Keys to a Successful Business Partnership
Last week in the Small Business File’s inaugural “They Did It” column there was a reference to how Ivy’s Vine Resort was formed as a partnership that included foreign and local participation in the running of the business. That mention is the inspiration to this week’s column on what are some of the keys to developing and nurturing a successful business partnership in the Philippines.
Partnerships hold the promise of great potential for business success. They combine talents and resources that may not be possible otherwise. But they also have the potential to be a nightmarish business structure and the source of constant headaches if not developed properly. Previously we discussed the advantages and disadvantages of a partnership and how to go about forming one [see Monday, July 28th's, Ownership Structure and Formation of a Small Business]. What follows are some considerations to help realize the benefits of partnerships and limit some of the key problems.
A first consideration should be a determination if the overall goals and personalities of the main partners are similar and compatible. While it is fine and often beneficial for there to be some degree of difference in relation to goals and personalities, in general it helps if the main business goals are the same. A good friend of mine backed out of a partnership intended to expand the reach of the business because he found out early enough that the ultimate goals of his potential partner were too different from his own. My friend wanted to build his business up and expand it, while the partner wanted to build the business up and sell it.
Likewise, it helps if the personalities of the partners are fairly compatible because nothing slows down the progress of a business like constant divisions and disagreements. Such divisions can hamper not only the attainment of strategic business goals, but can be harmful in achieving efficient and effective day-to-day operations and procedures. For example, another business colleague of mine opened up a business with his brother-in-law. My friend wanted to abide by all the rules and regulations expected of him and the business, but the brother-in-law was only interested in making as much money and as quickly as possible. This of course created a huge problem, because any legal trouble for the business could harm both partners financially in the form of fines and penalties. More importantly, the big difference in personalities posed a greater risk to the foreign businessman, as any legal problems could also jeopardize his immigration status in the Philippines! The result was a formal termination of the partnership after a great deal of time and expense had already been committed. If they had recognized their personality differences earlier and the conflicts it would cause, perhaps they would not have spent as much time, money, and energy as they both did.
A second consideration should be a clear understanding of what strengths and weaknesses each partner brings to the partnership, and what the division of labour and responsibilities of each partner will ultimately be. I’m not referring to the legal definitions such as equity participation and liability. These issues will be clearly spelled out in the articles of incorporation or partnership agreement that is submitted to the SEC. What I am referring to is more personal. You and your partner(s) should be able to list down exactly what benefits each brings to the business, and similarly list those assignments each should have limited involvement in with the business because others are better suited to those tasks. By listing down strengths and weaknesses, it becomes easy to agree on a division of labour for the partnership. Each partner can explicitly ’see’ what they need to do and what others need to do to make the partnership work. This division of labour helps with the next consideration involving conflict.
Conflict within the partnership should be expected as it is only natural that there will be some disagreements from time to time. Even if you have personalities that don’t clash and have established a clear division of responsibilities, there will invariably be some issues that bring about disagreement between partners. Successful partnerships almost always decide on a means of conflict resolution at the very beginning of the partnership. Your business can become sidetracked over even small conflicts, especially if egos get involved. This is disruptive at the very least, and can cause a successful business to dissolve entirely in extreme cases. If you and your partner(s) establish a system for resolving conflicts at the outset, you can evade any potential decision ‘land mines’ that could cause severe strains in the partnership. For example, you might agree beforehand that one partner has the final say on decisions in one area of the business and you in another. You may also decide to have a rotating leadership so that every year you alternate as to who has the final say on difficult business decisions. No matter what system you do decide on, the important thing to remember is that a system is in place to keep the business moving in a positive direction.
By considering the above suggestions prior to entering a partnership, you should safeguard yourself from a number of difficult headaches that can really impede your small business’ start-up and long-term success. I am sure a number of readers would like to receive even more tips on how to create a successful partnership agreement and working environment. Comments and suggestions from those actively involved in partnership agreements would be greatly appreciated.
Hi Martin, as always: this is again a very helpful and interesting post. Thank you very much for this. Different opinions and some disagreements from time to time are indeed ‘normal’ and important. No one can say, to know everything. Different opinions must not end up in clashes. A rotating leadership, manifested in a MoA, for my opinion is a very good solution. A ‘foreign and local partnership’ can be much different. I observed a lot of ‘land mines’ during the last ten years regarding such constellations, especially if the judicial questions are not answered completely and well.
Hi Klaus,
I think your point on it being ok to have differences of opinions is good, and like you say, so long as it does not end in clashes. Written agreements on how to resolve conflicts are a great idea, and hopefully more people will decide that putting the time and effort into establishing them is well worth it. Cultural differences can exacerbate conflicts, so it is even more important that communication between foreign and local partners is continually worked on and improved on.
Thanks, Klaus, for your excellent comments!