Have you ever come up with a business plan with a friend on the spot and thought, “let’s do this, let’s partner up and start this business”?
It was probably the most exciting feeling because it sounds like a brilliant idea and there you are thinking you will be millionaire friends, right? According to Forbes.com, 70 percent of business partnerships fail, however 30 percent of them are doing rather well. The success of failure of the business is dependent on multiple factors, and this article will get into those factors.
So perhaps we should start with the good? I Am An Entrepreneur spoke to Executive Deputy Director at Business Partners Limited, Jeremy Lang.
Lang not only talks to IAAE from a business perspective, but from a personal one in terms of his experience with a business partnership.
We asked Lang to give us five reasons why a business partnership is a good idea:
Leverage off brand strength – “association with good/strong brands could potentially enhance your own brand,” says Lang.
Expanding networks – partnerships will increase your networks which could potentially lead to further partnerships or market access
Access to additional resources, knowledge and expertise – “partners can provide knowledge and expertise which you may not otherwise would have had access to and which could add value to your own business,” adds Lang.
Access to new markets, customers or suppliers- partnerships could assist you to gain new customers or suppliers or enter new markets
Expanding geographic reach – partnerships are a good way of expanding your geographic reach without absorbent capital investments
Lang tells us five reasons why he thinks getting into a business partnership is not a good idea:
Loss of control – partnerships may impose certain restrictions or limitations on the way in which you conduct your business
May have to compromise on certain aspects – to achieve a mutually beneficial relationship, you may have to give up or weaken your position on certain aspects
The partnership may restrict you in certain instances – partnerships can potentially restrict you on entering certain market segments or rolling out new products if the terms include some exclusivity arrangements
Misalignment of objectives – the energy and resources put into the partnership to make it a success could be in a position of imbalance if the parties are not aligned to the objectives
Potential conflict – with partnerships and contracts the risk of potential conflict always exists especially if the scope and terms of reference are vague and open to interpretation
We also asked Lang what one should avoid when getting into a business partnership:
Verbal agreements – Lang says the contract, which will govern the partnership, must be clearly defined and documented, leaving no room for interpretation
Poorly drafted contracts – ensure that a legal professional, appointed by yourself, assists in drafting and reviewing the contract
Entering into a partnership with significantly unequal benefits – where the partnership mainly benefits one party, it is only a matter of time before tension or conflict arises
Partnerships where there is misalignment or differing objectives – it is important that the alignment of the objectives and outcomes of the partnership is clearly identified at the outset. This is one of the key foundations of a sound partnership
Speaking to Lang, IAAE wanted to find out what his personal experience been with partnerships and what advice he would give someone who is about to get into a business partnership, and this is what he has to say:
Partnerships can be very successful if there is alignment of the objectives and the rights, obligations and terms of reference are clearly defined, preferably in written form.
“One needs to ensure that if the partnership does not work, there is a fair exit mechanism included in the contract by which the partnership can be dissolved,” added Lang.
Lang says regular communication and review is important on the progress and state of the partnership is key.
There you have it, a business partnership can either work out for you exceptionally well, or it may not work out at all. However, remember that does not mean you cannot do business, go out there and find what works for you.
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