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Partnerships Are Usually A Bad Idea: Here’s Why

Ahh, the partnership. That type of business where two friends or family members decide to take on the world side by side. Started with the best of intentions, and with the duties clearly spelled out and divvied up (“Jen will do the business stuff; I’ll do the sales”), partnerships almost always end badly.

I won’t beat around the bush. I think the underlying reason why most partnerships fail is the true reason they are usually formed in the first place: Nobody wants to go it alone. I put “true” in italics because nobody will really admit to this. People say other things, like, “I’m the idea person and she is the production person,” or “I’ll do the selling and he’ll do the books.”

But the real reason they are going into a partnership is that they are simply scared and want someone else to lean on (or go down the drain with). And you know, I can definitely see the attraction in partnering up. It’s simple, really: Would you rather explore a spooky house alone or with a friend? Well, business is like a spooky house. Having someone there with you is definitely attractive. I did this in my first business, so I understand the allure.

However, let’s not pretend: A partnership that starts because “two is better than one” gets everything off on the wrong foot. It’s definitely a problem if the partners are in business because they feel better together, not because they work better together.

Now that I’ve identified the primary reason why most partnerships are formed in the first place, let’s look at a few problems-in-waiting in many partnerships.

Unequal Roles/Limited Skills

When two partners do not have clearly defined skills, often one partner will do the more glamorous work and the other partner will be in a lesser role. Nothing as blatant as “I’ll come up with the ideas, and you can clean up the worms”; more along the lines of “I’ll do the marketing/selling, and you can do the paperwork.”

This usually happens because one partner is, for some reason, deemed “better” at something than the other. Unless one person is clearly better (as in being a professional), this usually will cause problems. I’ll accept the fact that my accountant knows more about taxes and accounting than I do. If we ever become partners, the taxes and books are his by default. I’m sure he’ll agree. But if I started a partnership with a neighbor, I shouldn’t have to do the books because I “know computers better.” That will eventually cause problems.

To further illustrate this, let’s say two people named Marie and Dina are going into business. Marie says Dina should do the paperwork, “Because she’s good at it and I’m not. I’m more of a bubbly people person.” And Dina agrees — Marie couldn’t even spell “taxes,” never mind do anything more than basic math. So she’ll do the paperwork, and Marie will get the accounts.

But trust me, unless Dina really, really loves doing paperwork, there will be trouble. Oh she’ll do it, but over time, she’ll begin to resent it. Because she didn’t get into this partnership to do only this kind of work while Marie gets to ignore it completely. Again, the disclaimer here is that if Dina is already an accountant, this division of work is fine. If she loves doing paperwork (like my wife does … or so she tells me), things will be fine.

But assuming she doesn’t dream about doing paperwork, she will take exception to having to do it day after day. And that resentment will build. It will probably fester until one day, after an all-night session fixing Marie’s “cute guy discount,” Dina grabs a (sharp) pen and …

Okay, never mind what happens then. You get the point (as did Marie).

So unless you are both completely okay with one partner being a little more dominant, or doing the more “glamorous” work, beware. This leads us to the second problem …

One Partner Is Simply Better Than the Other

I’ll be blunt: I wouldn’t make the greatest business partner for most people in a small business. (However, international corporations wanting to explore seven-figure marketing deals, please feel free to call.) In a nutshell, I’d have a pretty bad attitude, because I would expect my partner to be just as focused as I am. If you aren’t, and you’re my partner, there will be friction. And I’m pretty well focused on business these days.

This happens all the time in partnerships. One partner is usually more “into it” than the other. This breeds resentment, and it’s the beginning of the end. Both partners have to have the same mindset regarding skill, work ethic, motivation, drive, etc.

Another example of an unequal partnership is one formed with a “hanger-on.” A hanger-on is a friend/family member/acquaintance who wants in on your business when you tell him or her about your plans. Such people know that by hitching their wagon to you, they have a shot at doing something they could not do on their own. They want to be a part of your success, and don’t want to be left behind.

Beware of this. Such partners are anchors waiting to drag you down. I’ll be honest: If neither of you can run a business on your own, it’s probably not a good idea to partner up. So cut loose the hanger-on.

Friends and Family Members in Business

Another reason partnerships fail is because being in business with friends or family members is a very difficult thing for most people to pull off. Many partnerships are formed by two (or more) friends who decide to go into some sort of business together. The “not going it alone/feel good” motivation is strong here, and because the people are friends, they assume they will be able to resolve just about any issue. Well, that never happens. Here’s why: Money and work change everything.

They say, “Don’t loan money to friends.” They also say, “Don’t hire friends.” There are good reasons for these sayings: money, work, and friendships do not mix. It’s easy to plot out your partnership when you are broke and in the planning stages. When there’s nothing at stake, everything is easy. But what happens when the business starts to grow? Once decent sums of money (or debt) are involved, opinions will always differ, and being friends makes it harder to lay everything out on the table.

I had bosses that were not shy at all about telling me what they thought of me (it was never good). It was simple for them — they were my bosses, not my friends (thank God). But try telling your friends they aren’t pulling their weight. Or their brochure design is lousy. Or they blew a big sale because of their personal problems. Or a million other little things. It’s not so easy. And problems that fester will start to eat away at any business. This happened in my first business — I felt like I did all the work. I’ll bet Jim felt that way too.

Partnerships That Can Work

Okay, now that I’ve basically doomed 90 percent of all partnerships, here are a few situations where they can work.

One partner has money, and will mostly remain silent

If one partner provides funding and understands this is an investment and not a guarantee, a partnership of this nature might work. This is more of a business relationship than “friends in business together” (which almost never works). The “money” partner can be involved in big decisions, but leaves the day-to-day running of the business to the other partner.

There is a true division of clearly defined skills

A computer programmer who gets together with an artist and a writer to create a video game is a good example of a meeting of the minds where everyone brings different, vital skills to the table. An accountant/business manager teaming up with a skilled mechanic to open an auto repair business is another. But for this to work, everyone has to have true skills, not the vague “I’m more creative, so I’ll do the marketing.”

Two professionals passionate about their work get together

When I say professionals, I mean people truly passionate about what they do. I mean two computer programmers working nights developing a new program, not only because they want to be in business, but because they love programming. I’m talking Bill Gates and Paul Allen, for example. I am not talking about an assistant manager of a greeting card store and a laid-off welder who say they are passionate about fixing cars. If they are so passionate about it, why weren’t they doing it before? I’ll bet 99 times out of 100 that last example is doomed to fail.

Husband and wife

For some couples, a business partnership can work rather nicely. If the marriage is strong, it’s already a partnership. If you can make money together as well, all the better. In my business, I am the primary worker and my wife handles all the administrative work. While we’re not officially a partnership (we’re a corporation now), it works very well for us.

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So to repeat, my advice is to forget about forming a partnership unless it fits into one of the four preceding categories. However, I realize the “not going it alone” motivation is very strong, so if you must have a partnership, do yourself a favor and go to a lawyer and have him or her help you draft an agreement. Spell out duties, expenses, division of assets, etc. You’ll be better off in the long run.