How To Avoid Bad Partnerships Ep 278

Summary Notes


In this insightful discussion, the host, known as the "partnership killer," delves into the complexities of business partnerships, emphasizing that the only valid reasons for having a partner are complementary skills or financial contributions. Drawing from nine failed partnerships, he advises against partnerships formed for emotional comfort and stresses the importance of clear roles, contracts, and legal advice to prevent future disputes. He outlines the three critical business roles—acquisition, product, and operations—and the necessity of specialization for growth, cautioning against the dilution of equity in hastily formed partnerships. The host also notes that married couples often naturally embody these complementary roles, making them successful business partners.

Summary Notes

The Purpose of Having a Partner

  • Partnerships are formed when one party has money or skills the other does not possess.
  • Emotional needs should not be the basis for forming a business partnership.
  • Duplication of entrepreneurial skills and interests can render one partner unnecessary.
  • It's crucial to assess the business rationale behind the partnership rather than personal compatibility.

"The only reason for you to have a partner is because they either have money or skills that you do not have."

This quote emphasizes that the primary justification for entering into a partnership should be the complementary assets or abilities that each party brings to the table, not personal relationships or emotional needs.

Recognizing Potential Issues in Partnerships

  • Speaker A admits to having nine failed partnerships, acknowledging that the problem could lie with their own approach.
  • These failures were attributed to a lack of understanding about proper partnership structure.
  • A pattern of forming partnerships based on the wrong criteria was identified.

"I could be the problem with the partnerships, right? If you have that many failed partnerships, then it's probably you."

This quote reflects self-awareness from Speaker A, recognizing that a common factor in multiple failed partnerships might indicate a personal issue with how they approach or manage partnerships.

  • Entering into partnerships without contracts or clear terms can lead to future disputes and complications.
  • Speaker A stresses the importance of involving lawyers and creating a formal agreement to outline the partnership's structure.
  • Legal counsel can provide a simulation of stress scenarios partners might face and ensure all parties are protected.

"You don't have a contract, you don't have terms, you don't have an agreement."

This quote highlights the critical mistake many new partnerships make by not establishing formal agreements from the outset, which can lead to significant issues when conflicts arise.

Handling Partnerships Pragmatically

  • Speaker A recommends approaching partnerships with a business mindset, not an emotional one.
  • It is advised to simulate stress situations through legal discussions to anticipate potential disagreements.
  • Having legal representation for each party or at least legal counsel on the agreement is essential.
  • Free online resources and limited legal advice can be a starting point for those with financial constraints.

"Let's go through the lawyers first."

Speaker A suggests that legal consultation should be the first step when forming a partnership to ensure that all parties' interests are legally protected and that there is a clear understanding of the terms of the partnership.

Importance of Partnership Agreements

  • Clearly defined partnership agreements are crucial for setting expectations and facilitating good communication.
  • Absence of explicit agreements often leads to partnership failures due to unmet and unspoken expectations.
  • It is advisable to formalize relationships in business with contracts, especially when partners have similar characteristics.

"You can represent yourself in your partnership agreement, but you have to have the agreement and you have to spell it out in clear terms, because if you don't have that, it's the bedrock of good communication and expectations."

This quote emphasizes the necessity of having a clear and explicit partnership agreement to establish the foundation for effective communication and well-set expectations between partners.

"Otherwise, usually, like most relationships, partnerships end because of unmet and unspoken expectations."

This quote addresses the common reason for the dissolution of partnerships, which is the failure to meet expectations that were never clearly communicated or agreed upon.

The Three Pillars of Business

  • Every business is built on three main roles: acquisition, product, and operations.
  • Acquisition involves marketing and sales, and is essential for bringing in business.
  • The product is what the business sells, including the fulfillment and service aspects.
  • Operations encompass all other necessary activities for the business, such as payroll, taxes, legal matters, IT, finance, and HR.
  • These pillars are not necessarily equally weighted, with acquisition and product often being more valued in the market.

"The first is acquisition, which is the rainmaker or somebody who's going to bring in business. So that's marketing and sales."

This quote describes the first pillar, acquisition, highlighting its role in generating revenue for the business through marketing and sales efforts.

"The second of these is the product, which is what you are actually selling. It's the fulfillment, it's the service, it's the widget, it's the whatever. Somebody who knows how to deliver it."

The second pillar, the product, is detailed here, emphasizing the importance of having a deliverable or service that meets the needs of the market.

"And then third, you have the operations, which is everything else that has to happen in the company."

Operations, the third pillar, is defined in this quote as the variety of essential activities that support the business's functionality and compliance.

Significance of Skill Stacking in Business

  • Possessing multiple skills from the three business pillars can be a significant advantage.
  • Skill stacking can lead to having two or all three of the essential business roles covered by a single individual or a team.
  • Businesses require all three roles to be functional and successful.
  • The speaker provides a personal example of how these roles were distributed in their own business.

"Now, this is why skill stacking is so important. If you can have multiple of these skills, then you have two or all three of the legs, right?"

This quote explains the concept of skill stacking, which involves having expertise in more than one of the three business pillars, thereby strengthening the business's foundation.

"If you're missing one of the legs, it's not going to work."

The necessity of having all three roles filled is underlined in this quote, which likens the business structure to a stool that requires all three legs to remain upright.

Risks of Incomplete Business Roles

  • Marketing experts may excel in acquisition but lack in product fulfillment and organization.
  • Inefficiencies and customer service issues often arise when one or more business pillars are weak or absent.
  • The speaker suggests that failures in these areas are not always due to bad intentions but rather a lack of necessary skills.

"This is where this is really dangerous, is like a lot of the marketing people that are in this world are really good promoters. They can get people in, they can sell them, but then they have no fulfillment, they have no thing, right?"

This quote points out a common pitfall where businesses excel in promotion and sales but fail to deliver on the product or service, leading to customer dissatisfaction.

"And then they have no one who's organized. And so everything, like, you send emails in, you try and get help and they don't respond. It's because they just don't have the other pieces."

The speaker identifies a lack of organization as a critical issue in some businesses, causing operational problems such as poor customer service and response times.

Encouragement to Engage with Additional Content

  • The speaker invites listeners to check out the video version of the podcast for enhanced learning through visuals and graphs.
  • The video content is offered as a free resource on the speaker's YouTube channel.

"Hey, guys, love that you're listening to the podcast. If you ever want to have the video version of this, which usually has more effects, more visuals, more graphs, you know, drawn out stuff. Sometimes it can help hit the brain centers in different ways."

This quote serves as an invitation to the audience to engage with the content on another platform, suggesting that the video format might offer a different and potentially more effective learning experience.

Key Roles in Business Partnerships

  • Businesses require three key roles: product, acquisition, and operation.
  • The product role involves knowing the product or service well.
  • The acquisition role focuses on obtaining customers or clients.
  • The operation role ensures the business runs smoothly, including legal and tax compliance.
  • When considering partners, it's important to identify which of these roles each partner will fill.
  • Clearly defined roles help in creating agreements and deciding equity distribution.
  • Partners with overlapping skills may not be necessary and could lead to inefficiency.

"And so if you're going to bring someone in, you need them to have one of those things. Right now, you can start a business and own all of it and just make sure that you fill the roles of those people."

This quote emphasizes the importance of ensuring that any new partner brought into a business fulfills one of the key roles necessary for the business's operation.

"But if you've already started at that point, then you can look at the three legs of the stool and see, where am I lacking?"

This quote suggests that business owners should assess which of the three key roles they are missing in their current operation to understand where they need support.

Importance of Role Definition in Partnerships

  • Overlapping roles can lead to redundancy and inefficiency in partnerships.
  • Recognizing early on that partners have similar interests and skills can prevent future issues.
  • Defining clear responsibilities prevents confusion and ensures accountability.
  • A strong partnership divides tasks based on individual strengths and expertise.
  • Businesses need to operate with clear ownership of tasks to be successful and grow.

"And so you may be in one of these partnerships where you're like, we kind of both do the same thing. We kind of just overlap on everything."

This quote highlights the issue of redundancy in partnerships where both partners have the same skills and interests, leading to inefficiency.

"You have to figure out, what are the things I am good at? What are the things you are good at. And then we draw a line on the board."

This quote stresses the need for partners to identify their individual strengths and divide responsibilities accordingly for a successful partnership.

Strategy for Business Growth

  • Thinking and acting big is essential for business expansion.
  • Small actions and thinking lead to small business outcomes.
  • Defining roles and responsibilities is crucial even for small businesses with aspirations to grow.
  • The first hire for a growing business should be a strong operational second to support the owner.
  • Conducting a time study can help identify all activities in a business and who should be responsible for them.

"So they stay that way because the outcome of what they are doing is the result of the actions they're making, which are small, right."

This quote explains that businesses remain small due to small-scale thinking and actions, implying that changing these can lead to growth.

"It's the first thing I'm going to do. If you are in a partnership, you need to put all the activities that you do on a board."

This quote suggests a practical approach to defining roles and responsibilities by visually mapping out all business activities, which can help clarify who should handle each task.

Division of Roles and Responsibilities

  • Identifying and organizing business activities is crucial for creating a structured organization.
  • Roles and responsibilities should be clearly divided between business partners.
  • Specialization of skills is highlighted as a key factor that has propelled humanity forward.
  • Partners should divide tasks based on individual skills, and if skills overlap, specialization or reconsidering the partnership is advised.

"So if you write it all down and you both bring it to each other and you put it on a whiteboard or put it on a board, then what you can do is say, okay, these are all the things, these are all the activities that happen in our business. Let's divide these out and say, who owns these?"

The quote emphasizes the importance of visualizing and documenting all business activities to facilitate the division of roles and responsibilities among partners.

Specialization and Business Partnership Dynamics

  • Specialization is recommended for partners with similar skills to avoid redundancy and enhance business efficiency.
  • The decision to become specialists in different areas or to pursue separate businesses should be based on skill sets and business goals.
  • The division of labor should align with each partner's strengths and contribute to the business's growth.

"And that's the very beginning of an organization because you are becoming organized. You are creating roles and responsibilities. You are creating specialization of skills, which is what moved humanity forward."

This quote outlines the foundational steps of organizing a business through the creation of specialized roles and responsibilities, which is a practice that has historically contributed to human progress.

Equity and Partnership Decisions

  • Early decisions on equity distribution among partners can significantly impact future earnings.
  • The speaker advises against hastily diluting equity without considering the long-term implications.
  • The speaker shares personal experience, noting greater financial success after dissolving partnerships and retaining full equity.

"And oftentimes, if you can even at least think that way, then you don't liquidate the most valuable thing in the whole world, which is your equity, all right?"

The speaker warns against the premature dilution of equity in a business, emphasizing its value and the importance of thoughtful decision-making in partnerships.

Work Dynamics and Expectations

  • Partners should discuss and agree upon work schedules, vacation time, and availability expectations.
  • Aligning on these work dynamics early on can prevent future conflicts and ensure a harmonious partnership.
  • Having difficult conversations about expectations upfront is preferable to addressing unmet expectations later, especially when money is involved.

"There's all these little things that you need to make sure you dial in, because if you don't, it's just going to cause trouble later."

The quote underscores the necessity of establishing clear work-related expectations and agreements between partners to avoid future issues.

Successful Partnerships and Married Couples in Business

  • Married couples often naturally divide business roles based on differing skill sets and dynamics.
  • Successful partnerships, including those between married couples, benefit from clear delineation of front-end (acquisition) and back-end (operations) responsibilities.
  • Married couples in business have the advantage of an emotional support system, which can alleviate the stress of running a business.

"And so even just thinking about front end and back end is a good way to start. And that's why I love having married couples in general, because they almost always are successful if they can just delineate those skills and they usually already have, even without speaking."

The speaker highlights the success of married couples in business due to their complementary skills and the natural division of labor, suggesting that this model can be beneficial for other types of partnerships as well.

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