Key Principles of Successful Partnerships
By Nevin Beiler, Attorney
We all know people who are partners in businesses. Maybe you are a partner in a business, or you work for a partnership. Maybe your experience with partnerships has been good, maybe it has been bad. In my work as an attorney I see it all—good, bad, and ugly.
Business partnerships play an important role in our families and communities. They represent jobs and income to owners and employees, and they provide products and services to the community. The success or failure of these partnerships can significantly impact not just our personal finances, but also our relationships and community connections. Success in business involves much more than the financial bottom line, and when we partner with others in business, this becomes very evident.
In this article I will share a few things I have learned and observed about what makes partnerships successful. The three key areas I will cover are Compatibility of the Partners, Defining Roles and Expectations, and Preventing and Resolving Conflict. But first, a quick story to provide context for my discussion of these areas.
Paul and Mark (names changed to protect privacy) were a father and son with a successful service business. Paul (the father) had started the business on his own, and Mark joined a few later just as the business was getting off the ground. They worked together for about 15 years, and the business eventually became very successful.
Unfortunately, Paul and Mark’s relationship started to get rocky. They had different ideas about how to manage the business. Paul was focused on things that increased customer satisfaction, but wasn’t as concerned about employee satisfaction. Mark would have liked to focus on employee satisfaction as much or more than customer satisfaction. Paul tended to be more frugal minded, while Mark was quicker to spend money.
Somewhere along the line Paul decided that he wanted to share profits 50/50 with his son Mark, so he gave him 50% of the business. Paul’s expectation was that he would still be considered the boss, but eventually Mark began to assume and expect that he and Paul had equal authority (as 50/50 owners).
Unfortunately, neither Paul nor Mark were natural communicators. Their failure to communicate regularly and maintain clear expectations began to create more and more conflict. The most difficult conflict arose when Mark, who was expecting to completely take over the business from Paul in one or two years, realized that Paul did not want to sell out for another three to five years. Mark felt that he could not continue with the way things were going for that long, so he ended up selling out of the business. This was not what either of them wanted, but Mark felt like he had no choice.
With this story in mind, let’s think about some principles that would have helped Paul and Mark be more successful at working together.
Compatibility of the Partners
For partners to work well together, they need to have at least some level of compatibility. This does not mean that they do everything the same way, or always think the same. It does mean, however, that they know each other well and are able to work together towards common goals.
The Purpose of the Partnership: The partners should agree on the purpose of the partnership. Why does it exist? What is it trying to accomplish? What are its core values? One obvious goal of a business is to financially support its owners, but the mission and purpose should be bigger than that. The bigger purpose might be to provide good jobs with a good work environment. Or to provide a needed product and service to the community. Or to generate financial resources to support Christian ministries. Core values might include things such as integrity and innovation. When partners have a shared sense of purpose for their business, it can help keep them headed in the same direction.
Complimentary Skills and Personalities: Different personalities can bring balance to a partnership. For example, one partner might be a visionary while the other is an implementer. The visionary can see opportunities and come up with ideas for how to grow and improve the business. The implementer is the person who is good at consistently getting things done and implementing ideas. These two types of people need each other to reach their full potential.
Ability to Communicate: Partners must be able to maintain open and healthy communication. Otherwise, it will probably be just a matter of time before serious conflict arises. Partners that are communicating regularly will probably still experience some conflict. But by maintaining open communication, it is more likely that they will be able to resolve conflict in healthy ways, which will make their business relationships stronger.
Paul and Mark may have had a vague sense of business purpose that they shared, but they also had different ideas about how important it was to care for customers vs. employees, which sometimes caused friction. Their personalities were somewhat complimentary, with Paul being more of a visionary type and Mark being more of an implementer. But where they really struggled was with a lack of communication. This allowed small conflicts to fester and grow larger, and resulted in unmet expectations that eventually caused Mark to leave the business.
One good way to get to know your partners (or your employees) and improve communication is by taking a DISC assessment (or another type of personality evaluation) together with your partners and/or employees. I have taken the DISC assessment myself, and I have heard good things from other business owners who have taken it. DISC stands for Dominance, Influence, Steadiness, and Conscientiousness. Taking this evaluation, and then reviewing it together with your partners (or employees), can teach you a lot about each other (and yourself!).
Defining Roles and Expectations
For a partnership to function effectively, each partner needs to understand both his (or her) authority and responsibilities.
Some partnerships have two equal partners (50/50), like Paul and Mark. Some have majority partners and minority partners (such as 70/20/10). Whatever the case, each partner should know the extent of his authority. This is usually determined primarily by the partnership agreement, which may state that all partners will act together to manage the partnership or that the partners must appoint a managing partner to manage the partnership. The partnership agreement should clarify what actions require approval by more than one of the partners (usually by a majority or unanimous vote of the partners).
When a partnership is managed by all the partners without clarity about who has what authority, things can get difficult. This is especially true when the partnership is 50/50, because any time the partners don’t agree they are essentially stuck until they compromise or one of them changes his mind. This was the difficulty Paul and Mark found themselves in. For this reason, it is generally wise to avoid 50/50 partnerships, unless the partners agree on a way to get unstuck when they don’t agree on a decision. It is best if this agreement is in writing, ideally in the partnership agreement.
In addition to clarifying how the partnership will be managed, the responsibilities of each partner should be clarified. Many partners have both management responsibilities and production responsibilities. Taking the time to write out a job description for each partner, especially each partner’s management responsibilities, can help avoid power struggles or frustration among the partners when things do not get done.
Preventing and Resolving Conflict
Business partners are likely to encounter conflict at some point. But the conflict they encounter does not need to be bad or harmful. A certain level of conflict can actually be healthy for a business—if it promotes good discussion and improvements in how the business is operated. When partners can share and discuss different perspectives, it often leads to better results than if everyone thinks the same way. But too much conflict, or conflict that is not properly handled, can be very harmful for a business.
We can reduce the amount of unhealthy conflict in our businesses by clarifying expectations. This requires regular and frequent communication. If Paul and Mark had done this, they might still be working together today.
Decide ahead of time what process you will use to resolve conflict. This might involve the assistance of a third party to help resolve the conflict, or even a committee that can give counsel or binding direction. I shared some recommendations about this in my article “The Importance of a Good Partnership Agreement,” which was published in the September 2018 edition of the PCBE. When we don’t know how to address conflict it is even more tempting to just avoid it, so it can be very helpful to have a conflict resolution plan in place before you need it. I suggest that you include this plan in your partnership agreement.
Avoiding conflict, perhaps in the hope it will go away on its own, is usually a big mistake. Just like in marriage and other close relationships, conflict that is ignored just gets bigger and creates wounds that go deeper. When we can confront and effectively deal with conflict, we can experience freedom. And we will develop deeper and more trusting relationships with our business partners when we can successfully work through difficult issues and disagreements. If you need help to do this, ask a trusted friend, business advisor, or church leader for help.
When you encounter conflict, whether at home or in your business, remember this important principle: “Seek first to understand, then to be understood.” This is a concept that Stephen Covey talks about in his book The Seven Habits of Highly Effective People. While it is natural to want to give our opinion when we are experiencing conflict, it usually works better if we approach the person with whom we are disagreeing with a willingness to first listen to them. There are two sides to every story, and hearing their side of the story can help us understand the full picture. Once we understand them, we can better share our side of the story, and they will probably be more willing to listen if they feel heard and understood.
Partnerships can be a great blessing, but they can also be a source of great difficulty. To a large extent, our words and actions will determine which we experience. Know your partners, clarify your roles, and communicate well.
Nevin Beiler is an attorney licensed to practice law in Pennsylvania (no other states). He practices primarily in the areas of wills & trusts, settling estates, and business formations & agreements. Nevin and his wife Nancy are part of the conservative Anabaptist community, and Nevin served as the in-house accountant for Anabaptist Financial before becoming an attorney. Nevin’s office is in New Holland, PA, and he can be contacted by email at email@example.com or by phone at 717-287-1688. More information can be found at www.beilerlegalservices.com. This article was originally printed in the Plain Communities Business Exchange.
Disclaimer: This article is general in nature and is not intended to provide specific legal or tax advice. Please contact Nevin or another attorney licensed in your state to discuss your specific legal questions.