Internet Radio- 21st Century Entrepreneur | “Key Fundamentals of Creating Business Partnerships” | Aired Friday, November 13, 2015 at 12 NOON
This Friday November 13 we will be airing another episode of “21st Century Entrepreneur” which is an Internet Radio Program aimed towards educating business owners and their advisors on how to make their businesses more successful and profitable. It is a show hosted by JC Maldonado who is the CEO of BizGro Partners and Joan Pelzer, the founder of Joan Pelzer Media. This week we will continue November’s Theme of “Business and the Law.” We will be discussing how to create and negotiate business partnerships. We will discuss this theme with Jorge Salva and Todd Kulkin who are both seasoned business attorneys and both of whom have their own legal practices in New York City. Below is a blog written by JC Maldonado addressing business partnership issues.
Further, we have had some interesting shows of late which have featured interviews with successful entrepreneurs. To hear recorded versions of these shows, click on 21st Century Entrepreneur Archives. Also feel free to chat about our show using hashtag #21stCE or #BizGroAlliance @BizGroPartners @21stCERadio. If you have any questions email us at email@example.com.
5 Reasons Why Formal Partnerships Oftentimes Fail in Business
If you think the divorce rate is high in the United States, you may want to check out the success rate for business partnerships in the United States. While the chances of success increase in business through business partnerships, many partnerships in business do not work, leaving many entrepreneurs to believe that procuring a partner for a venture is not a wise choice. Below are five reasons why most business partnerships do not work out. These conclusions are based on our firm’s collective observations of dozens of partnerships that went wrong.
The Partners Do Not Have Complimentary Skills and Personality Types
There is an old saying: “The worse partner you can have is someone like you.” To operate a business enterprise successfully requires an array of skills and competencies. You have to be able to market, sell, operate, and manage monies, processes, and data. It’s a total waste if you are great at sales and your partner is also great at sales while both of you are poor at managing the books and the administrative components of the business; this will most likely result in the business having poor administration. If one partner is very assertive and dominant in his/her personality and the other partner has the same personality type, this can create conflicts because someone is always going to want to have the final say. It’s important that your partner has complimentary skills to you so you both can co-exist and not interfere with each other’s growth. Further, both partners can bring skills to the table that can be beneficial in different situations. If your partner has the same personality and skill sets as you do, a clash may inevitably transpire and at best the business can suffer due to the inability to operate certain important elements of the business properly.
No Partnership or Shareholder Agreement in Writing
Oftentimes business partnerships are formed on a hand shake and no formal agreement is ever negotiated. Hence, many of the issues that will arise and eventually govern the partnership have to be resolved without being addressed upfront. This is a risky way to manage any relationship because the partners run the risk of disagreeing on everything as issues develop. Also, even if an issue was agreed upon, if it done so verbally, either one or both parties can suffer a case of convenient amnesia if an issue arises that is not favorable. If partners do not have a well drafted partnership agreement, the partnership itself can be a disaster waiting to happen.
Siblings, Friends, and Family
Having a partnership with family is a difficult task although many successful businesses are family owned enterprises. However, with all the success stories also includes the horror stories of family relatives that go to war with one another due to some issue that arises in the family business. The main reason family business is challenging is because the family members have a relationship routed in emotion and oftentimes have to play a pragmatic sport we call ‘business’ under these conditions. Further, anytime there is a substantial amount of money involving relatives, problems are ready to occur. Being in business with friends may be even worse because in many cases you have to deal with the same emotional issues that exist with family businesses with even less trust. John D. Rockefeller once said, “A friendship founded on business is a good deal better than a business founded on friendship.”
The Business is Not Doing Well
When partners are making money, oftentimes they will put aside their differences so that they can continue to earn income. This happens in marriage and also transpires in sports. For example, Babe Ruth and Lou Gehrig hated each other yet both coexisted and performed together as a team on several New York Yankee baseball championship teams. By contrast, when a business is not doing so good, partnership problems come to surface quickly and can get out of control if the parties involved do not manage the conflict properly.
The Role of Owner and Executive Are Oftentimes Confused
The definition of an owner/shareholder is someone who has the right to receive a portion of the profits. By contrast, an executive is someone who plays a role in the management of the company. All executives must be compensated a fair wage in order for them to manage a company while owners have the right to collect profits if profits exist. The problem in small business is that oftentimes the owners also play an executive role and each owner provides different value in an executive sense. Many business partners invest equal capital and sweat equity in the beginning to get a venture off the ground but overtime the division of labor amongst partners may change leaving one partner working harder than the other. The division of labor and profits can also be influenced by the partners’ life circumstances. This is why we suggest that executive compensation be based on the complexity of the job, the marketplace value of the job, and the value it gives the company, while profit distribution should be determined by available profits to distribute and the equity stake of the owner. A proper dichotomy between your role as an owner and your role as an executive can resolve money disputes among partners.