Partnerships are the lifeblood of any enterprise. As an arrangement between multiple parties to cooperate to advance their mutual interest, they take many forms. Partnerships can include investors/companies, suppliers/distributors, employees/employers, JV, strategic alliances, etc. On the surface, the need for these relationships to succeed seems obvious. So then, why do partnerships fail? The stats are staggering and range anywhere from 50% to 70%. What starts as sincere intentions to achieve value-creating outcomes can quickly descend into chaos and ultimately break apart, resulting in partnership failures. Building partnerships globally creates its own set of challenges. Cultural differences layered on top of individual personalities and unique business customs add new levels of complexity. These complexities increase the risk of partnership failure. Building solid foundations for balance, harmony, and partnership parity remains the core challenge for any partnership development team. In this article, we outline what business partnerships tend to fail and provide 4 easy ways to avoid the trap of partnership failure.
Understanding partnership failure
My views reflect my decades-long experience in developing business partnerships around the world. Being on the frontline of partnership development for various organizations, including SWFs, venture capital, and family offices, involved an eclectic mix of regions and industries. I’ve worked in frontier markets such as Mauritania, Turkmenistan, and Iraq, lower-middle-income and upper-middle-income countries like the Philippines, Brazil, Indonesia, and China, and more developed markets such as the UK, Japan, South Korea, and Switzerland. The mix has been diverse industries such as hospitality, automotive, private aviation, agriculture, financial institutions, oil & gas, and many others. Fortunately, success outweighed failures. Reasons for failure vary but conceptually fall into three overarching themes: people, resources, and goals. Our war stories are all different, but they shape our perspectives. In understanding how to avoid the trap of partnership failure, we must first understand why partnerships fail. Below are my top 5 reasons.
Lack of internal clarity:
Organizations plant the seeds of failure at the outset due to a lack of understanding of internal objectives. At the highest level, pursuing a specific partnership path is accompanied by some basic business logic. Validating the business case, in theory, should be a simple undertaking. However, agreements are signed, and the partnership begins without regard for adequately vetting the company, the business model, or the market. Not vetting partners can have disastrous consequences. Causes for this apparent lack of clarity can vary but include malignant influences, poor internal stakeholder management, or just old fashion hubris. Once this lack of internal clarity is present, it is almost impossible to avoid the trap of partnership failure.
Misaligned interest:
The initial lack of clarity undoubtedly leads to an outcome of misaligned interest. While the honeymoon stages of a partnership will sometimes obfuscate these challenges, longer-term engagement will reveal them. It gives rise to the proverbial blame game. Understanding the true motivations of your counterparty can be a difficult read at times. Recognize that throughout the life span of a partnership, interests, and objectives will converge and diverge. We expect shifting goals and priorities as an organization grows and evolves. Developing effective mechanisms to manage these ebbs and flows to realign interest is the key to a sustainable and successful partnership.
Sheer incompetence:
A bit controversial but needs mentioning. Ideas are great, but it’s the execution that matters. Poor execution usually leads to partnership failures. I’ve witnessed partnership failures due to sheer incompetence from one or both sides. Poor management, suboptimal resource allocation, organizational inertia, intense politics, and accelerating vacillation by decision-makers can quickly derail partnerships with enormous potential. Opposing forces can sometimes take on their own life, threatening the guardrails established to maintain the alliance. To manage these crises, develop multiple plans (B, C & D). Alternative strategies are essential if a firm conviction exists in the merits of the partnership.
Lack of resources:
Lack of resources is a common struggle for many partnerships. Resources are not just about money but people as well. Lack of that internal clarity from the outset typically leads to suboptimal resource allocation. We do recognize that organizations come in all shapes and sizes. Some may be large organizations that can throw lots of resources at a strategy, while others may be startups with small teams wearing multiple hats. However, even the smallest organizations can achieve sustainable and value-creating partnerships if appropriately planned.
Absence of trust and mutual respect
Partnerships are not abstract concepts but a collection of personalities with shared goals. Trust and mutual respect are the bedrock principles for the success of any commercial relationship. Without these principles, the partnership will undoubtedly fail. It is a less tangible element, but you’ll know it when absent. The absence of trust and mutual respect early in the partnership development process should raise red flags. These are principles that transcend cultures, borders, and organizations. In practice, trust and mutual respect should always extend beyond the frontline partnership teams to the broader organization or group.
Avoiding partnership failure: strive for harmony and balance
Reaching that partnership sweet spot takes time and hard work. We can only avoid the trap of partnership failure and achieve partnership parity if the proper foundations are in place. Now how do we avoid the pitfalls that lead to partnership failures?
- Avoid Confirmation Bias: No one wants to be a spoiler, but having difficult conversations with your partner at the outset is crucial. Be realistic.
- Do Your Homework: Then do more homework to understand your business partners. Take the time to fully understand your potential partners’ real market opportunities and their true capabilities. Do their capabilities match with your opportunity zone?
- Understand Your Partner’s Cultures: This relates to organizational and geographic cultures. Learn where the internal and external points of inertia exist. It is also essential to identify the real decision-makers. Understand that behaviors and triggers differ vastly across geographies. Differences exist between North and South Americans and Southern and Northern Europeans. While East Asians, Southeast Asians, and South Asians differ considerably from Gulf Arabs, Levant Arabs, and North Africans. Across all these groups, sub-ethnic differences also shape the dynamics of partnership development. However, one should never compromise the principles of trust and mutual respect.
- Advocate with Real Conviction: Develop your conviction and advocate for the partnerships. Passion is persuasive. Others will feel it and fall in line.
Partnerships, when successful, can create immense value. Avoiding many traps will create a strong foundation for sustainable and winning alliances.
Disclosure: At ClearSky 2100, our portfolio partly consists of affiliate partnerships, and we may earn a small commission from buying links on our site at no cost to you.
