Thinking on Partnerships

I love this little vignette about partnerships. It speaks a very real truth:

Understand the levels where each partner is involved. Consider the chickens and pigs who went into a business partnership serving bacon and eggs for breakfast. The chickens were involved, but the pigs were committed.

Partnerships are a tricky thing. The dynamics between partners are seldom a perfect fit that can be written down. Rather, they are a unique combination of an interpersonal relationship and a work/money-sharing agreement.

I don't have nearly enough room in one blog to cover all of the considerations of a partnership, but here are some major ones. If you are considering a partnership, consider these and really drill down into the details.

1. Each partner has to feel that they are getting a fair reward for success and a fair punishment for failure. If either of these is uneven, you've got a problem. Discuss and agree, in advance, how profits AND losses will be shared. It is very important that you plan for business success and for business failure.  One time I made a mistake in a partnership arrangement because we didn't really think through how losses would be shared.  I can tell you about it if we do some work together.

2. There needs to be a balance in the work required. Or, if the work balance is not even, there needs to be an understanding of that work balance ahead of time.  Nothing ruins a partnership faster than one partner slacking while the other works hard. Agree, in advance, on how work will be divided and performed.

3. Frequently partnerships have different resource contributions from each partner. One common example is a partnership where one person provides the money and the other does the work. This is fine. Just make sure you have the expectations defined in advance. 

A little tip when thinking about resource contributions: Some resources have a very high value in the beginning, but decline over time. A good example of this is expertise. Frequently, the partner with less expertise in the beginning gains it over time. If expertise is all that is being provided by one partner, his contribution becomes less valuable over time.

4.  Spend some time, in advance, of defining the goals of each partner.  The goals may vary because of each partner's personality and life goals.  For example, let's say two people went in to the catering business.  One of the partners may have the goal of creating one successful location and franchising other locations to others.  The other partner may have the goal of just having a single successful location.  

Another scenario which is fairly common is an older partner bringing on a junior partner to take over the business.  In this case, the goals of the partners are not to build a business, but instead, transition the business to the younger partner.  

None of these differences in goals are right or wrong.  They are just different.  That's why it is so important to talk about in advance.

5. All partnerships end. Even successful ones. By "ending", I don't mean they all end due to incompatibility or failure. One partner may be much older, so they may wish to retire before the other. A partner may die or become incapacitated. It is wise to think of these scenarios, in advance, and have an agreed to buy/sell arrangement.

Notice I've used the words "in advance" when discussing all of these considerations.  It is a pain, but time spent early prevents a lot of problems later.

No matter how much you have planned, you are going to run into issues you didn't anticipate. Every business does, and every partnership does. Working on issues in advance helps you have a problem-solving and communication system to deal with the unanticipated ones.

If you are an individual who is considering entering a partnership, or a group of partners, I can help you.