Business partners, like parents and spouses, are rarely perfect. The acid test of a good business partnership is whether each partner feels better off with the partnership than without it.That requires each partner to perceive the business as a success and to regard the contributions of his or her partners as critical to that success. Only embark on a business partnership that promises to pass the test.
Here are a few things to keep in mind when evaluating a potential partnership:
Achieving success will require you and your partners to agree on what success looks like. The most frequent objectives of small-business owners are to be profitable and have highly satisfied customers.
But clearly, entrepreneurs may have other goals relating to size, growth, innovation, risk-taking and the cultivation of respect and recognition within your industry and community.
It will be difficult for you and your partners to agree on strategy and tactics if you don’t agree on the definition of success. Business goals are often a reflection of your personality and your stage in life. As these change, your goals may change, too.
One of the most obvious reasons for partnering with others is to enlarge the skill mix of ownership.
While you can hire someone with almost any skill, you can’t hire individuals with the same level of commitment to success that ownership has. The time-honoured division of labour into “outside activities,” like sales and business development, and “inside activities,” like operations and management, still makes sense for many businesses.
More recently,having a technology savvy partner can offer huge advantages for many types of firms. Even if partners play similar functional roles – as is often the case in small, professional service firms – it’s useful to have partners that cater to different types of clients. Skill differences are among the most healthy and productive differences that business partners can have.
Business owners make hundreds of decisions about how to run their business: whether to operate a formal or informal office environment; whether to have many meetings or few; whether to have an open floor plan or individualised offices; whether or not to have company outings; how frequently and how best to conduct employee reviews;the type and number of administrative staff; and so forth.
For the most part,there are not any right or wrong decisions, no “best practices” that work for every company. Such decisions are often simply a matter of taste and aren’t worth arguing over. Yet argument is inevitable unless you and your partners’ tastes are compatible to begin with.
Share (and Often Share Alike)
While you might suspect that compensation comprises one of the most difficult partnership issues, in many cases, it may be among the simplest. Unless there’s a good reason to do otherwise, partners should receive a fixed share of profits (and in many cases, an equal share of profits).
Performance measurement systems only exist because of “free rider” problems in larger organisations, that is, the tendency for people to slack off when their contributions can’t be directly observed. In a small organisation, it’s assumed that everyone is doing everything possible to contribute to the success of the business. If that’s not the case, the partnership will have problems that no compensation system can fix.
Trust – but Verify
As Milton Friedman, Ayn Rand and generations of economists have pointed out, people pursue their own self-interests. That’s as true of great business partners as it is of anyone else. But business partnerships work in spite of self-interest because partners have mutual interests (shared goals). But shared goals aren’t enough. Trust and transparency are equally important.
The importance of trust is obvious: You’d never go into business with partners whose honesty and integrity you questioned.But transparency in business processes is also critical.
You and your partners may have discussed and agreed on critical matters involving pricing, contract language, budgets, expense accounts and the like, but the temptation to effect self-serving change at the margin is always present. The most effective way to prevent this behaviour and the conflict can lead to is to ensure that the decisions of all partners are as transparent as possible.
On a practical level,this means ensuring that critical business documents and data are continuously updated and available for easy inspection by all partners.
One of the most reliable predictors of partnership success or failure is whether partners improve the decision-making process.
Partners with shared objectives and a shared understanding of how to reach those objectives make better decisions as a group than they would on their own because they benefit from the diversity of knowledge all the partners bring to the process.
Conversely, with the wrong partners, shared responsibility for decision-making will slow the decision-making process and lead to worse decisions than the partners could make on their own.