you both need to work on frequently, and that can only work if both of you are willing to do it.
Basically, a business run by partners requires the constant maintenance of two things – the business and an interpersonal relationship. A business run by just one owner only requires the maintenance of the business.
That doesn’t mean partnerships never work. Obviously, some do go the distance, but yours is far less likely to do so if you don’t understand these issues up front. If your partnership does come to an end at some point, it’s like most of the others.
You’re better off being prepared.