Picking wrong partner can ruin a business
Nearly a year after Courtney Jackson launched her clothing business, she took on a partner to help manage the company’s growth. A month into the partnership, something was wrong.
Jackson’s partner was supposed to handle half the workload, but that didn’t happen. So, Jackson began taking on more of the responsibilities. When Jackson tried to discuss the division of work, “she was a little defensive at first, and asked me to be patient.” The situation didn’t improve, and they agreed to part last year, just three months after the partnership began. But under their partnership agreement, drawn up without an attorney, dividing the company’s assets would have weakened it financially. The partners decided to close, and Jackson lost her company.
The failure of a partnership often brings hard lessons for company owners. Problems often start when prospective partners don’t think through all the ramifications of what they’re doing – including whether they’ll be a good fit. They may not be clear on their expectations for each other, and how they’ll resolve conflicts. And they may not consider the legal consequences of how they set up their partnership, and how difficult it might be to unwind it; rather than hire an attorney, they write their own agreement that can be problematic when the relationship turns sour.
Jackson’s experience taught her that she needed to be more strategic in her business decisions. And in choosing a partner – Jackson had met hers through a mutual acquaintance.
“You need to make sure you know the person well enough to know what their strengths are and their weaknesses,” says Jackson, who lost her enthusiasm for retailing after the company closed. She now is the sole owner of an information technology company in Tampa, Florida.
Owners are so caught up in the idea of finding a partner to get investment money, help and expertise that they don’t do the kind of due diligence they would do before hiring an employee, says Michael Howard, a management professor at Texas A&M University’s Mays Business School.
“What will happen when you grow? What’s your process for resolving problems? How should we manage this project? If you ask these kinds of questions, it could reveal a lot of problems in advance,” Howard says.
While partnering with strangers has potential pitfalls, so does going into business with friends.
“It’s important to have trust and strong social ties, but if maintaining them comes at the loss of business success, that’s not really appropriate,” Howard says.
Partners also need to be sure they share the same goals for the business, or at least understand what their differences are.
“You need to talk up front about what your expectations are, for long term, short term, two-year and five-year picture,” says Sandy Jap, a marketing professor at Emory University’s Goizueta Business School.