The number of businesses that fold due to bad partnerships is staggering. In some cases, they are charlatans, in others inept business people, and others find themselves unable to scale with any growth.
—Michael E. Gerber, World’s No. 1 Small Business Guru according to Inc. Magazine.
For all the success stories of start-up businesses that made it big, they are far outnumbered by the many companies that failed to achieve lasting success. According to the U.S. Bureau of Labor Statistics, approximately 50% of new companies are out of business within five years, and only one-third of new businesses last for a full 10 years. The causes of these failures are many, but one of the biggest challenges that new, jointly-owned businesses face are conflicts between the company’s owners—it is difficult for any business to survive a bad partnership.
While the importance of finding a good business partner is well-known, what is less understood are the characteristics of a good business partner. Our views on this important issue are based on experience. In our Business Divorce practice, we have worked with both owners and investors in hundreds of private companies, and this vantage point has allowed us to observe first-hand both remarkable business successes, as well as epic company failures. From our position in the trenches advising owners and investors, we have concluded that the best business partners are: accountable, adaptable and accessible. This post takes a look at these three traits in more depth.
In the world of business partners, accountability has two components. First, a business partner who is accountable can be counted on to do his or her share. Most of us have served on a committee or worked on a project with someone who did not hold up his/her end of the bargain, dropped the ball in some significant way and left us in the lurch. That is the opposite of a good business partner who is committed to do what it takes to make the business a success. As a bedrock character trait, the good business partner is a stand-up guy or gal, who does not shirk from carrying his or her fair share of the load.
Second, the good partner can admit to having made a mistake. Businesses make mistakes frequently. Therefore, what makes a business successful is not the absence of mistakes, but the ability to respond to mistakes in a positive way that makes the business stronger, resilient and more stable. A partner who cannot admit fault, who blames others for mistakes that take place or, worst of all, who conceals his/her mistakes, is someone who creates problems that can cripple or destroy a business. The best business partners acknowledge their mistakes and use them as tools to make both themselves and the business better for the long haul.
Successful businesses adapt. There is no other way. Only 60 companies remain today from the original Fortune 500 companies that existed in 1955. The failure of businesses to adapt is why we no longer rent Blockbuster videos, send emails on our Blackberries, fly on Pan Am Airlines, get books from Borders or buy Wang computers. A little known fact is that Kodak invented the digital photograph. Management’s reaction to the new technology was negative, however, and directed Steve Sasson, the Kodak engineer who invented the first digital camera, not to tell anyone about it. Reported by NY Times, May 2, 2008.
A business partner who is rigid and who refuses to allow the business to adapt to meet the needs of its customers represents an obstacle to success that likely cannot be overcome. When successful businesses receive feedback indicating that what the company is doing is not working, they make changes and fix the problem. In 1985, Coke introduced “new Coke” to regain lost market share. But, the public reaction was so negative, the company reintroduced the original formula within three months. The original product was rebranded, however, as Coke Classic, and this rebranding process resulted in significant sales gains for the company.
An adaptable business partner is one who is willing to learn, to grow and to adapt to real world lessons that come the hard way. Most importantly, the adaptable business partner is not afraid to change, and instead, he or she is open to change, particularly when it is necessary for the business to continue to remain successful in a changing marketplace.
Good business partners excel as communicators. They do not operate in a silo or cocoon. They are available to discuss what is taking place in the business. They are honest, open and love talking about their business—what works, what isn’t working, and what needs to happen for the business to prosper. Even if someone is brilliant and creative, if the person will not share his or her ideas with others, cannot work cooperatively as part of a team and is unable to consider and address in a frank way all of the challenges that the business faces, this is not someone who has the makings of a good business partner.
This quality of accessibility in a business partner is the one that is most often overlooked, but a partner who lacks this character trait can doom the business. The stories are legion about business partners who no longer speak to each other, who stop working together and attempt to operate the business without any cooperation. That is a recipe for disaster, because when the company’s owners stop communicating, the employees will feel torn between these competing factions, morale will suffer and the company’s performance will inevitably decline as it goes through this internal civil war.
Even assuming the importance of these characteristics of accountability, adaptability and accessibility in a good business partner, how can one be sure that another person really has these traits? It is a question for which there is no rock solid answer. The best advice we can offer is to check the potential partner’s track record. A person’s past behavior is often a strong indicator of future performance. If the potential partner has few long-time friends who will vouch for his or her character, if the person has been involved in a number of unsuccessful businesses and blames others for the failure of these companies and if the person is reluctant to discuss candidly how he or she measures up on these character traits, these are all bright red flags.
It can be very difficult to walk away from what seems like an exciting, new business opportunity, but that may be the advisable course of action when significant warning signs exist regarding a potential new partner. A business can change its product, alter its services or pick a new marketing strategy, but it is much harder to jettison a business partner, and a bad business partner is a huge hurdle standing in the way of the business becoming a lasting success.