Why Partnerships Fail and Steps to Prevent Failure
Partnerships are breeding grounds for conflict because everyone is a chief, or thinks they are. That’s just one of the reasons many partnerships end up failing. Partnerships form with the best of intentions. They fail for a variety of preventable reasons.
Partnerships generally form for three basic reasons: 1) A few very smart and talented people decide to pool their talents because they believe that they will be able to leverage their combined skills and knowledge to better meet the needs of the marketplace. 2) Most consultants are not strong on the sales and marketing front and they hope that by having more people involved in rainmaking they will create a more stable business. 3) Occasionally, partnerships form because the founders believe that a partnership will be more fun and rewarding than going it alone.
Partnerships fail because:
- They don’t adequately define their vision and reason for existence beyond simply being a vehicle to make money. As a consequence, people often join partnerships for financial reasons but leave because of values, career or life goal misalignment.
- They don’t develop effective decision-making processes. This is problematic because assertive partners will do what they think needs to be done and the less assertive will resent those decisions and actions because they weren’t consulted. The upshot is that frequently the partners go in opposing directions that meet their own needs but not the strategic needs and direction of the partnership.
- The financial structure is generally geared toward rewarding those who take care of themselves above the common good. Many partnership compensation structures encourage fiefdom building, not teamwork.
- Rainmakers become prima donnas and end up holding the partnership hostage with the threat that they will take their clients elsewhere. As a consequence, other partners feel marginalized. Those partners eventually get tired of being treated as second-class citizens and leave.
- The Rainmaker quits and the sales pipeline runs dry.
- Partners tend to be so outwardly client focused that they don’t adequately attend to the care and feeding of each other and for non-partner staff. As a consequence, people do not develop a sense of camaraderie and loyalty to each other and the partnership. They leave once they see a better opportunity elsewhere.
- The partners don’t play well together.
To create effective partnerships you need to:
- Develop a vision for the company that people must opt-in to before joining. You want people to self-select into the partnership based on vision and value congruence vs. simply joining to earn a paycheck. Otherwise, you’ll have to keep paying them more to keep them around — just like pro sport clubs have to do with talented free agents. A good example: Michael Fertik and Owen Tripp developed a strong, clear vision for their business model that eventually created the company Reputation.com. The clarity of their model was one of the reasons a lot of strong business leaders and employees were attracted to the organization.
- Be clear about your values and only bring on partners who concur. Resist the temptation to bring on rainmakers who do not share your values. Value misalignment can create conflicts in approach to business development, delivery of services and how you treat one another. For example, unclear values and lack of enforcement probably helped sink Arthur Anderson by, at the minimum, not discouraging certain behaviors and conduct. Arthur Anderson had great rainmakers who helped grow AA to be one of the largest professional services firms but the values and behaviors of some partners ended up sinking the organization.
- Develop a clear decision making process. Without a clear understanding and agreement on how decisions are to be made, partners will end up feeling that their views weren’t adequately considered. Or, they end up doing what they want to do because they didn’t understand, agree with or buy-into the decisions and directions that they believed were made. As a result, decisions you thought were made end up in the dustpan of disregard and irrelevance.
- Develop a compensation structure that rewards both rainmaking and teamwork. When it’s all said and done, people do what they are paid for.
- Develop a culture where everyone learns how to be a rainmaker. You need to create a mindset that everyone is in the sales and marketing business and is responsible for not only delivering services (the easy job) but bringing in new business. Some people will be more naturally effective at rainmaking but everyone can learn to do it more effectively in a way that is congruent with his or her personality. For example, for some introverted partners, writing articles and whitepapers for publication (great marketing technique) is easier than doing the much dreaded “networking” dance.
- Be sure to nurture the relationships within the partnership, not just take care of client work. Remember, people work together for more than making money.
- Be clear about the end game for the partnership, e.g., to be acquired, to grow into a powerhouse or to be a lifestyle business. Answers to that question will help determine the strategic direction for the partnership and the action steps to achieve the goals. A lifestyle business will require a different strategy than building a business that will become an attractive buyout candidate. You want people to join the partnership with a clear understanding and agreement about the goal of the partnership. This is a corollary to developing a vision. Vision is the raison d’ętre, while the end game helps people know how they will be able to cash out or retire.
- Determine in advance how partners can exit gracefully if they determine it’s time to move on, e.g., financial aspects of the separation. All it takes is one bad exit to tank a partnership through all the bad press and karma. You want ex-partners to remember and talk well of their time at your company. Think of all the ex-McKinsey partners running companies who hire McKinsey. Make it possible for your ex-partners to want to refer business to their alma mater.
If you follow these guidelines the odds will be in your favor to create a successful partnership.