March 31, 2011, 6:00 am

The Dark Side of a Business Partner

by: MD    Category: Alternative Income
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Negatives of a Business PartnershipLast week when Mike mentioned how much he loves having a business partner and I couldn’t help but think about the other side here. Mike and his partner have gotten along well, set goals, kept each other focused, and hustled to grow their online company to be very successful. Is this success a guarantee? Will every business partnership be as successful? I really don’t think so to be honest.

If you watched The Social Network or heard any stories from personal experience you may be thinking that a business partner might not work out for you and your business model. The following post will examine the dark side of a business partner and what you need to watch out for:

Lack of goal congruence.

What are the chances that two unique individuals will have the same goals over an extended period of time? One of the partners could be more interested in making money with the business while the other partner views it as a profitable hobby. Goals also change over time. As the business grows, so do the two partners involved. Once some time has passed, one of you may start to view objectives differently. It’s surprising how much goals and views can change over time. The scary thought is that you both might want to go in totally different directions with the business.

Greed getting in the way.

We as human beings have our moments of greed. Even the kindest and friendliest folks will feel a strong sense of greed at some point. I’m not here to be cynical, I just want to be realistic. Just because you go into business with a good friend it doesn’t mean that you’re completely protected. It’s always advisable that you get everything down in writing and that a third party is witness. You just never know when greed can become a factor in the business partnership.

One of you working harder.

What if you realize after 6 months that you’re up late at night working on the company while your partner is out drinking with friends? Some of us enjoy working long hours and putting in effort. Others place more value on their relationships in life and would rather only spend a few hours on work here and there. This can become a major issue. I personally am very productive in the middle of the night (you can ask Mike) and then I might sleep in during the morning. How would this work out with a partner that’s a morning person? One of us might get frustrated.

The next issue revolves around deciding what to do when one of the business partners isn’t working as hard. Do you pay that person less? What if they don’t agree to a pay cut? For me there’s endless questions that go along with the work load in a business partnership. This is a major issue that you need to decide on as you and your business partner put your plan together.

Decision making process issues.

When your business is making no money the decisions are pretty straight forward. At that point the both of you are just excited about growing the company. All you can both think about is the idea of your business hitting it big one day. What happens when large contracts and colossal clients come your way? I’m thinking that the decision making process will drastically change at this point. One partner might want to expand while the other business partner is more conservative. Decision making can also get awkward when a boss-employee relationship starts to slowly form between the business partners. How will you make business decisions with your future partner?

External forces.

The two business partners might get along well when together, but anything can happen once external forces get involved. What if one of the partners ends up in a relationship with a controlling person? What if one of the partners wants to bring in a third person into the business? My concern with dual business owners is what happens when third parties get involved and start trying to get some input on the business and the future direction.

Exit strategy.

Leaving the business is a topic that nobody wants to discuss. The reality is that at one point many other opportunities will come along. A potential buyer can get involved. A new business venture will come along. The work load of the business can become too tedious and one of the partners might want to get out. What will the exit strategy be? How will the two of you decide on exiting the business?

Mike has listed the benefits of a business partner and I have now listed the negatives. I hope that I didn’t come off as overly cynical. I just wanted to go over the realities that most people try to avoid thinking about. Where do you stand on this idea?

(photo credit: idf-fotos)

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I’m glad to see this counterpoint posted. I have had 2 business partners and both of them were awful experiences. I thought that the 2nd time I’d learned from my first experience and gone into it smarter, but I just chose a different kind of crazy for my partner.

I will never EVER go into partnership again. Ever. If I crash and burn in the future it will be by my own hand and not because I was backstabbed or hobbled by a bad partner.

I second kh. I have had multiple business partners, but where I diverge is that partners of some kind are essential for doing anything.

One partner turned out to be an outright dishonest person. He literally ruined an $80 million dollar deal because he saw money and plotted to get more of it. The deal was for the construction of the largest pellet mill in Canada. I brought investors from Europe, technology, and engineers. The partner sourced the deal, and brought a wood-pellet expert. I personally invested thousands into incorporation, legal, and equipping an office. Once I brought my European partners and the deal looked promising, this partner from Montreal thought that I wasn’t necessary any longer. He worked behind my back to cut me out, trying to make a deal directly with my European contacts. However, in trying this, since I don’t deal with unethical people, the Europeans promptly said that they didn’t want to do business across the ocean with clowns like us. My partner ruined this deal, and made it much more difficult to use those same contacts for future deals.

Another partner has been great. We’ve invested in 6 or 7 real-estate deals, a well-services company, and we’re currently looking to buy another business. We work very well together. I would not have been able to do all that as quickly without him.

You have to learn from the bad experiences!

I think it is extremely difficult to have a successful partnership. It is almost like a marriage which is not easy either. Particularly, if you are going to work together. Perhaps a clear cut job description or list of responsibilities may help in that regard.

I LOVE this post MD!

I think you brought several great points as having a partner brings its load of problems too! My partner and I keep a very open communication to make sure we are both happy in our venture.

I guess that what helps a lot is the fact that we spend 40 days in a row together when we were traveling in Europe. We now know each other more than our spouses do 😉

@Perfect Dad,

that’s a crazy story! I can’t beleive people can backstab friends like this… Having a non-competition clause in your company could help prevent any backstabbing!

He wasn’t my friend, he was part of the team that I assembled. I met him at a conference and he was looking to start a biofuel business and I was looking for the same. He was in sales before, and brought contacts within the local industry, while I brought money and resources.

As far as the non-compete: This was before the final relationship was formalized. We had all met many times, agreed on the team, agreed on the roles, and agreed on the terms. He needed me to get my contacts in, but he felt that he would rather just have my all contacts but put one of his friends into the day-to-day management position (I was the CFO). So after he met everyone he started contacting them directly to broker a deal to exclude me. They were unwilling, so he tried to strong-arm them by saying he wouldn’t work with me. My contact said they would only work with me, but then they canceled because one of the key players was turning out to be such a clown.

Now the guy is just a salesperson again at some other place, when he could have been the President of multimillion dollar company.

I had another business about 12 years ago, with 9 partners, that also turned out to have a coalition of 3 toxic partners. They also exploded that business committing suicide for themselves. But I’ve had a number of very successful ventures as well.

In shareholders agreements there are usually ways to get shareholders out. It does make sense, that if I was really a liability, that others should be able to oust me with fair compensation.

The reason why some partnerships often end up broken is that there is one who works harder and one that expects more that what is plausible. That is why if you are going to build a business, you need to make sure that the people who will be helping you knows what you are doing and knows what to do for their part. Thanks for sharing this article. May I just share by the way, that if you want to get more traffic or readers in your blog, you can use advancedwebads’ unlimited banner impressions and click services to help you out.

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Someone is always going to work harder. That’s just life.