Appetizing Alliances: The Ingredients of a Successful Partnership
There are similarities between creating a successful partnership and cooking a great dish. In order to create a meal that is a culinary success, a good chef starts with the right ingredients. Certain ingredients are essential. Without those, the dish will taste either wrong or bad. But it’s not just important to have the right ingredients. The quantity and quality of each ingredient also matters.
Just as in cooking, the same is true of the ingredients – or considerations -- that go into a partnership. While following a set list of recommendations does not guarantee that a partnership will succeed, these tips will likely significantly increase the chance of success.
Why do some partnerships succeed when so many others fail?
Business partnerships are formed and exist for a number of reasons. Initially, the individuals forming the partnership see a synergy and want to work together. Each partner brings something of value to the business – capital, an idea, technical skills, business acumen, property, marketing savvy, sales ability, etc. Partners join forces to improve their chance to succeed.
According to the U.S. Census Bureau reports, approximately 3.1 million partnerships filed tax returns in 2008. Yet, when it comes to the success of business partnerships, the numbers are discouraging. Research shows there is an 80% failure rate of strategic alliances and business partnerships in the U.S. That’s dismal. A primary reason for the high failure rate of business partnerships is that often they are created in an unplanned, off-the-cuff, unstructured manner. The good news, though, is that partnerships that followed a structured, planned approach had an 80% success rate. The most successful partnerships were carefully thought through and addressed all issues when forming an alliance. There are many factors to consider. So what are the best ingredients for cooking up a successful partnership?
First and foremost, partners must trust one another completely. That trust should be unreserved, unambiguous, and unequivocal. It is not enough to think that the partner doesn’t lie, steal or cheat. It must go well beyond that. A partner needs to be someone trusted to make the call on difficult decisions related to money and taxes, hiring and firing, etc. Is there enough trust to be honest? Partners must trust one another enough to admit mistakes.
While trust is a key factor, business people should think carefully before starting a business alliance with a close friend. Indeed, Neil Patel, a partner of KISSmetrics, agrees. In an article entitled “Why Most Business Partnerships Don’t Work” (published on QuickSprout, July 4, 2013), Patel wrote “…your business partner shouldn’t be your best friend. You need time apart, and you need to have your own group of friends. If you are with your partner every single day, eventually you will get sick of hanging around him/her. You want to have your own circle of friends because it will give you more space. Plus, it will help you improve the business because your business partner will learn different things from his/her friends versus what you learn from yours.”
In addition to diversifying one’s inner circle and having time apart, there is another important reason to be cautious about partnering with a friend. Friendships seldom survive a partnership breakup. It may not be wise to go into a business partnership with a friend expecting to remain friends if the partnership ends.
That said, many friends choose to go into business together and are successful. The key seems to be in thinking things through carefully. Case in point. When Burton Baskin and Irvine Robbins first considered partnering in the ice cream business, Robbins' father advised against it. He thought the compromises each would make in getting the partnership to work would kill the business potential. Instead, Baskin and Robbins each worked on their own businesses for two years before combining Robbins' five shops with Baskin's three stores under one name. Whose name went first was decided by the flip of a coin. Only after successfully launching and running separate businesses did the subsequent partnership work. They didn’t rush into anything.
Partners’ styles of communication should be compatible. If one partner wants to talk things out, and another partner just wants to move on without processing, it’s going to be tough to get those styles to mesh. Likewise, if one person presses and the other stonewalls, it’s either going to blow up or fester. While it’s possible to change communication styles, that is not ideal for a new partnership.
Besides compatible styles, partners should have strong, clear, open and constant communication. Partners that can’t talk or don’t talk generally don’t succeed. Without communication, nothing will get done. Not only should there be regular communication, but there should be excess communication. That is how problems are identified and resolved together. That kind of communication also keeps partners motivated and energized.
Partners should also feel comfortable saying whatever needs to be said to each other. That includes criticism, and confrontation if necessary. If something is going wrong, it is important to be able to say so and do what is best for the business. Partners that can’t do that won’t succeed.
Aligned Work Styles.
Partners should have compatible works styles. If one partner’s goal is to live a relaxed lifestyle on the beach while the other partner wants to work seven days a week in the office, it will be difficult for that partnership to succeed. One will feel that the other isn’t pulling his or her weight, and it will eventually create a lot of problems.
It is important to clearly define and write out every detail and obligation of the partnership in a written legal agreement drafted by a well-qualified, mutually agreed-upon lawyer. Use an attorney who is well-versed in business partnerships. Everyone involved should agree and sign-off.
A limited partnership.
One of the main risks of a partnership agreement is the assumption of liability each partner makes for the other. A way around this is a limited partnership, where the limited partner is not liable for the actions or obligations of the general partner.
Establish roles and controls.
Every business, including partnerships, needs a boss. It is important to define who has operational control. Instead of 50/50, it might make more sense for the split to be 60/40 or 70/30. This clearly indicates the point person for accountability and overall operational control.
Roles should also be clearly defined. Partner shouldn’t be doing the same thing within a company. Especially early in the business, each partner should focus on solving different problems. One partner might handle finances and revenue and the other might deal with production/technical matters. This helps ensure that one partner isn’t stepping on the other’s toes. Of course, there should be some areas of overlap such as strategy.
Hired talent, not partners.
Don’t trade a piece of the business just for talent. If a person has the idea, money and property for a business, but lacks a particular skill to make the business function, hire talent to do that job or outsource it to an independent contractor if the business cannot afford to hire talent full-time. It is not wise to give away part of the business in exchange for skills, unless it is absolutely necessary.
Also, when hiring talent, protect the business idea from being poached by hired talent. Case in point. Carmeron Winklevoss, Tyler Winklevoss and Divya Narendra hired a college buddy at Harvard to finish writing the already partially-written source code for HarvardConnection, a social network meant to connect college students. That buddy was Mark Zuckerberg. A short time later, Zuckerberg came up with a very similar idea called “The Facebook.” Zuckerberg was sued for taking HarvardConnection’s idea and source code. The case settled out of court for $65 million. Facebook’s valuation a year ago was approximately $67 billion.
A clear exit strategy.
The final ingredient needed for a partnership to succeed is time… time to gel… time to learn to work together… and time to figure out all the ins and outs of one another’s styles. No partner is perfect because no person is perfect. It is important to keep expectations realistic and fair. With all of those ingredients combined, the result should be a thriving business alliance.
An exit strategy allows each partner to walk away from the partnership, or provides an option to buy out the other party. This can be done very clearly and simply--and without imploding the operations of a successful business.
QUOTE OF THE WEEK
"If you change partners every time it gets tough or you get a little dissatisfied, then I don't think you get the richness that's available in a long-term relationship." Jeff Bridges