Why most partnerships fail

Everybody says partnerships don’t work and I have been talking about this for many years in other articles on our website.

There’s one massive reason for this though and it’s the main reason that partnerships fail. Sometimes they fail and continue to trade like a dysfunctional family or sometimes they fail and split up.

Fail and continue are the ones where all partners are earning less than they could earn because they haven’t got their deal right.

So let’s imagine a partnership between four people. We’ll call them Anna, Bob, Claire and Denis.

Somebody has got to go and do the sales. Let’s say that’s Anna. Now imagine if you are Anna, the one who goes out and signs up all the business. It may be that you don’t work quite so many hours as some of the other partners in the business. It may be that you actually have a bit more fun than they do. Getting business can be quite fun can’t it with all that networking and business lunches etc. But what you do can be pretty intense and you have to be on top form all the time.

When you go home at night you know that without your contribution the business simply wouldn’t exist. There would be no new customers and no way of earning revenue. So the fact that you might not put in quite so many hours doesn’t matter. Your contribution is the most important.

But then again what if you are the one that always has to deliver the work? Imagine you’re Bob, the one who has that responsibility. You get passed the lead from Anna but you know that the work has now got to be delivered. Profitably! That requires a lot of hours.

We all know that when we submit a sales proposal and sign it up we all think that we are going to make huge amounts of profit. But in reality, we probably didn’t anticipate some of the problems and challenges that there would be along the way. We’ve got customers to deal with and customers change their mind. And as much as we would want to be able to charge more money every time that happens, sometimes you just can’t. So to turn that sale into actual profit takes a lot of effort. Far more effort than it takes to make the sale doesn’t it? And that’s why Bob feels a tad aggrieved at the hours that he is putting in. Most of the profits should go to him, shouldn’t they?

Well maybe. Because there is still a business to run, isn’t there? Somebody has got to deal with all the administration, turn all that work into invoicing, collect the money from the debtors and as the business grows there will be staff to manage as well. Loads of responsibility and loads of stress. And that’s Claire’s working day.

You know the sort of days when you come in, you’ve got a lovely clean “to do list”, you know exactly what you’re going to do that day and actually you might slide off an hour early and get back home to spend some time with the kids.

That’s fine for the first two minutes because at 8.32am you get a phone call. And it’s a problem.  And suddenly the next two or three hours are spent dealing with that problem.

Once that’s sorted there’s a whole load of emails to answer and there’s members of staff standing at the door waiting to ask you questions and now you got payments to make to suppliers and you have just been advised that there’s not enough money in the bank account to pay the VAT bill in three days time. You are the one carrying all the stress. All the others don’t have to worry about that. They can just go doing the sales and delivering the work. What a great easy life that is. You are the one that should be gaining the majority of the profit aren’t you?

Well perhaps. Because there’s someone else who has a bit of an opinion on that.

This business didn’t get started from scratch without the capital that was invested by the original owner, Denis. He’s semi-retired now, well completely retired if you ask the opinion of the other partners because when he comes in he doesn’t actually do much work at all.

But let’s look at it through his eyes. He built this business up in the first place. Many of the customers are only customers either because he brought them in originally or because they have come to the company as a result of its name.

Plus, he could have sold the business years ago. There was a sale agent who wanted to sell it for him and suggested a huge price which would have paid off the mortgage and given him enough to live on for the rest of his days. But he didn’t want to do that because he had a loyalty towards Anna, Bob and Claire.

But he’s the one that took all the risk and they don’t seem to appreciate that. He’s the one who could have potentially lost his house along the way as a result of the money that they borrowed and is the one whose money is still at risk now. He should get the lion’s share of the profit shouldn’t he?

In the real world it’s unlikely that you have a business with four different people working in it all of whom have very clear and distinct divisions as above. In reality different people are involved in different aspects of those four things and some of them have a bit of a mix.

But even if two people are doing exactly the same thing, you can guarantee that at least one of them (or probably both) will consider that they do more work than the other.

Clear, open and honest debates

And that’s why it’s crucial in any partnership to sit down and have a clear, open and honest debate not only about who does what but about the rewards that each party should get based on their contribution.

Fixed percentage apportionments almost always give rise to disputes further down the line.

It will be much better in a partnership if there is a formula which is somehow based on performance. That’s easier said than done and is way beyond the scope of this article to try and suggest methods of how you can do it. But it can be done and A4G have a huge amount of expertise in that arena.

Partnerships do work but only when the rules are clearly set out from the start and everybody is incentivised to achieve their maximum performance and one which benefits everyone.

Give us a call on 01474 853 856 to discuss with one of our experts how you can find the formula for a better working partnership.