#31: Further Problems

In the past two articles we went through the different reasons for why small businesses fail, namely because they were unaware of what they were getting into and issues with client payments.

But there can be other reasons why a small business would stop trading, such as choosing the wrong business partners.

It is shame to have to say that most business partnerships do not work. This is not because people are bad; it’s mainly because circumstances change. If you take a simple example of two people who decide that they are going to work together, on the day they agree to start they are both 100% on the same page. But sooner or later one of them will drift and once the drift starts it is very hard to reverse the process.

That drift could be caused by something more exciting coming along for one of them, their priorities changing, a health scare, or a family issue of some sort. I have seen all of these happen.

Unless you put in place a mechanism to deal with changing circumstances when you start, you will begin to see resentment, as one party senses that the commitment and effort are not balanced anymore.

Case Study:

I was doing a strategic workshop with a small consultancy run by a man and a woman, who operated a partnership with a group of about 12 associates. They had been going for about three years and doing very well.

They had an idea for a big new venture which was going to be capital intensive and they wanted to be put through an intensive “stress test”; the purpose was to see that if they went to the bank/business angel community they would be taken seriously.

They wanted the assurance that their new business idea made sense, and that their existing business was in good shape. The woman was doing most of the delivery and the man was the ambassador creating the awareness and lining up the prospects.

One of the issues I usually try to establish is how people allocate their time.

The lady was “on fees” doing client work pretty much full time, so it was clear what she was doing, but he was not doing a lot that was fee related; I was thinking that there was only a finite amount of networking and prospecting that he could be doing each week, so what was he actually doing?

I kept trying to explore how he spent his time, but he was resistant; mid-afternoon, however, it came out. All the time she thought he was out there marketing and prospecting for the partnership he was doing something completely different.

The man had recently married, and whilst his business partner was out there bringing the money in, he was helping his new wife set up a restaurant business. You could have heard a pin drop. When they had both calmed down we had a very difficult conversation about the next steps.

I had a long, depressing drive home, but two days later I received a letter and a cheque for the work. She said it was the best day’s consultancy she had ever experienced, and she did not know how many years of deception I had managed to short circuit.

I have no doubt that on the day they set their partnership up they were both 100% matched, but his priorities changed and it is hard to imagine a situation where they could get back to a genuine partnership of equals. The partnership was dissolved within three months.

Take this as a lesson in how important it is to be honest with your business partners at all times, you don’t want to be on the receiving end of a business relationship that goes sour because one party changes their priorities without consulting you.

Posted in: Start-ups

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