Partnership failure – Why do business partnerships fail?

Partnership failure….the kiss of death for many small businesses. Time and again, we hear stories about how many small businesses fail in the first two years of startup.

So why do partnerships fail? Whenever two or more people enter into a partnership, they do it with the best intention—to succeed at business.

Yet, partnership failure happens-- often. Recently, a group of people who were in failed business partnerships shared their stories with me. In reading these stories, a few key factors stood out that contributed to the collapse of these partnership arrangements. These factors were: failure to have a written partnership, lack of a proper plan, unequal partnership arrangements, failure to act as a partnership, unwillingness and/or inability to agree on key issues, disagreements over the partnership arrangements, and loss of trust.

Here are the partnership failure stories, in their own words:

I was one of four partners in a marketing communications agency in located in Dayton OH, back in the early 1980s. We developed articles, PR plans, brochures, and other marketing materials for corporate and non-profit clients. There were four partners who had known each other professionally in the past, but had never worked together. We did not have a written partnership agreement. Our partnership failed primarily because we never did have an agreement or any written procedures…Each of us owned twenty-five percent of the company, which meant that no one had majority voting power. Every corporate decision, including whether and when to pay a freelancer or the phone bill, had to be voted on.

We worked in Ky. My business partner was my husband. We sold a variety of different products to people at local businesses. No, we did not have any sort of written agreements. The thing that caused our partnership to fail was the business itself was failing do to loss of inventory from customers stealing stuff…to not being organized enough with the paper work about what was left at certain businesses.

I have been in a small business partnership for almost 2 years now and the relationship has begun to fail. My partner has been "running the show" since day 1. It definitely has not been an equal partnership and I am done being her "employee". I told her today that I'm not going through another year with her treating me like this and I want out.

It was all very loosey goosey, and we operated very much like four different businesses, because each partner ran his or her clients their own way. Each of us owned twenty-five percent of the company, which meant that no one had majority voting power. Every corporate decision, including whether and when to pay a freelancer or the phone bill, had to be voted on. This experience soured me on partnerships. Since that time, I've known of many, many other businesses that have failed for similar reasons. The partners part company completely alienated from each other, if not as actual enemies.

The conflicts on ideals primarily led the business conclusion because both sides think and believed that what we think was the right thing for the business. Issues were brought out but none among the parties took the initiative to reach out and arrange the conflict with another for the sake of saving the failing business.

I had started a Desk Top Publishing business in New Delhi, India. When the venture became successful then a friend of mine who was into marketing profession offered to bring work if I agreed to treat him as equal partner. It was agreed that the profit from the assignments brought through his efforts would be divided equally…. This arrangement was working perfectly well until he started to claim profit from the job which had nothing to do with him and these were my regular clients.

I realized then that when it comes to monetary matters, it is not good to trust somebody very much, even a family member. As I trace the root of closing the business, I found out that the real problem is trustworthiness. Of course it includes communication processes, attitude towards works as well as to others, the trait of being industrious and the fact of being patient.

There is a ray of light, however. Even though these stories were solicited to learn about partnership failure, many said they would do it again:

• The choice is always out there to open the business back up, so once we do get ourselves established, we will definitely go for a second try.

• I was sad that my fun dream job went up in smoke, but I enjoyed it while it lasted. If I could do it again, I would.

• I would definitely start a business again, it is my husband’s dream as well.