The Top 9 Reasons Why Business Partnerships Fail
Before you get into a business partnership, consider these nine factors.
Finding a business partner is easy, but finding the right business partner is difficult. Neither party goes into a business relationship with the intent of failure. Unfortunately, it happens way too often.
A business partnership may arise when two friends come up with an idea, or even when two people in a marriage work together. No matter the case, people innately have differences. These differences can be easily overlooked if the time and due diligence is not done to identify and address them beforehand. For a business to be successful long-term, it requires alignment between the two parties and stable management.
Here are the most common factors I've seen throughout my professional experience that cause business partnerships to fail:
1. Differing life stages
Knowing the life stage of you and your partner matters. For example, if you are an empty nester and your business partner has two toddlers, both of your life stages are dramatically different. This doesn’t mean either of you can’t provide value to the business. It just means both of you will have different priorities in life. You can’t expect a parent of two young children to drop everything and fix something. On the other side, you shouldn't expect an empty nester to have the energy to pull all-nighters for the business. Simply knowing and acknowledging the impact of differing life stages can make you aware of possible challenges.
2. Lack of hunger
Motivation and drive are important elements for any business to work. Do you and your partner have a hunger to make the business work? More importantly, do the hunger levels match? If you’re extremely hungry and your partner is not, you could end up fostering resentment towards them and vice versa. Hunger levels will vary over time. Rarely do they match exactly in every moment, but it’s important that they are relatively matched over the long haul. A long-term mismatch in hunger levels between two people is bound to lead to frustration — and ultimately failure.
3. Misaligned end goals
Having an aligned end goal is critical. Before getting into the partnership, everyone involved should outline the end goal for the business. Is it to create sustainable long-term profit? Is it to sell? Is it to pass on to your kin? Knowing the end in mind will make moving the business forward a lot easier. End goals can change as well. A few years into the business, one party may want to remove themselves, so ensure that you cover how you're going to deal with these possible scenarios.
4. Differing values
People are value driven, meaning they make decisions based on their values. Every person consciously and unconsciously prioritizes their own set of values. For example, you may value saving costs to improve profits, while your partner values spending on marketing. The end goal is the same, however you both see different ways to achieve it. Ensuring that your values are somewhat aligned will save you a lot of headaches and arguments. On the flip side, if you and your business parter are aligned, you’ll be able to make decisions faster and move your business forward with fewer hiccups.
5. Unmatched risk tolerance
In some ways, a business is similar to an investment portfolio. Running a business is risky and requires a certain level of tolerance. However, businesses require a lot more hands-on work and attention. Your risk tolerance should be somewhat aligned with your partner. If you’re a risk-taker and your partner is risk-averse, it could lead to a fallout. This factor is especially important when you make a decision that leads to loss for the business. Be sure both parties are aware of the risks and are in agreement to the degree of risk the business takes.
6. Poor individual performance
Average performance doesn’t cut it in business anymore. Both parties should have a high level of performance to give the business the best chances of thriving. The environment is way too competitive to keep underperforming businesses afloat. For the business to perform at its best, both partners need to be performing at their best.
7. Lack of mutual dependence
You should constantly ask yourself is “Do you need your partner?” and “Does your partner need you?” If you answer “yes” to both, you’ll have better chances of thriving. When one party is not dependent on the other, business partners can lose focus and business relationships fall apart.
Don’t confuse dependence with being needy. Being dependent just means you’re better off being in a partnership than not.
8. Lack of security
Finding security in a business partner means they are stable enough to continue in the long run. This includes areas such as financial, mental, or even relationship security. For example, businesses can fail because one partner is irresponsible with their personal finances and can’t afford to continue being in the business. You may need to have uncomfortable conversations, but they will ultimately save you pain in the future.
9. Lack of trust
Could you walk away from your business for a month and allow your partner to run the show? If not, you may want to reconsider. For any relationship to work, it requires trust. When it comes to business, even greater trust is required. You’re not just dealing with your own life, you’re dealing with the lives of your employees and clients as well.
Before entering your next partnership, list each of these factors and score them. Now you know who you're dealing with.
Entrepreneur Leadership Network Contributor