Often, business partnerships are compared to a marriage, and for good reason. Similar to a marriage, business partnerships involve separate entities working together towards a common goal. There are compromises involved along the way and the willingness to sort out differences, for a partnership, whether marital or business, to work.
While there is no consolidated data on how many business partnerships fail within their first year, the figure ranges anywhere between 50% and 80%. That’s a high failure rate. The exact reasons for failure might differ between partnerships. But if you talk to people who have been involved in failed business partnerships, you will see a pattern emerge.
Common Reasons for Failure of Business Partnerships
1. Partners with similar skill sets
When people who specialize in similar fields come together, there is bound to be difference of opinion. If these people are in positions of leadership, things get worse. While difference of opinion is healthy, too much disagreement can stall important decisions. Moreover, partnering with people who have similar skill sets can leave you lacking in other departments.
2. Unequal Effort
This situation arises when one or more partners feel like they are putting in more resources – time, money, or both – than other partners. It also arises when one partner makes the bulk of the financial contributions while others promise to make up for it in sweat equity. If a partnership is to succeed, no party should feel wronged or taken advantage of. At the time of drawing the partnership contract, make sure you quantify the contributions expected from each partner.
3. Differing Motivations
Shared values are important for a business partnership to succeed. For instance, if one partner envisions a global scale for the business while the other is in it to make a decent living, the partnership will most likely fail. On a similar note, starting a business just to escape the 9-5 humdrum is never a good idea.
4. Power Tussles
Ego clashes are all too common in partnerships. They spell doom, though, when there is no clear demarcation of roles and responsibilities between different partners. When one partner tries to assert his dominance over others, things can quickly go south. The remedy, again, is the partnership contract. Try and spell out responsibilities as clearly as possible. Indicate voting share, too. As far as possible, every partner should make equal financial contributions to the partnership. Unequal financial contributions can lead to a skewed power structure.
5. Absence of Success
Starting your own business can be very romantic. However, a lot of times, people fail to take into account that sailing your own ship can be hard. Everyone is not a risk-taker or a hustler. Prolonged lean periods often see partners leaving the venture. As a precaution, it is a good idea not to partner with someone who is uncomfortable with not getting a steady paycheck.