July 10, 2020
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Managing business partnerships to avoid stalling growth

It is vital to manage changing intentions and goals of #BusinessPartners without stalling the growth of the business.

Recently, we have experienced many conflicts between partners that were formerly solid. These may be due to the additional pressures that Covid-19 and the lockdown have put business owners under. People are frayed. Resolving the impasse is vital for the business’s survival.

You may wait, time does not!

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WHAT CREATES THIS CONFLICT?

We are seeing several factors drive the impasse between business partners:

Age differences

Many partnerships emerged when the founder, had to ‘bake-in’ skill and talent so he offered equity by way of performance or for sale to a productive and vital employee. The founder has then had to adjust to this new dynamic as does the employee, now shareholder and investor. The transition alone is hard enough and often carries loads of baggage that interfere in the partnership. However, if properly done and managed, these partnerships settle. Desirous of a change of pace and lifestyle, the founding, older partner wants to exit. How to exit, on what basis, at what price and what risk creates the impasses that we are seeing today. Driven by uncertainty of the skills loss from the exiting partner. Affordability to exit driving unrealistic valuations on the business. Ability to raise the capital to buy the exiting partner out. As well as a loss of identity and meaning from the older partner all cause ructions and rumbles in what was a formerly solid partnership.

Family changes

Either health issues or parent/kid issues change the dynamic in a partnership between the partners. Family changes can introduce disruptive spouses, or create a need to extract more money that would typically go to investments in the business’s growth, or shift working hours to an unfair balance, for example. The need to rebalance continuously is hard to negotiate and navigate and cracks appear in the partnerships.

Loss of faith in South Africa

Many current issues we deal with result from differing attitudes between partners on the future of SA. One partner may mix in a social circle where emigration is a frequent occurrence. Doubt around the country’s future seeds a short term, investment-resistant mindset and behaviour. Should the other partner see opportunities because of the same factors, their desire to invest and grow conflicts with the formerly tight partnership between the two business owners.

Low growth, slow economy

The shocking performance of the SA economy takes its toll on all business owners. In circumstances where partners are unable to agree on a new direction, the stress of low growth can harden perspectives and seed resentment between partners.

COST OF THE CONFLICT

It’s vital that the conflicts and ruptures get solved fast. You may wait to have it blow over, time does not. We see an increasing number of business owners invest today for tomorrow. They are growing and eating the lunch of their similar competitors. The cost of not quickly resolving the ruckus’s in a partnership will be seen in the business’s performance, and include:

Stalled growth

A business that maintains its turnover growth is dying. At a minimum, to stay ahead of the depreciating Rand and inflation, a business should be growing around 18-22% on a compounded annual basis. If it’s not, its regressing and in that, losing market share.

Loss of talent

Already, SA is talent scarce. Losing good people is the fault of the business owner. Employing good people and holding onto them means progress, positivity and opportunity for them. you hold good people by offering careers and opportunities for them to improve their lot. This includes skills, talent, professionalism, opportunity and more. These are all features of a growing business that has a vision, is executing on it and solid business partners leading from the front.

Leadership loss

If you aren’t driven to succeed and get to the front to compete for the customer, the likelihood it’s unlikely that you will be the first in line to spot new opportunities, changing customer behaviours and the like. This places you in a follower position and your arrival at new pricing models, business models, products, services and more that the market demands will be late.

ACTIONS THAT CAN BE TAKEN
Several remedies are on offer to solve these challenges. A few examples include:

Buy-outs and sales

Having a partner sell out in full or in part can provide relief for the business. Careful consideration on what this means for the business is needed. Should the partnership be well-balanced, it means that there will be a skills gap in the business with one exiting and the other remaining. Resolving that through either bringing in a new partner or employing talent must be included in this remedy. In the interests of the business, this might well take place over time. knowing that there is a resolution is often sufficient for the partnership to remain positive and productive.

Re-envisage the business

An exercise of re-visioning the business, in effect, resetting the business is very helpful. It enables partners to see what they have and how they can use this to reshape the business for success. It effectively resets the business based on the partners’ current goals rather than build the business based on their founding goals. Goals, vision and strategic intent in all business should be an annual event, something often omitted because of the busyness of business and everyday life. Partners forget to communicate and speak to each other in a business. This process, properly facilitated, will remind partners why they are partners, what brought them together and what they can do to find resolution. Most valuably, they will see and hear each other for the first time in a long time and in that, de-personalise their changed focus in relation to each other and the business.

Wear the right hats

Changing workloads and responsibility can be easily accommodated through business performance incentives. A partnership based on a 50:50 basis for example, does not mean salaries are equal. Splitting out shareholding/investing thinking from director/day-to-day thinking is crucial. Shareholding drives dividends and the dividend policy of the business. Director responsibilities and performance drive salary and incentives.

Partnerships are often loaded with emotion and history. Resolving conflict, fast and fairly is extremely hard for this reason. The risks are that the business suffers irrevocably.

We frequently work with established business owners to resolve partner conflicts. Our approach seeks to serve the needs of both parties but with a firm intent on saving, stabilising and growing the business born from the fruit of the partnership. In this way, all parties win.

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