So, you and your really good friend have a great idea for a business. You look at each other and say, “let’s do it together!” And, off you go…blissfully unaware that up to 70% of all business partnerships fail.
It makes perfect sense to want to be in partnership with someone else. Starting up a business on your own can be lonely and intimidating. Having a partner can seem like you’re part of a team with synergy to work together. Plus, it would be great if your partner has funds to invest in the business.
And, that’s how you can run straight into the mistakes that will send you down the white rabbit hole called how-did-this-go-wrong.
I can tell you, from first-hand experience, that a partnership breakup is brutal. It’s nearly as bad, and in some cases worse, than a divorce.
All your dreams and hard work go up in smoke, and that may not be the worst of it. It’s not unusual for a former partner goes on the warpath deploying nuclear, radioactive options. Ask around in any business networking group and you will hear scores of partner breakup horror stories.
A Business Partnership Is Like a Marriage Without the Good Stuff
A business partnership is like a marriage, without the good parts that keep you married, like kids and sex.
Think about it…50% of marriages break up, and those people love each other. Entrepreneurs get into partnerships for a variety of reasons –
• Labor –If you have a business partner you can get a lot more work done without worrying about paying a high-priced employee.
• Splitting Up Tasks – One of the best things about having a business partner is that you can divide tasks and not worry about other aspects of your business. And, each partner will be able to specialize on certain tasks, which will make each more efficient.
• Money – One partner can fund the startup and keep it going. The other partner typically has no money but has expertise.
• Sharing the Ups & Downs–Sometimes things will be going great and other times they won’t. By having a partner, you can motivate each other to stay on top of things.
• Brainstorming – when you think of something cool and want to bounce it off someone, what better person to do so with then your business partner?
• Networking– you can never have a big enough network. With a business partner you can double your network
Exciting, huh? We’re going to work together in common cause and make lots of money. Yea!! STOP!!!
For starters, a partnership is a legal entity. According to Free Advice: Legal “Partnership liability can depend on the type of partnership, as well as your position in the partnership. It can also depend on the laws of the state in which you do business. In a general partnership, each partner has unlimited personal liability. This means you are financially responsible for whatever your partner does.
Partnership rules usually dictate that whatever debts are incurred by the business, it is the legal responsibility of all partners to pay them off. This is true even if one partner enters into a bad contract, or rear-ends another car while working. All partners are responsible for paying the debts.” (at this point, I’m going to state, unequivocally, that this is not legal advice. Seek the advice of an attorney, and do your homework. Start with https://business-law.freeadvice.com/business-law/partnerships/partnership-personal-liability.htm)
Partnerships Fail for a Lot of Reasons
Considering that partnerships are usually launched with such great optimism, what could go wrong?
• The partners didn’t adequately define their vision and reason for existence beyond simply being a vehicle to make money. People often join partnerships for financial reasons but leave because of values, career or life goal misalignment.
• Expectations weren’t clearly set from the get-go. Who does what and when are they supposed to do it. What you don’t want is one partner working their butt off, while the other is kicking back, enjoying the fruits of the other’s labor.
• You don’t share common values and ethics. This is a subtle and yet extremely important element for a successful partnership. Egos can be easily bruised. Animosity builds up. Honesty and integrity may be more important to one partner than the other.
• Communication wasn’t clear and honest. Just like in a marriage, it is important to work things out and talk frankly frequently. Trust is critical to a successful partnership.
If you enter into a partnership, you must make a commitment to the other partner, much like a marriage. Not only must that person and their interests coincide with yours, but you must always give them the loyalty and concern that is due to a partner. You form a unit, and protecting that unit is paramount.
Unraveling a partnership can be a daunting, miserable experience. If the partnership has been in existence for a period of time, there may be complex financial issues. Each partner may have assets and intellectual or material interests at stake. From my experience, there are almost always thorny emotional disputes behind a partnership dissolution.
Happily, there are other options. One is to start your business as a sole proprietor and enter into joint ventures with other sole proprietorships. Each joint venture is a separate agreement. You get all the benefits, without the liabilities, while preserving your independence. If it doesn’t work out, go your separate ways. Doesn’t that sound like a better alternative?
Vicki Garcia is the Co-Founder of Veteran Entrepreneurs Today (V.E.T.) & President of Marketing Impressions.
Email her at firstname.lastname@example.org and register for free coaching at https://www.surveymonkey.com/r/veteransinbiz