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Is a Partnership the Answer to Expansion and Growth?

The demands of running a business can sometimes be difficult for even the most experienced professionals. Whether at the start-up phase of a new venture or at some point during the life cycle of an existing business, demands often lead to an owner bringing on a partner.  Partnerships  can provide additional capital to improve operational flexibility and more potential for growth; spread the responsibility for operations and decision making and reap advantages of combined skills and experience.  The exchange of opinions and ideas allows business owners to expand on already good ideas or replace poor ones. A business run by multiple talents and visions significantly increases opportunities for expansion, and ultimately higher profits and creating a partnership can also enhance motivation, morale and personal responsibility. But the opportunities can also welcome risks.

Selecting a partner begins with identifying those who have a common desire and commitment to the strategic goals of the business and who are trustworthy and share a reputation for personal integrity. Clearly identify the expectations of each partner and the percentage of ownership for the business at the outset.  Document all the terms of the partnership agreement in advance and perform meticulous due diligence before implementing the agreement. Establish specific individual protections and a clear exit strategy for the partnership at the outset.   Preparing for those things that can and will go wrong in advance may result in huge benefits to resolving disputes down the road.

Common pitfalls to avoid include:

The thrill is gone.

In addition to making money, so much of the satisfaction of business ownership is related to setting ambitious goals and then achieving them. If partners can’t find a way to reenergize their commitment and look forward and tap into the opportunistic soul of an entrepreneurial partnership, it’s time to call it a day.

Differences in the equity split.

Resenting the equity split can often be the first sign of fracturing in a partnership. Perceived differences in the compensation to performance relative to the agreed equity split can derail a partnership quickly.

Unresolved internal disagreement and bickering.

When a company’s leadership is distracted by petty grievances, competitors have a perfect opportunity to steal away their best customers and employees lose focus on their responsibility to the success of the company. The energy lost on ongoing difference of opinion will affect business performance.

Disagree on spending priorities.

How a company invests its cash in new product development, marketing, customer service and personnel is directly related to an organizations performance and success. When partners feud, spending decisions are no longer made in terms of what will advance a company in a profitable way but favor initiatives that might advance the authority of one partner over the other partner.

Loss of trust and mutual respect.

The most destructive situation for any business partnership is the loss of trust between individual partners.

Employees, vendors and customers eventually take notice to a dysfunctional environment.  Customers will discreetly seek out other service options. Employees will spend more time gossiping than working.  The longer it takes confront and solve partnership conflicts, the less a company will be worth to the partners or potential business buyers.

Successful partnerships thrive on their ability to confront difference of opinions on strategy and decision making that result in mutual solutions that strengthens the organization; fosters an environment of open communication, engagement, execution and sets forth clear divisions of the individual partner’s roles and responsibilities. Properly formed and effectively executed, a business partnership can open opportunities for continued growth and profitability while greatly enhance individual fulfillment.

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