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Business Partnerships: Practical Challenges

We’ll take a look at partnerships in today’s review. Business people and entrepreneurs often find themselves needing or seeking partnerships to enhance their business objectives. It is a fundamental truth that no man is complete in himself. We need others, one way or another to complement or enhance us.

No matter how gifted a man is, he cannot produce children unless he partners with a woman. In the same way, a woman must partner with a man to produce children. In business, it is inevitable that we team up with others in our pursuit for greater heights.

To optimize the chances of success, it is common knowledge that we choose partners whose strengths cover our weaknesses. For example, an individual may be a highly skilled technical professional but lacks relationship and networking skills.

While he has all the skills and competencies required to design the best of systems or products, he may have no clue regarding how to market them. To solve the problem, he may partner someone or a team of people with established distribution and sales outlets. There are some companies or individuals who won marginal oil field blocks but do not have the required technical skills or financial power to implement required production facilities.

They often form joint venture partnerships with overseas or local companies who bring in the necessary resources and thereafter share the profits in the proportion of their equity contribution. The Nigerian Government, through the NNPC is involved in such partnerships with Multinational oil companies for the Exploration and Production of Nigeria’s Oil and Gas reserves.

Employer and employee relationships are another form of partnership. Every employer knows that growth and productivity is highly limited as a sole proprietor. Employees represent the only way to enhance the business objectives beyond the capability of an individual. Individual directors bring different strengths and values to the business. In all partnerships, the expectations remain the same: partners will play their role, profits follow and everybody is happy.

Unfortunately, not all partnerships work out. To increase the chances of success, there are some fundamental issues that should not be taken for granted at the initiation stage. It is quite common for people to get carried away with the positive side or benefits that potential partners will bring to the table.

It is in much the same way that many unseasoned entrepreneurs only look at projected earnings and profit plan in developing business plans while paying little or no attention to the risks and uncertainties. Let’s take a look at a few of the issues for consideration

Value System & Ethics: When partners/members of the board do not share common ideas regarding implementation plan or have sharp differences in ethical and value system, the risk to business success is significant. If you value your reputation and also place strong emphasis on fair play, be careful not to choose partners who may bring in substantial funds but have no regard for fair play, ethical conduct or sincerity.

Such partners in the future may easily initiate plans to throw you out of the company and take full control. Most businesses award one form of contract or another for services or projects. While it may be agreed that selection of contractors should be based on neutrality of all directors, it is common to find violations by board members.

Crafty directors divert juicy and inflated contracts to surrogate companies or cronies. Sometimes, the unsuspecting director may never realize the prevalence of the artifice until it is too late. When success is achieved as a team, it is not unusual for some people to arrogate the success to their efforts and trivialize the input of others. Use experienced corporate lawyers to minimize the risks associated with such attitudes.

Profit Plan: Some partners may want very fast returns while others prefer long term sustainability over short term benefits. Such differences can truncate a business prematurely. Before concluding partnerships through legally binding documents, be sure you check their history. Where insufficient historical data exists, you may watch out for telling signs through their behavior, utterances and propensity for quick returns over sustainability.

Passion: A few months ago, some young medical doctors sought my advice on how to raise funds to expand their hospital. The three doctors have come a long way and together they have built a wonderful practice that has touched many lives positively. Having recently received their ISO certification, combined with their quest for continuous excellence, they were seeking funds or partners who would help drive their expansion plans to reach more people.

I told them that it is easy for me to collect fees and develop a business plan that will facilitate any amount of fund they require, as I already know they have excellent foundation, strong processes and passion to excel.

They surely meet the criteria of some of our foreign/local financiers. But I advised them to be cautious in their quest for expansion.

The new partners may not share in their passion for medical practice. They may also not have the patience needed for the breakthrough profits to arrive. The introduction of new partners may break the bond between them thus weakening or destroying a key driver for the success recorded so far. My suggestion was for them to remain focused on sustaining the values of their practice. The growth they seek will happen before they know it. The best part will be that their hard-earned partnership will remain safe.

Risk Bearing Capacity: If your vision or business is built around low risk investments, partnering with people or companies with a propensity for high risk ventures may not yield positive results. One way to manage this condition when the other party brings obviously great value is to develop a common risk acceptance standard. When this is done at the beginning, it helps all parties to adhere to the corporate governance principles.

Trying to introduce this in later stages may not be easy. In summary, the success of partnerships depends more on how you identify, analyze, and develop strategies to manage the risks introduced by the partnership than in focusing on the perceived benefits only.


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