Setting up partnership firms for success

What is the common thread amongst HP, Apple, eBay, Twitter, Berkshire Hathaway, Microsoft, Home Depot, Infosys, Dolce & Gabbana, and Valentino?  These are all fine examples of partnership companies that have lasted for a long time and some continue to grow stronger even now. Unfortunately, a whopping 70% of partnership firms end in divorce or closure in first 5 years of founding itself.

Partnerships like marriages stay stronger when they embrace following elements.  Most successful partnership recognises individual limitations and builds their enterprise capability and growth around the strengths of each partner. Successful partnership requires respecting differences in traits & personality of each partner without making it uncomfortable or vulnerable for any of the partners. Successful partnership, borrowing from Ballantine’s advertisement, let each partner be unflinchingly and unapologetically who they are.  Berkshire and Apple are classic cases where partners with completely different personalities work to direct, protect and correct the company’s investments and growth options. Successful partnership exhibits a healthy dose of ‘yes’ and ‘nay’ discussions that clear the cobwebs of assumptions and self-doubts.

An important element of successful partnership companies is the high intensity of trust between partners. Successful partnership requires unquestionable belief in the reliability and consistency of other partners. It is important to address disagreements, disapprovals and frustration at early stage. Acknowledging the contributions of other partners in shareholder meetings and media interactions is a key element to cement stronger bonds, especially in the initial stages of partnership. Procrastination and avoidance are not best for retaining trust between partners and sustaining the organization. Consistent follow through of details and taking time to remind each other of what they like about each other reinforces trust.

Successful partnership requires at early stage of founding complementarity in skills and assets. Partners choose to own and drive areas where each of them has interest, experience and passion. Well defined job roles for each and accountability eliminates opportunities for any friction between them. Execution ownership and expectation alignment are key to sustaining business partnerships. Many successful partnerships also see a rotation of roles amongst partners. Partners move from backend or production to customer facing, and those working on the client side move to product development or production. Such role changes help to bring a comprehensive view of the business to each of the partner and close any gaps.  High mutual respect for contributions and appreciate the outcomes from each partner without iota of envy keeps the partnership going strong.

A key ingredient that sustains partnership in business is common goals and shared dreams. In fact many partnerships fall apart when intermediate goals are met and the other partner(s) loose appetite for the long haul.  Successful partner companies need to have a superordinate goal that can remain relevant even with the growth of the company and greying of the partners.  Alignment of personal values acts as a glue holding partners as company and individuals mature.

Open communications and partner rituals play an important role in cementing trust and longevity of relationships. Successful partners have a no holds barred communication policy that completely eliminates “opportunism” for other parties. On the lighter side, some partners are known to confide in each other than their spouses.  Institutionalizing partner sojourns and partner only rituals provides uncluttered space for partners to discuss and realign continuously, even when life goals are changing. Whenever you or partners feel uncomfortable or vulnerable or feel a little envious, check your ego and open the doors of communication.

If you are partners of a startups or an established SME, remember to bring in some elements of institutionalization to sustain the partnership.

  1. First, create a company board. Ensure your board represents partner’s role and rights. Spousal representation is a touchy area and must be handled in an inclusive manner. As far as possible avoid bringing in relationship from one side of partners. Bring in outside professionals who can offer unbiased directions and zealously protect the assets and reputation of your company.
  2. Professionalize your organization by bringing in experienced professionals to support you and partners so that a leadership chain gets developed quickly.
  3. Adopt best practices for accounting and finance. Ensure petty cash handling is minimized.
  4. Ensure each partner directs and reviews areas of his passion and interest. Align departments to the interest and capabilities of the partner.
  5. Institutionalize some corporate events wherein not just the partners, but their spouses and children participate. Founder’s day, Annual day, Christmas Dinner events are some examples.
  6. Formalize performance review mechanisms and ensure the FOCUS is on results and outcomes, not personalities.
  7. Decide who amongst you would don “basking in the sun” role, while other would play Greta Garbo away from the Arclight role.

If your company has survived the golden years of partnership, the next gate of death may actually occur when ownership transition need to happen to the next level. Like a family business, partner run business do need a charter detailing how the succession will happen, how the representation across the owners is fair and the continuity of business is preserved.  Partner led companies can thrive across generations when they can successfully “demarcate” ownership from the executives.  Partner led companies need to have a formal process of succession planning.  Success of succession planning depends on the planning and execution. Partnership companies can explore multiple mechanisms including rotational chairmanship, creation of an investment arm, board representations across units, and trustee positons, etc. to preserve multigenerational partnerships.

Working together is never simple.

Successful partnership like a marriage requires a little bit of serving, counter-balancing, and occasional mending of edges.

That is the secret recipe of enduring business partnerships.

Dr TR Madan Mohan and D Balasubramaniam

Successful Succession in Middle East Family business…………

80% of businesses in Middle East are family-run or family based. According to Middle Eastern Business Insights, over 41% of the business plan to pass the mantle to next generation. More than $1 trillion is expected to be handed down to next generation. However, less than 40% of business have shareholder agreements in place and about 40% have no plan to deal with conflict that may arise between Faraid’s, Asaba and Arham claimants under Shari’s succession laws. What is distressing is that if business history of other families is any indication, just about 1/7th of business will survive intergenerational transfer and other family business may just perish.

Even though Middle Eastern companies are different in size and governance areas, one central element common is the overlapping role of family, ownership and management. The family firms have brought few competent outsiders to lead and manage their business and resolve the issue around succession. In many cases, in-laws and relatives are appointed as leaders or key executives. Hence, succession for many of these companies is not about family persons but also other positions.

How must the Middle Eastern businesses plan and execute succession. Few common elements of successful succession plans across the world can be pointers.

  1. Nurturing and mentoring are essential to sustain and extend founder’s entrepreneurial values
  2. Heirs well-prepared in terms of educational background and experience and having spent couple of years at different levels are better prepared
  3. Family must plan current owner characteristics and leadership style, current company situation, leadership development and successor characteristics and post-succession company structure and process
  4. Discuss the succession management within family and with Board
  5. Plan the role adjustment process for the founder and the next generation family member
  6. Exposure to various aspects of business at early age is important
  7. Training (formal or on the job) has certain advantages
  8. While mentoring from father is a must, complement with outside professionals
  9. Succession should be encouraged to build their own performance assessment system
  10. Gaining experience outside the system is a must for diversified groups
  11. Attempt transition when the business is health and markets are near normal