What Makes a Partnership Work?
Lessons learned from successful partnerships. April 24, 2006
I'm interested in hearing from those of you who have a successful partnership. Many people advise against it (high failure rate), yet some of the most successful operations I've seen have two people running the show. I'm not interested in the legal part of this discussion (have attorneys for this), but in the practical issues. The benefits of having someone to share the risk, bounce off ideas, pool resources and expertise seem really attractive; what's your experience?
(Business and Management Forum)
From contributor S:
Have not had good experience. In my life before having a cabinet shop, I was a partner (with two other women) in another business. Problems only occurred when our different business styles interfered with the operation. Employees also play one partner against another. Since marrying a fellow who owned a cabinet shop, we have shared the business. The only thing that keeps this sane is that I run the operation and business end (the shop, believe it or not) and my husband is in charge of sales and customer contact. When I say I run the shop, I am overall manager of those people who actually know what they are doing in the shop, but the final word on operations, if it comes to that, is mine. I usually touch base with my husband, but, again, the final word is mine. We collaborate. It is important that each person has his area of responsibility and that employees know who is in charge of what so they don't become confused and get mixed messages. Two people who are not married will have different problems, but I suggest you talk about the different responsibilities and actually split the areas of management.
From contributor P:
It's worked well for me, but this is due to the particular skills/experience/personalities of my partner and me. We entered into the partnership as a strictly business proposition, but we also liked and respected each other. Like marriages, partnerships live or die because of the compatibility of the partners.
From contributor G:
Contributor P, how do split up the labor?
From contributor K:
My wife always has the last word when it comes to important decisions. After all, I have to live with her. Aside from having my spouse involved with my business, I started my shop assuming I was going to be partner to a guy I worked with. He was the salesperson but had no idea how to build cabinets or run the shop. He would get the work and I would build it. The problem was that he would design the build incorrectly, bid immediately without discussion of costs, take the wrong measurements, etc. Since he was the salesperson, he took it upon himself to get the deposit, contract signed, measurements, etc. on the initial meeting date. Mistakes, mistakes. It never ended. After a while I decided that if he wasn't going to involve me in the design and measurements, even the financial side, I was going to leave. I ended up getting my own shop and taking some of his client base. Needless to say, I'm in business and he isn't. Be careful who does what.
From contributor B:
After my experience in a partnership, I am stumped to explain the ones that work. The better the company does, the harder they work to burn you.
From contributor J:
I've given this matter some considerable thought, and a bit of research too. My conclusion is that there needs to be some kind of natural division, such as sales and production, where each partner contributes but where it is difficult to compare their work. Where comparisons are easy, it won't be long before resentments arise, for instance over hours of work or quantity/quality of work. Partner's wives/husbands can cause problems as well, pressuring to take more money out of the business or longer vacations, etc. Partnerships can work well, but are similar to marriages - if one half isn't trying, then trouble is on the horizon.
From contributor V:
I have done small business consulting, with executive level business experience and a law degree. I've owned 2 successful small businesses (construction and exotic metals fabrication - about $2.5mil in sales). I believe, and success tells me, that a partnership needs as much design as a cabinet, truss or building. The biggest problem that partnerships encounter is that there is no business planning conducted before, or shortly after, the relationship begins.
From contributor N:
When partnerships succeed, they're awesome - when they fail, they fail miserably.
Some observations I've gleaned after 11 years of a successful partnership:
- Partners must work equally. Tracking each other's time is important so one partner isn't working longer than the other (unless there's a wage based on time, and profits are split).
- Partners should share some traits, but *not* share all traits. They should be organized, should be able to prioritize, etc., but it's important to have a clear division of responsibilities with as little overlap as possible. Looking over a partner's shoulder is a waste of resources and duplicated effort. Each partner should do what they do well, and in a good partnership, what one partner is good at, the other isn't good at.
- Partners *must* respect each other, and that's probably the most important item. When mutual respect starts to slip, so will the partnership.
- Partnering with a friend is likely the toughest scenario... can easily ruin a good friendship. If you do partner with a friend, work extra hard to spell out the biz plan, and keep in mind that combining work and social life means you may very well end up seeing your partner so much, you won't get needed breathing room.
In the end, I think contributor J is right on the mark. Plan, plan, plan - have your plan reviewed by lawyers, accountants, and possibly consultants, and document the daylights out of all of it. Most jobs that turn sour are due to lack of communication between the customer and the business owner, and the same holds true for partnerships. If it's documented, then there's little chance of "I thought we agreed...". When things are documented, the conversation then becomes "I think we should revise our policy...", and then constructive discussion begins, not dangerous posturing.
From contributor P:
It's simple. I do all the work. His input is financial. I draw a salary, and he doesn't, but we split the profits. It helps that he isn't relying on this for his income. He has had several other manufacturing businesses and I greatly value his wisdom and experience. Another aspect that contributes to our success: the business didn't start up as a partnership, rather he bought in after I had been operating for 17 years. So he had a very good idea of exactly what I was capable of, and I was able to tap into capital and experience that I needed to continue to grow. There have been some twists and turns in the road since we hooked up, but things have gone reasonably well since then. I would be much more wary of two people, each with limited capabilities, trying to start up a business that relies on both of them performing at peak level for success. I believe that many of the horror stories are associated with that scenario, because as soon as one partner drops the ball, the whole thing goes sour.
From contributor S:
A business partnership is like a marriage, and most of those fail. The work division ends up less than 50/50 in someone's mind. Take it slower, build slow and steady and own it yourself. Employees are a lot cheaper than partners, and if an employee crosses you, you can replace them... a partner, you have to live with no matter what. My hat is off to you guys who can involve the wife in the business. I've been married 34 years, and found a long time ago it works best if I don't tell her when to clean the oven, and I decide when to buy tools.
From contributor R:
I agree that partners must work equally, however, what if they don't/can't? What if one is able to work overtime (on occasion), enabling the business to complete jobs sooner, to accept more jobs, or both, while the other has other legitimate commitments (family or otherwise) and can't? Just curious as to what others have done in these situations?
You could agree up front on the extra work to be done and what the extra compensation would be, but what about the unplanned times when you have some extra time and are willing to put in the extra effort?
Next, what form should that compensation take?
- Extra pay for each occasion it occurs - or-
- Extra % of the profit at the end of the year (assuming it would be higher due to their extra effort) - or -
- Accrue extra vacation time - or -
- Just a big fat "Atta boy/girl"
From contributor W:
The issue of equality is one that is easy to hold up as an ideal, but it is hell to quantify, let alone achieve. It's easy to divide profits equally - you're dealing with one number. But try to determine equality in inputs. Now you have numerous factors of time, capital, etc. that may not be so easy to attach a value to.
On a philosophical level, I believe equality is not only difficult to achieve, but unnatural. All sorts of natural systems are stable only when there is an imbalance, or when there is fluctuation between states. Try to think of a natural system that works in a state of equality. You will be hard pressed to find one. Big fish eat little fish. Monsoons and other weather patterns. Dominant countries/economies. Species extinctions. Atomic forces. (Maybe particles and antiparticles are an exception?) These systems may achieve a state of balance, but actual equality is almost nonexistent. You have forces of different strengths working against each other in the presence of other forces, and the systems are too complex and too chaotic to sustain any level of true equality.
So believing this, I am inclined to think that partnerships based on a notion of equal inputs for equal returns are on very shaky grounds. It has to be planned to the hilt, but that doesn't guarantee success, it only increases your odds. You're still dealing with two humans.
From contributor U:
Partnerships are like marriages. It's not going to work as a 50/50 deal - only if you each put in 100%. If you aren't both trying 100% as already has been observed, resentment will breed. This will be especially true if the business is struggling. If one of you is sales and the other manufacturing, what happens when he oversells your ability to produce? You're working tons of hours and he is leaving at 2:30 because you can't keep up. Don't expect him to help in the shop, unless it is 100/100. Without a well thought out plan, you will be doomed to frustration.