To partner or not?

One of the most critical decisions that entrepreneurs and business owners will ever make is whether to go into business with a partner or partners. Who to partner with and how the relationship is initiated and managed can be the difference between success and failure (Thurston, 1986).

Whatever decision is made, it needs to fit the needs of the individual and the business. This view is supported by Wasserman (2012: 73) when he states:

“… people who go solo when they shouldn’t will increase their risk of failure, while people who bring on cofounders when they should have gone solo will usually face team tensions they could have avoided.”

Understanding individual entrepreneur and business owner characteristics and needs is important to help ensure that the formation of business partnerships are based on informed reasoning.

Solo Business Owners

The reasons why a business owner may choose to go solo, as Wasserman (2012) points out, may include the following:

  • the individual may have sufficient resources to start and continue to operate a business
  • there is no requirement or urgency to grow the business
  • the owner wants to control decision-making and does not wish to share equity in the business

During the start-up phase – the most vulnerable phase – keeping things simple can also be an attractive proposition to many business owners.

Partnership Advantages

Businesses that are established and operated by more than one business partner have a competitive advantage over single operators (Birley & Stockley, 2000), providing they can make the partnership work. A recent report about internet start-ups in Silicon Valley found that solo founders take 3.6 times longer than founding teams to reach a scalable stage (Marmer, Herrmann, Dogrultan & Berman, 2012).

Business partners help spread the risk while also spreading the rewards. Partnerships that work have the following potential advantages:

  • a more stable and durable business platform from client and supplier perspectives
  • a larger pool of working capital
  • a broader and complementary set of skills, capabilities and experience
  • a larger business network base
  • a safe haven for sharing ideas and decisions using different perspectives
  • mitigation of key person risk and ability of partners to take periodic leave from the business

Wasserman (2012) argues that business owners decide to partner with others for tangible, as well as, intangible reasons.

Tangible

Within the tangible group, he lists three types of capital:

  • human capital: this includes the knowledge and skills required to build and manage a business from start-up. It is rare for a founder to have all of the necessary knowledge and skills to start an organisation from nothing.
  • social capital: this incorporates an individual’s social networks that may be useful in finding employees, gaining access to funds and learning about industry developments.
  • financial capital: this refers to the funding resources available to the business.

Intangible

Even if a business owner has the three types of capital listed above, he or she may still want to have a partner for intangible reasons. In particular, the start-up phase can be all time consuming and extremely stressful. Making critical decisions on your own under such circumstances can be risky.

Wasserman (2012) suggests that business owners also have personal preferences and psychological needs that can prevail over the tangible elements listed above:

  • task preferences: business owners may have the requisite skills to perform certain tasks but, at the same time, have an aversion to performing them
  • collaborative style: some individuals thrive in an environment where ideas can be shared and enhanced through on-going conversations
  • support and validation: others will have a need for “affiliation, validation, or psychological support”

Therefore, business owners may choose to have a partner who will address these intangible needs.

Know Your Reasons for Seeking a Partnership

Where an entrepreneur or business owner is going to partner with another, it is important that he or she understands their own needs – tangible and intangible – before making a decision. This will allow them to (i) assess more clearly the reasons for entering or not entering a partnership and (ii), should they decide to enter a partnership arrangement, better target their prospective business partner.

References

  • Birley, S & Stockley, S (2000) Entrepreneurial teams and venture growth. In Sexton, D L & Landstrom, H (eds), The Blackwell Handbook of Entrepreneurship, 287-307. Malden, MA: Blackwell Business.
  • Marmer, M, Herrmann, B L, Dogrultan, E, & Berman, R (2012) Startup Genome Report: A New Framework for Understanding Why Startups Succeed, Report 1.1. [http://blog.startupcompass.co/pages/startup-genome-report-1]
  • Thurston, P H (1986) When partners fall out, Harvard Business Review, 86 (6), 24-34.
  • Wasserman, N (2012) The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. Princeton, New Jersey: Princeton University Press.

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