| “Business partnerships have an 80% fail rate,” according to Harvard Business Review.
That probably shouldn’t come as a surprise considering over 50% of marriages fail...
And most people rush into business partnerships much faster than picking a romantic partner.
Now, in very select circumstances, some business partnerships not only make a lot of sense, but they can be highly profitable.
However, for the most part I am against them.
Here’s why:
1. Abdication of Responsibility
In many cases, at least one partner doesn’t want to get better at an area of weakness and thinks a partner will “solve” the problem.
Most times though, even the hard road of self-improvement is likely the better path.
For example, one of my clients recently asked if they should go into partnership with someone that brought years of experience in operations and leadership.
But there’s no reason to bring on this person as a formal partner.
Trust me, I get the desire to take the easy way out...
I did for years, abdicating leadership in my business to others and I regret it — 100%.
Now that I've done the hard work of personal growth, I realize leadership is simple and such a relatively straightforward process that anyone can get better at.
I wish I would have done earlier what my client should do now…
Buckle down and Man Up.
2. Ignorance
Another common mistake I see is when a client has a business partner who is “in charge” of a certain part of the business…
So my client ignores that area and just “expects” everything to be done properly — without inspecting the work.
This might work at first...
But overtime performance and commitment often degrades.
The other business partner “mentally checks out”...
Or gets involved in a new, more exciting opportunity and takes their “eye off the ball”.
And the end result is that you get burned.
Be careful.
Trust, but verify. Always.
3. Belief that “More Money” Solves All Problems
One partner needs money and thinks that a business partner is the only way to get capital.
But there are plenty of other lower-risk ways to get money.
And often the money isn’t even needed in the first place…
So it just ends up wasted or unused.
4. Straight Up Foolishness
The business owner naïvely “gives away” part of the business (in the form of equity) to someone who has a high-income skill (like copywriting or sales)...
Even though a simple contract work agreement would have sufficed.
5. Misvaluation
Another piece to this, is that most business owners have NO IDEA on how to properly value their business.
So they either grossly over-or-underestimate what their business is worth.
In private business, a generally accepted and very simple practice is:
Take your small business' yearly cash flow and multiply it by three or four.
I.e. If your business generates cash flow of $60,000 per year, it would have a value of $240,000.
Here’s a real world example of how this almost went HORRIBLY wrong for a client...
On a coaching call, my client (we’ll call him “George”) said he was thinking of selling 10% of his business to get a contract worker on board with him full time.
The “offer price” was to be $20,000.
BUT this business was generating $175,000 cash flow per year.
Which means the business was worth at least $525,000...
So 10% should have been $52,500.
He was undervaluing his business by more than half!
Even worse, the offer was being made to someone that did NOT generate sales and just performed a service that could have been found on the labor market for a salary of $80K.
I see ludicrous ideas like this every week...
And I don’t want you to make the same mistakes.
So Here’s the Bottom Line:
I - Don’t take on a partner just because you can’t do something... either learn it or hire out
II - Don’t take on a partner just because you don’t want to be a leader... get better instead!
III - Don’t give away equity in your business to a high performer... do a profit share instead
IV - Don’t sell equity in your business for lower than market value... know your numbers!
V - Don’t abdicate responsibility for your partner’s actions... you still need to know the biz!
If you’ve been considering taking on a partner…
This might be the most valuable information I ever share with you.
Success Loves Speed,
Craig
PS - If you’re ready to 2X your income (or more) while working 10 less hours per week...
... Just REPLY to this email with the words “2X 10 LESS” and we'll set up a time to chat with you to find out if we can help. | 