When you are starting a new business, you are always in two minds about starting a partnership business or going, Solo.
You try and weigh the advantage and disadvantages of partnership business by religiously studying all merits and demerits of partnership available online.
I have had businesses which closed due to my stupidity and intelligence of business partners.
On the contrary, my ever-reliable source of income, my only business which has survived all storms (and is going from strength to strength) has a business partner, who undoubtedly has outshined all my achievements in last few years.
What are the advantages/merits of a partnership business?
- The Registration process is easy:
Yes, you read it right. Like proprietorship business – the registration process of partnership business comes minus all the bells and whistles associated with private limited, limited and LLP businesses.
- Shared Cost:
The more the partners, the lesser the startup cost on each partner. This is a big advantage, considering how difficult it is to run businesses with all liabilities on a single head. Another advantage in terms of finance is that when you try to raise funds for business through banks or VCs, they will always give preference to companies that have more than one partner.
Even they want their risk to be distributed among all the partners.
- Availability of expertise of different partners:
You literally can cut down on the employee (especially, managers) cost in a partnership business by allocating each partner one division based on their area of expertise. So, each partner gets to lead a division based on their expertise.
I can think of a thousand times when i could fall sick in peace, go on vacations without worrying about office work and focus on new initiative without worrying about existing business because of my partner. (in peace. You will know what I meant by falling sick in peace when you run a partnership business).
I get flexibility in time, work in my business because we partners cover for each other when the other person is not around.
Now think of a Solo Entrepreneur running a small business?
Falling sick is a luxury he/she can not afford 🙂
What are the disadvantages/demerits of a partnership business?
Don’t get me started with how difficult it is to have squabbling partners at the top of a business.
- Slow Business Decisions:
My father’s company had 3 business partners and they took all the decisions together. Now, in addition to running this business – the partners had other businesses too.
So every time, there was an important business decision to be taken – it led to endless delays and don’t even get me started on jointly signed chequebooks.
- Ego clashes and Fights:
Partner A has his favourite employees. Partner B has his own favourite employees. Both the partner have ego clashes which are further fueled by their favourite employees.
What happens next is any one’s guess.
They try to outsmart, outsize, outshine, outmaneuver each other and they do this, until the business sinks.
- Financial Issues:
The primary reason for a fight between partners is “Money”. One partner takes out more money without informing the other partner. The other partner takes revenge and the business starts going downhill.
By the way, partners learn to live in harmony by making all bank accounts as joint bank accounts.
How does it affect their business?
The whole company has to wait for jointly signed chequebooks to get the money transferred.
It’s a bloody nightmare.
- The separations are messy:
Think of one partner leaving a partnership business as a divorce. Nothing will happen amicably here.
The partners staying back will have their own grievance and the ones leaving will have their own set of grievances and then, they will go and speak behind each other to the outside world. Thereby, spitting their business secrets.
That’s all i have in terms of partnership business’s advantage and disadvantage,
By the way, my sole surviving business has been with a partner. Let me take you through my partnership journey explaining you the pros and cons of having a business partner based on my real life experience.
How did I find a business partner?
Well! I went out on the road looking for a business partner holding a board which read “Need a Business Partner who can work for food” and found one ;).
Trust me, there are people willing to work for Food and Beer. You just need to find them 🙂
The advantage of running a partnership business at times is outshone by disadvantages of having one.
Your partnership business might succeed or fail, depending on the synergy between the two partners.
I will list down the disadvantages of having a business partner and will then move to the advantages of having one.
Disadvantages of having a business partner:
As per statistics, 80% of partnership businesses fail.
Why start with a negative thought Mr. Blogger?
Well, sir! It always helps to list the negatives (disadvantage) before positive (advantage). Starting a business does need us to be as positive as the word B+”.(bad joke)
Anyways, I am just trying to keep you out of the “feel good” factor which makes us complacent and blinds us to the obvious mistakes we can easily avoid.
Gyan aside. I meet a lot of business owners who closed a successful business because they could not get along well with their business partners.
The other day, I met a business owner who was ready to struggle alone and spend double the time learning the tricks of the trade than getting a business partner.
He had burnt his fingers not once but twice in earlier ventures with business partners.
As they say “Once bitten twice shy”. For him, there is no advantage of having a business partner. A business partner according to him was a marriage of two humans who were never meant to be together.
What leads to conflicts between business partners?
Money. Ego. Lack of clarity of thought. Different business vision. Trust issues.
The list is endless.
You know what I hear most from business owners with partners?
The screw-ups of the other partners.
The smartest of business partners have stories to tell. Stories where they accuse the other partner of bringing down the business.
I rarely meet “the diplomatic” kinds who weigh in the advantage and disadvantage before speaking their minds.
I ask the business owners, why they do not let out this frustration in front of their partners?
I mean, why not go and talk straight with your business partner than wash the dirty linen in front of a third person?
Most of them are afraid to speak. Others, do not have the comfort level with their partner to discuss.
What about the rest of them?
Well, they are just waiting for the business to shut.
Since everyone has equally contributed to the failure. How about we let the ship sink peacefully.
No one wants to rock the boat.
Disadvantages Of Partnership Business: Summing it all up in one line “without a business partner, You are the one responsible for your own shit. It’s your business and you do not have to blame anyone else for your mistakes”.
No harm in “Ekla Chalo Re”.
The advantage of having a Business Partner:
The advantage of the partnership business is in no way lesser than the disadvantage of having one.
Here is a real-life example of how my partner saved our sinking boat when the chips were down for our IT Service business.
Our IT services business snow divided a few years back when one of our “High Paying” Clients ran out of money.
He contributed 70% to our revenue. I know, we forgot the fundamental rule of business. Never put all your eggs in the same basket.
In our case, I was in my comfort zone not thinking about future growth, oblivious to the harms of relying too much on one client.
What saved us from sinking was the second line of business in our company which was managed by my partner. (note: it was a recent line of business started a few months back).
The next one year was spent going back to the basics. Getting more clients. Focusing on business and getting out of comfort zones.
Had it not been for my partner, we could have shut shop.
What I wrote above puts a solid argument in favour of – advantage of a partnership business.
Your partner is your support system.
All partners in a business complement each other’s skill set.
I typically look at Businesses with partners as “Indian Marriages”.
You don’t give up so easily on each other. You try to make it work. You learn to compromise (in a good way) and grow comfortable with each other’s strength and weaknesses.
The boat will not rock until and unless you have a partner cheating on you (cheating spouse 😉 ) or you are not trying to outshine each other’s achievements.
I consider the lack of ownership in partners as one of the top reasons for failures of startup.
Does your business need a partner?
Here are a few questions, you must ask yourself before looking for a business partner:
- Why do you need a business partner?
- What roles and responsibilities do you expect your business owner to fulfill?
- How much equity/stake are you willing to let go off?
- What kind of personality are you?
- How will all the business partners take money out of a startup when it is a growing business?
- What happens “if” the business fails or one of the partners want to quit mid-way (very highly probably scenario)?
Ask the tough questions before you get your favourite buddy to be your business partner.
And please learn the difference between getting a partner for your business or getting a partner for yourself in the business.
If it’s later, get yourself a friend, life partner or someone. Don’t let your loneliness force you to get a “partner” who supports you emotionally.
It’s good to trust your instincts and take decisions in a jiffy but answers to a few realistic business questions won’t harm you.
Ask them before you decide to get a business partner.
They will save you from the agony of going through a painful business divorce at a later stage of business.