Business Partnership Mistakes You Should Avoid

Your ability to succeed and grow your business will be determined largely by how well you learn the art of the business partnership.

I’ve been in deals with great partners, mediocre partners, and terrible partners. I’ve had more than one deal blow up in my face solely because I chose the wrong partners.

Your partners define everything about how successful your business will be.

Good Partner, Bad Partner

I want to show you a framework that my father shared with me for managing a business partnership that he uses as a guiding light (especially in tough times) to determine what to do next in his business.

He calls this “Good Partner, Bad Partner.” It’s not a very complicated way to look at a business partnership, but its power lies in its simplicity.

Business Partnership Grid - Good Partner Bad Partner

Whenever you find yourself struggling with a business partnership, its time to take out the grid and make decision about the best course of action. When I’ve had to agonize over decisions about whether to double down or shut down – this grid has provided me with tremendous clarity.

If you’ll notice – the key factor on the grid is not the quality of the deal itself, but rather the quality of the partners.

Regardless of the economic opportunity, bad partners can sour a good deal. Any deal where you have a bad partner you will likely end up needing to exit the transaction sooner or later.

On the other side of the coin, good partners can save even a bad deal. If you have a good partner the right choice is to stick it out make the business partnership work.

Business Partnership Lessons

The challenge of course is finding and ensuring that you are dealing with good partner first and foremost. You sure can save a lot of headaches (and heartache) on the front end by avoiding these critical business partnership mistakes.

No method for selecting the right business partners this will ever be perfect, but building on the lessons of seasoned entrepreneurs is not a bad place to start.

In that vein, I wanted to share a few insights and lessons that I have learned along the way and a few that I have taken from business people who have seen many more partnerships than me.

Much of this research was put together by veteran entrepreneurs Bill Hammack, the CEO of NewOrleans.com, and his business partner Lou Zimmers who served as former CFO of Michigan Bell and was a highly successful technology and publishing entrepreneur.

Seasoned businessmen on their own, they also interviewed several entrepreneurs and top executives from the likes of Fortune 500 companies and billion dollar private conglomerates to put these lessons together.

What they found were a striking number of common patterns why business partnerships fail.

Unequal contributions (real or perceived)

Let me repeat that last part – real or PERCEIVED. Even a perceived imbalance can throw a business partnership into chaos. It’s absolutely critical to define the role of each partner in detail and communicate as clearly as possible from the start. Everyone should be on the same page about what expectations are and what each partner is contributing to the deal.

Failure to reduce everything to writing

Everything needs to be “put on the table.” Especially compensation! Give the document to a disinterested party to find poorly defined terms.

Failure to fully define expectations

Expectations are not easy to verbalize. Each person hears it differently (reflecting his or her background and self-interest). You even have to define “Success.”

Partners with different objectives or bad chemistry

Understanding your partners objectives and clearly communicating your own is essential on the front end of any deal.

Lack of integrity.

While it’s impossible to ever truly know if your partner has a lack of integrity, this underscores the reason why its so important to focus on “fit” and getting to know each other before entering into a business partnership.

Poorly Defined “Exit Strategies.”

​How you value the enterprise is always a contentious issue. ​You need to play the “what if” game to identify the possibilities. A failure in a business partnership has some of the same attributes as going through a divorce. Like a divorce, you need to identify what was brought into the relationship and what was created together.

When circumstances change for one of the parties.

A business partnership can sometimes fail when circumstances change for one of the partners (e.g., health, family concerns, etc.). These changes cannot be anticipated. The best that can happen is an evenhanded unwinding of the business partnership. That is why it is critical to define exit strategies up front.

Successful Business Partnerships

So what are the secrets to a successful business partnership? With all of these mistakes in mind, here are a few key things to do to make sure that you start your business partnership off the right way.

Communication

There are three kinds of communication. No communication, miscommunication, and over-communication. There is no middle ground. If you are not over-communicating then you are either not communicating or you’re miscommunicating. Period. This applies to a business partnership just as much as it applies to everything else in your life. Don’t beat around the bush. Be as honest and direct with your partner on what you want as possible.

Understand Your Partner

Understanding comes from putting other people first. Focus on providing value for your partner. Spend more time listening than talking. Make sure you understand clearly their goals and objectives.

Fit First / Business Model Later

Get to know each other and focus on “fit” before you dive into the specifics of the business partnership. Learn about your partners on a personal level and the business side of things will flow naturally.

Begin With The End In Mind

To quote the famous lesson from the “Seven Habits of Highly Effective People” – starting with the end in mind helps your business partnership avoid a lot of headaches along the way. Define your exit strategy and your goals up front.

Put Everything In Writing

This comes directly from the mistakes above, but it bears repeating. Fully define your expectations on the front end. Sit down and have a long conversion defining exactly what everyone brings to the business partnership and what their roles and expectations are.

What have your experiences taught you? Have you had success or failure with a business partnership in the past? What was the biggest lesson you learned? Let me everyone know in the comments below.

If you enjoyed this post, I’d be very grateful if you’d help it spread by emailing it to a friend, or sharing it on Twitter or Facebook. Help spread the word about what it takes to make a business partnership successful.

Thank you!

(Lastly, hat tip to entrepreneur Rob Kelly who has another great post on how to create a successful business partnership)

 

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Matt Bodnar

Matt loves to focus on making deals and big picture strategy. He sets out each day to give more than he takes from every interaction and produce as much value as possible for his partners and the people he works with. As a partner at Fresh Hospitality Matt invests in and operates businesses across the restaurant value chain including agriculture, production, retail distribution, real estate, technology and restaurant operations. Matt previously worked as an import/export consultant in Nanjing, China and spent several years on the Interest Rates Desk at Goldman Sachs before returning to his family roots in Nashville.

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