Exploring partnerships as small businesses

26 Apr, 2019 - 11:04 0 Views
Exploring partnerships as small businesses

eBusiness Weekly

One of our most popular local proverbs says that “one finger cannot crush a louse”. This implies that “others” are an important factor in any kind of endeavour, business included.

During the trying times we are going through, it is important to consider every possible avenue to stay in business, one of these is by partnering with others in similar, or complementary space.

This is a perfect season to think around the value of partnership rather that continuing as a sole trader or a struggling small business. The world over, we know of strong brands whose names indicate clearly that two or more persons came together and built a new company out of the old.

They appreciated that they could build one entity with greater value and own a small piece of an elephant, rather than to wholly own a mouse. This mentality must be allowed room as we think on the optimal business models in Zimbabwe.

The benefits of partnering are manifold, for one you will have an extra set of hands and these need not be highly skilled, just having someone else available to strategise with or do even simple errands or vent to reduces the burden of running a business.

Every person that comes into a partnership will do so with some kind of knowledge and that is always helpful when ideas, creativity and innovation are required.  Having a partner also significantly reduces financial burden that would have otherwise been on one person, and ultimately even the paperwork and tax forms to be handled reduce when working together.

However, like a coin, partnerships in business have two sides. With a partner comes less independence, you cannot just make random decisions without consulting. This works well when the partners are agreeing, but can also be the source of vicious conflict, as neither partner will be ready to embrace the other’s point of view or stand down on theirs.  On the money, profits will have to be divided so expect less income as you share with others. Getting a business partner is a lot like getting a life partner, there will be need to adjust over time, but these adjustments must be taken in positive light.

Getting into a partnership requires some preliminaries. You would need to first honestly and earnestly reflect on whether or not you will do better in a team. People are wired differently hence some will be unhappy and unproductive with a partner but do brilliantly on their own. Be aware that as one in some partnership arrangements there will be joint liabilities.

Understand that by being in a partnership, you are exposed to all the enterprises debt as this method of company registration does not separate owners from the business. The best partnership agreements contain an exit plan, that covers every circumstance and situation that may necessitate dissolving the partnership.

This detail is important in that most partnerships fail and knowing how to undo it before it even starts is a good idea. Selecting a partner is much like courtship prior to marriage.

You will want to find someone you share common values with, it must not just be about merging two companies to create a larger entity in the hope of obtaining market share.

The value proposition must be clear, either you offer similar or complementing products and services and see no point of competing when you can achieve economies of scale together. This would be for companies that likely operate in the same geographical location or sphere of influence.  Alternatively, it could be that one of the partners is senior and wants to add on the service or product offering of the junior company rather than starting up a similar division and going through a complete cycle.

It may be more cost effective to absorb the smaller company and offer its founders equity in the overall mother company. Another likely scenario is that of a foreign company that wants a leg in into a country like ours, without taking the longer route of lengthy regulations and the bureaucracy that comes with setting up anew.

It is necessary to appreciate that what comes out is no longer any one of the two or more initial companies but a new one altogether. Reconfiguring a new culture will be critical hence the need to choose well from the onset.

The new entity will need to optimise its’ resources, namely the people and physical equipment, and possibly properties. Audits of these will be necessary and it may warrant retiring some, bringing on board new ones, redeploying others. This process tends to be tough and draining for the founders as they will be required to objectively look at what is on the table and make hard and sometimes emotional decisions to let go of some resources.

A new company requires a new business model altogether otherwise it will fail if the old principals pull in different directions. However, they must not lose sight of what brought them together in the first place, the opportunity to leverage respective strengths and do better, stronger together.

Partners critically need to congregate around a shared vision and structure the partnership accordingly to enable the vision to come to pass. Common pitfalls to avoid include skipping the written agreement — everything must be in black and white, clear terms of reference matter.

A proper legal arrangement works best with clarity on voting and veto rights. Responsibilities of each party should be clear, as well as the income sharing arrangement. It is also important to note how changes to the structure may be effected. Disputes resolution is a key component to be considered and provided for.

Having these guidelines and boundaries works well towards the success of business partnerships. Most fallouts have been known to be messy because there was ambiguity from a “gentleman’s agreement” and this leaves room for a lot of assumptions and unfulfilled expectations.

If your enterprise seems to be struggling and you have identified a potential partner, it may be worth reaching out and arranging for partnership. Certainly, it will make it easier to raise capital and compete in this tough environment.

Feedback:Email-kudzi@investorsaint. co.zw, Twitter-@kedukudzi


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