The Rewards and Risks of Forming a Partnership - Page 3 of 4

The Rewards and Risks of Forming a Partnership

can have with any employee.

With so much riding on the success of a partnership—the partners’ day-to-day happiness, security (often their mortgages), reputations, comfort in retirement, not to mention peace of mind—it’s easy to see why partnerships are considered perilous. In a poll taken a few years ago, [entrepreneurs were asked] if they thought partnerships were a bad idea. Two-thirds of the respondents said they were. When asked why, the majority said they disliked co-ownership because of the partners’ “inevitable conflicts” and “unmet expectations.” A poll by researchers at the University of Minnesota uncovered similar misgivings inside family businesses. About half of the second-generation family members working at such companies had doubts about being there. The main source of their unease was, again, interpersonal conflicts. Failed business partnerships—and their attendant broken promises, financial ruin, and litigation nightmares— litter the business world and leave a deep impression.

Countless conversations with professional business advisers have convinced me that most of them are similarly against the idea of having partners. The reasons they offer are always the same: It’s too difficult for partners to get along, partnerships are too hard to get out of, and when a partnership fails, the cost is enormous. (In private, some advisers jokingly admit that their own unhappy partner experiences have something to do with their skepticism.)

Of course, no one ever enters a partnership expecting serious conflicts. Advisers rightly point out that even when the probab
ility of conflict is low, the risk may still be unacceptable if … the cost of a failed partnership will be high.

People often jump blithely into partnerships because they are unaware of the costs of failure—and no wonder, since nobody contemplates failure when starting up. It may be difficult to assign hard numbers to these costs. Still, they can be enormous, and prospective partners should look at them carefully.

Every conflict among partners exacts an emotional toll. These conflicts can destroy lifelong relationships. They can consume partners’ every working moment, and sometimes every waking moment, for extended periods of time. They exact a toll not just on the partners themselves. I’ve heard partners refer to the stress on their spouses as “collateral damage”; some say it was that kind of strain that forced them out of their partnership.

Conflicts need not be profound or dramatic. Low-intensity wars can be costly, too, because they often make partners underperform. Nagging dissatisfaction, perhaps a feeling that the partnership’s terms are not fair, can result in a partner’s dragging his or her feet. Underperforming can become chronic, so that for months or years the partners achieve less than they would have on their own. Not only is synergy absent, sometimes there isn’t even basic cooperation.

Considering the many advantages a successful partnership bestows and the horrendous costs a failed partnership can exact, you might assume there is a large body of research on what makes partners tick and what makes them stumble. Surprisingly, there isn’t much written on the subject, even though