The reasons that good partnerships work are simple: complementary skill sets, shared equipment or expenses, and the idea that one person with “hard” money capital can create synergy with the intellectual capital of another person so both can profit from their venture.
In theory, a partnership is a great way to start in business. In my experience, however, it’s not always the best way for the typical entrepreneur to organise a business.
The tough thing about most partnerships is that they are just like marriages, and if you know anything about those statistics, you know half of all marriages don’t survive. Making a marriage work involves handling a volatile mix of partnership issues: ego, money, stress, monthly overhead and day-to-day expenses. Throw in some employees you must manage, and you have a good idea of the work required to make a business partnership successful.
If you’re thinking about a partnership, consider the following list and avoid the potential pitfalls:
1. Sharing capital instead of expenses:
Whenever you share your own capital – be it money, resources, information or property–you automatically give away your enterprise ability. In a perfect world, the person you are partnering with is upright, full of integrity, and not at all tempted to take this gift and run with it as his own. However, the world’s not perfect. So be careful. Instead, work out an arrangement where expenses are shared in an “associative” arrangement. It also makes it easier to walk away if things go wrong.
2. Partnering with someone because you can’t afford to hire:
This is a partnership killer right from the start. The scene is always the same: Bob has a business idea and Fred has the business skills, but Bob can’t afford to hire Fred as an employee, so they decide to share duties, expenses and profits. What happens is both Bob and Fred end up working against each other, and Bob finds himself liable for Fred’s obligations (financial and otherwise) under the partnership agreement. If you’ve got the idea and someone else has the skill, simply hire him or work out an independent contractor agreement. Don’t give away what you don’t have to.
3. Lacking a written and signed partnership agreement:
Due to the nature of partnerships, every detail and obligation must be clearly defined and written out, and agreed upon by all parties. This is best done with a written legal agreement drafted by a well-qualified, mutually agreed-upon lawyer. Just make sure the attorney is well-versed in business partnerships, and be sure to keep her card handy at all times. You may need that person again when things go wrong.
4. Overlooking a limited partnership:
One of the main downfalls of a partnership agreement is the assumption of liability each partner makes for the other. A way around this is a limited partnership, where the limited partner is not liable for the actions or obligations of the general partner. Again, make sure an attorney well-versed in partnership agreements writes this arrangement.
5. Lacking an out or an exit strategy:
Big-time marriages start with a pre-nuptial agreement. In business and contractual terms, a pre-nup is analogous to an exit agreement. In any partnership agreement, define the terms of an exit strategy that allows you or your partner to walk away from the partnership, or that provides options to buy out the other party. This can be done very clearly and simply–and without imploding the operations of a successful business.
6. Expecting the friendship to outlast the breakup of the partnership:
Again, from the perspective of a marriage, how many ex-couples do you know who are truly friends? Not many, I suspect. So don’t go into any partnership with a friend expecting to remain friends after a partnership breakup. It may sound great to do business with your friends, but remember, in the business world, it’s always business first and friendships second. Also remember, most times when the business ends, so does the friendship.
7. Having a 50/50 partnership:
Every business, including partnerships, needs a boss. If you decide to go the partnership route, make it a 60/40 or 70/30 split. Then you and the business have a point person for accountability and overall operational control. Also, keep your buyout or exit strategy clear and in your favor – benefiting you and saving problems down the road.
Related: Essentials of Working with a Partner
The Whats And The Whys Of Creating A Successful Business Partnership
Partnerships can break businesses. They can also make them fly. How can you ensure your partnerships serve all parties and safeguard the company’s vision?
One of the first businesses I started was a high-school DJ-ing business with my brother. We were going to ride the party wave to untold success. Because I had known my brother all my life, I just assumed that we would be on the same page in terms of the future of our little business, and I didn’t bother to check whether we had the same long-term vision.
When the money started coming in, he wanted to invest the earnings, while I wanted to plough them back into the business. Each of us had a distinct idea about an end goal. I wanted us to be a leading DJ company on the South African event scene. He wanted to preserve the capital. Both of these were noble pursuits, but we neglected to ensure that we were on the same page when we first started out.
The “why” really does matter
Right there is the first lesson that anyone should learn when considering a partnership – you need to agree on the “why”. Simon Sinek wrote that great book, “Start With Why”, which encourages people to begin by finding their purpose. In a business partnership, if your whys aren’t the same, if you don’t have the same fundamental reasons to do what you’re doing, your business isn’t going to fly.
As we all know, business can get tough – all efforts must push towards the same end-point to enhance your chances of success.
If you’ve ticked the “why” box, the next thing to consider is the “what?” What are you and your partner each bringing to the table? When the skills sets are very different, it can be hard to understand value… which can result in resentment on both sides.
For example, if you are an engineer who has built an amazing platform, but you’re just not a people person, you could establish a partnership with a business development expert with loads of connections. From one angle, it might appear that your new partner spends each night having expensive dinners, until he lands the contract that provides your platform with national exposure and gives your business the first step into true operation.
There’s no way to put an actual value to the contribution that you’ve each made, but the business would be nothing without both of your efforts.
Once you’ve defined what your business needs, it’s a process of accepting that even if a different skills set cannot match the blood, sweat, and tears that you have invested in the business, it can still contribute exceptional value to your bottom line.
Partnerships in practice
Even established businesses can investigate partnerships in order to evolve. At Fedgroup, we’ve engaged in in three active partnerships to allow us to innovate in new, future-critical spaces.
Our Impact Farming venture was perfected as a product from a tech and accounting perspective, but would never have made it to market without the deep expertise of our partner Suraj Lallchand in the sustainable agriculture and agritech world.
We have also partnered with the machine learning and AI guru, Marco Cerutti and his company DragonFlower, clearly recognising that this technology is critical to Fedgroup’s sustainability, and further recognising that we simply didn’t have the skills to make fruitful contributions in this space.
Another example is our Internet of Things partner, Techsitter. Michael Stofberg, the head of Techsitter, has allowed us to enter this market with a deep skills set and vast knowledge that we would never have gained in-house in time to meet demand.
A leap of faith
The funny thing about all of this is that my brother and I are still the same people we were in high school, and both of us are using our particular approaches to the benefit of the companies we run. I still want to use my profits to reinvest in the business and grow, whereas his successful property portfolio investment company, Fieldspace, ensures capital preservation and growth.
In all the partnerships I’ve mentioned, there was a meeting of minds. There was a common why, and a complementary what, but in the end when you’ve ticked all the boxes, any partnership is a leap of faith, and sometimes you just have to take it.
Success Fuelled By Partnership
Property Point, the Department of Small Business Development (DSBD) along with the Small Enterprise Development Agency (SEDA) have joined forces to drive market access to a legion of high potential small black-owned businesses.
When SEDA invited Property Point to apply for funding through their incubation fund structure, the pilot project became a game-changing partnership. The aim of the project is to provide incubation funding of R6-7million annually over three years. The Enterprise Incubation Programme (EIP) under the Department of Small Business Development awarded Property Point funding of R5 million for a 12-month programme to incubate 15 businesses.
“The goal of the collaboration was to drive market access to a cohort of high potential small black businesses,” says Desigan Chetty, Head of Operations at Property. “Point Property Point’s demand led-approach to ESD suited DSBD’s objectives to ensure that businesses are able to access markets after going through a capacity building programme.
“Property Point’s objective is to establish a strategic relationship with government to assist in contributing to the sustainability of small businesses, reducing dependency and ensuring that businesses are enabled to competitively access market opportunities,” he explains.
Access to markets, job creation, and sustainable small business growth
The major objective was to access markets, ensure job creation and sustainable growth of small businesses. Each business was taken through a diagnostic assessment and a bespoke business development map was produced.
“One-on-one mentorship was a successful tool to align the objectives of the owners as well as the businesses,” adds Desigan. “In addition, the focus was on profiling the businesses, enabling them to access markets through a solid sales pipeline process, acquiring machinery to increase operational capacity and also accessing technical certifications which are often a barrier to opportunities.”
The power of partnership
The biggest success story would be that Property Point has managed to exceed all expectations of DSBD, according to Khutjo Langa, Property Point’s Monitoring and Evaluation Manager.
“The impact targets were achieved in the first quarter and we have been pushing the boundaries to increase the ROI of the funding. We have added one more business to the initial set target of 15 businesses because we saw a need and a perfect fit for that business to benefit from this partnership.”
Khutjo believes that there is certainly a need for collaborations of this nature, “especially now that we have seen the results that can be achieved if things are done correctly. South Africa needs both private and public to work together to solve the ills of our country. These kinds of collaborations allow easy flow of resources and accountability, thus ensuring that everyone does what is expected of them.”
Working with the DSBD
The small businesses that are part of the DSBD intake will form part of the Property Point alumni network and we will still maintain contact through our monthly Entrepreneurship To The Point networking engagements.
“The DSBD team was supportive and provided oversight to ensure that programme objectives were met,” says Desigan. “The Director General, Edith Vries, attended the launch of the programme and engaged with each of the 16 businesses on the programme individually.”
“We have learned a lot from this engagement,” says Khutjo. “We were stretched but proved that our ten years of existence and proven track record qualifies us to be able to take on such projects and succeed.”
Bradley Kodi, Programme Manager at Property Point agrees. “The experience has been amazing thus far, by no means easy, but a beneficial relationship of interchangeable learning between both organisations,” says Bradley. “I strongly believe this public-private partnership can be considered a success – our impact speaks for itself.”
Alan Knott-Craig Answers: How To Find Partners And Navigate The Partnership Territory
Most businesses are built on some form of partnership, from co-founders to investment deals. Here’s how to find partners and navigate partnership territory.
How do you find the right partners? — Johnny
The best way to find partners is to make it easy for them to find you. Speak at conferences, write a blog, write books, do media interviews, make it easy for people to notice you. With some luck someone will approach you and voila, you’ll have a potential partner. The real challenge is knowing whether they are the right partner.
The only way you will find the right partner is if you are totally honest about yourself. The only way you can be totally honest about yourself is to know yourself.
To know yourself, you need to take risks. Lots of risks. Fall in love, start businesses, travel, meet new people, do public speeches. Keep taking risks. Sometimes you’ll win, most times you’ll fail.
It’s in failure that you’ll find out how you respond to setbacks, what is important to you, what type of people you gel with. One of the biggest risks you’ll take is choosing a business partner. If you make a mistake, it’s painful, but you then know more about yourself and will find it easier to find the right partner next time. Take risks.
How do I discipline a senior executive in my business? We’ve been partners for over two years, he’s helped me enormously, but he recently crossed a line with one of our staff members and I’m not sure how to handle the situation. — Busi
Start with having a disciplinary code and disciplinary process that describes the steps to be taken in the event of an employee contravening the code.
You then need to call in your partner, have a witness present, and get his side of the story. If the issue can be explained away, problem solved.
If not, you have to follow your disciplinary process to the T. If anything, you must be overly strict. You must over-react.
You have to show the rest of your staff that no one is above the law. If you don’t, don’t be surprised if your staff become demoralised and disrespect you and your disciplinary code.
I’m a CEO of a small business. We’ve recently had some HR issues. What’s the right response to gender or racial discrimination in the office? — Vusiswa
No company in South Africa can tolerate gender or racial discrimination. Immediately start a disciplinary process, act firmly and publicly. Make an example of the situation. Draw a line far away from anything that could be construed as offensive, and make sure your entire team knows where that line is.
The first offenders should be used as public examples. Tough luck for them, but the best way to save others from doing the wrong thing is to over-punish the first offender.
I’m losing the confidence of my investors. What do I do? — Belinda
There are a couple of reasons for losing investor confidence:
- They think you’re incompetent. Only you know whether that is true. If true, there is no escaping this truth. Your only option is to find someone else to run your business. That action will rebuild investor confidence.
- They think you’re a liar. If you’re a liar, you will eventually be caught out. Investors will forgive incompetence, but they’ll never forgive fraud.
- You are not delivering on the promises you made. This doesn’t necessarily mean you are incompetent. It means you over-promised. The solution is simple: Stop over-promising. If you think you’ll do 20% sales growth, promise 10%. Get into the habit of giving yourself a margin of error. If you keep your promises, your investors will back you.
Read ‘Be A Hero’ today
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