FAMILY DYNAMICS / GOVERNANCE
There is an adage that “a partnership is like a marriage.”
And it’s so very true. How…?
It’s a huge commitment.
It requires trust and open communication.
There are money decisions to be made.
The workload is not always 50/50.
There will be disagreements.
For better or for worse, richer or… you know the rest.
And like a marriage, you MUST choose your partner(s) wisely.
Many business professionals get caught up in the “romance” of starting a business and bringing an idea to market. This bliss creates a blind spot to important conversations that are needed about how to scale and manage growth, when to hire staff, how to handle compensation, who to select as new partners, how to create governance, and ultimately how a partner will exit and cash out. Because you WILL exit someday.
In fact, while it’s a well-known statistic that 50% of marriages end in divorce, did you know the percentage of business partnerships that meet with a bitter end is closer to 70%?
Common Threads and Greater Complexity.
The 3-circle model for family business needs only a slight tweak to be relevant to a business partnership.
The Partnership Circle (Relationship)
Whether you have one partner or ten, you are for all intents and purposes a “family” and married through the business. And just like family members, partners can have a myriad of opinions. A key difference between a family business and a partnership, in most cases, is the family business owner has autonomy as the decision maker, whereas in a partnership, decisions are by consensus. The communication of goals and expectations is vital to long-term success.
The Business Circle (Money)
Money impacts relationships. Partnerships (like marriages) are not immune to this dynamic. If there is a perception that not everyone is not working “equally” hard while earning the same compensation, problems will surface. I put quotes around equally because it doesn’t mean every partner works in the exact same way, but rather each owns their area of expertise to help the business thrive. It’s critical to establish an equitable system based on expertise, effort, and impact on profitability (aka… billable hours is not the only way to calculate value).
The Ownership Circle (Power)
Ownership complexity within partnerships is also not unlike ownership within a family business. Partners have parents, spouses, and children who come with major life events which can and will impact the company. Other owners could strictly be investors who, while they don’t work in the business, are still very interested in the ROI. How is your ownership pie divvied up and how are you prepared to deal with the 5Ds of Life?
Partnerships would benefit immensely if they applied proven family business strategies to their privately-held entity:
• Work collaboratively on building value in the business
• Identify key “rocks” and establish clear roles for each
• Invest in developing the next generation of partners
• Document the buy-in and exit process
• Create governance and a board
• Know their lifestyle numbers
• Design their post-partnership life
“If everyone is moving forward together, then success takes care of itself.” – Henry Ford
If your partnership and its long-term success are not moving forward as you envisioned, let’s talk.
For another take on the similarities and unique characteristics of partnerships, I highly recommend this Forbes article.
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