eBusiness Weekly
Joseline Sithole
Extensive literature exhorts the gains and advantages of working together in business. In the same breadth, Africans are deeply rooted in community as part of their cultural fabric, as articulated in the African Proverb: “If you want to go quickly, go alone but if you want to go far go together”. However, this cultural foundation is not so much replicated in the business community especially within the Micro Small and Medium Enterprise (MSME) space. In fact, according to a Finscope Survey (2012) a large number (71 percent) of MSMEs are individually owned. At 79 percent, Manicaland has the highest number of MSMEs that are individually owned.
There are a number of factors that result in MSMEs choosing to function as individualised business entities. According to the CMO Council,(a global network of executives), 60 percent of business partnerships fail.
However, when asked if they would like to partner, a majority of the MSMEs were fully appreciative of the concept and an even a significant number have tried partnering with others at some point, though on the whole, partnerships were viewed negatively and even with derision by a sizable number of MSMEs.
The list of toxic business partnerships that MSMEs have experienced is as long as it is depressing. Topping the list of “evil” things that had been inflicted on MSMEs by their partners was a breach of trust.
This was followed by changing of “goal posts” when the business had started to realise some profits. Laziness was also a big one. One MSME mourned that; “My partner left me to do all the work and he just came in to check if the money was rolling in.”
Melinda Emerson, in an article entitled “Why Most Small Business Partnerships Fail” also adds lack of clear structures, excessive protection of individual interests and lack of communication as chief causes of partnership break ups.
What is a partnership?
According to the “Financial Times Guide to Law for Business” a partnership comes into existence when a minimum of two and a maximum of 20 people conclude an agreement.
Thankfully, there are no major formalities that are needed to seal a partnership agreement as it does not need to be registered. The agreement can be sealed with word of mouth and a handshake (or even a hug if it’s ladies). However, as a cautionary measure, a fool proof partnership agreement should also be drawn up.
A partnership agreement should specify what the business entity would be like, is to be, how the entity will be managed and decisions that are taken thereof, what investment each partner has to make, how profits will be shared, dispute resolution, rights of partners upon retirement, dissolution of firm and how assets will be distributed, liability of partners and others.
We have also seen extremely prolific partnerships that have stood the test of time. My most favourite is the Amway Story, that global network marketing firm. This firm was started by Rich Devos and Jay van Andel who were 1940s friends in Grand Rapids. Proctor and Gamble was started by two sons-in-law, who were married to sisters, one a candle maker and another a soap maker.
Today the company is worth US$203 billion. Bill Hewlett and Dave Packard started Hewlett and Packard (HP) which is worth about US$63 billion. Bill Gates and Paul Allen started Microsoft, which is now US$841 billion.
Zimbabwe’s partnerships seem to be prolific in the services industry such as law firms and accounting firms.
Despite successes mentioned above, sometimes partnerships do not always succeed. Here are some lessons that MSMES can use when they are considering to get into a partnership.
Lesson 1: Friends versus partner
Though there are notable examples of friends that have successfully started and grown businesses (e.g. the Amway story mentioned above and Apple) it is not always true that your best friend makes a good partner. (Watch the movie the “Social Network” about Facebook).
Sometimes friends have different business ideologies and it can lead your business to ruin. In a similar vein though family members have been known to successfully run partnerships (Johnson and Johnson), caution should be exercised as well. Before diving into a business partnership, one should always consider the price that should be paid if the relationship does not succeed.
In terms of partnership failures between friends and family, emotional scars can last a long time.
Lesson 2: Due diligence
Sometimes it is important to carry out due diligence on your partner/s before committing to work together. Some partners just want a quick solution to pay off their debts, without long term commitment. In some instances, some partners have found themselves paying off some debts that they were not aware of. In the same breadth, a quick scan of lifestyle can tell you if your partner/s are big spenders or wasteful with resources. If you are careful with money you might want to avoid partnering with these people as their spending habits might put you into debt.
Lesson 3: Roles and responsibilities
It is important to note what type of a partner one is (General partner invests and gets involved in the business, sleeping partner invests but is not involved, salaried partner normally occurs in professional firms such as accounting and legal firms.)
They have not invested money in the business but they have accountability and sometimes eventually become partners. Clear roles need to be defined at the beginning. Roles should leverage on each partner’s strengths.
Les McKeown’s, an author of many business books, points out that powerful partnerships need a combination of these three personalities: A visionary sees beyond today, the producer gets things done and the processor advises the need for processes and procedures.
Lesson 3: Gender dynamics
In a highly patriarchal society such as Zimbabwe male partners might erroneously perceive that it is “okay to saddle the ladies with the administrative functions such as proposal writing, minutes and other chores” while they take care of the serious business.
This can frustrate your female partners. Similarly partnering with a married spouse when you are not can be tricky. In my friend’s case the partner’s husband went to the extent of wanting to open a bank account for them as he wanted “to monitor the account himself”.
Similarly some spouses are big spenders and might put a strain on your finances. It is good to also check these dynamics before committing.
Lesson 4: Shared vision
It is important to ensure that all partners have a shared vision. Sometimes one partner might have a bigger vision. For example, one partner might want the project to go international while another is content with local operations.
This might present future challenges to the partner who has a bigger vision. In this case it is very important to be explicit with your goals and vision right at the start.
Lesson 5: Systems and procedures
Perhaps the most overlooked function of partnerships is the operational side. How the business entity is operationalised is doubly important. I cannot stress enough the need to resource the entity with well qualified people especially at the start. Resourcing your business entity with all relatives who cannot find jobs in the clan is not very advisable. The financial policy is also very important. Inadequate financial systems have led to many a break of partnerships.
In conclusion, partnerships are a good place to diversify one’s business portfolio. However, joining hands with anyone certainly needs a lot of thought and consideration. Reflect on this quote by Arianna Huffington, “Having a Partner definitely allows you to take more risks”.
