Going into business with a partner can be a great move for both the business and a working relationship, if you do it right.
Up to 70% of business partnerships ultimately fail, with common reasons including unequal commitment among partners, a lack of success, and differing values. Lawsuits of the past and present demonstrate the downfalls of a failed partnership, though not all are doomed to sour. From the unfortunate reality that many are facing in court to the key elements behind a successful partnership, aspiring business partners should keep a few points in mind — such as protecting oneself for the long run and building trust before signing any papers.
The advantages of a successful partnership
Business partnerships can be fruitful — when done correctly. Some partnerships — such as siblings Roy and Walt behind the Walt Disney Company — became globally successful. Furthermore, partnerships have the potential to increase revenue, create new opportunities, and drive innovation. To further underline the benefits, Forbes notes that 95% of Microsoft’s commercial revenue comes through its partner ecosystem, “which grows by an astounding 7,500 partners each month.” Regarding innovation, Forbes goes on to point out the fact that research from BPI Network indicates that 44% of businesses “seek alliances for new ideas, insights and innovation,” while a report in the Harvard Business Review (HBR) indicates that 94% of tech executives view innovation partnerships as necessary to their strategy.
An unfortunate reality for many
Billionaire John Paulson has sued former Puerto Rico business partner Fahad Ghaffar, accusing him (in addition to several members of his family) of siphoning millions of dollars from the billionaire to finance a luxury lifestyle. Fortune.com reports that Ghaffar fraudulently billed to Paulson entities $3.4 million in personal expenses, including $147,000 in Louis Vuitton and Chanel shopping sprees, more than $600,000 in private jet travel, and $20,000 for a night of partying in Las Vegas, according to Paulson in a suit filed in federal court in Puerto Rico. Paulson’s suit alleges racketeering and fraud among additional claims.
“Though Fahad touted himself a loyal member of the Paulson team and a philanthropist, nothing could be further from the truth.” Paulson goes on to say in the suit: “For years he and his co-conspirators siphoned off value from the Paulson entities at every turn, betraying Paulson’s trust and biting the hand that had fed them.” This, however, isn’t the only example of a business partnership gone sour — in 2022, Southern Charm star Naomi Olindo is being sued by her former business partner for fraud, breach of contract, and defamation.
Property tycoon Nick Candy, according to The Guardian, is “locked in a bitter legal dispute with a former business partner in which they have traded allegations” regarding one another’s’ conduct as well as financial worth, notes the April 2023 article. Another famous case of a partnership gone sour in recent years involves Youtuber Tati Westbrook and husband James, who were sued in 2020 by former business partner Clark Swanson for breach of contract, gross negligence, and fraudulent inducement regarding Tati’s vitamin line Halo Beauty.
Failed business partnerships are nothing new. In fact, a number of notable partnerships throughout history have gone sour for varying reasons. Eduardo Saverin and Mark Zuckerberg, who founded Facebook together are one notable example. “Disputes over company direction and Saverin’s lack of commitment led to a messy partnership,” highlights Insider. “Saverin was reportedly a lousy, absent co-founder who gallivanted around New York while Facebook was taking off in Silicon Valley,” while the disagreements led Zuckerberg to reduce his partner’s shares in the company. Saverin took legal action, suing Zuckerberg in order to win back a five percent stake in addition to his name on the company, Insider explains. The Beatles are another notable example in history of a partnership gone bitter, with the group officially breaking up over legal conflicts and suing business managers as well as other band members.
Valuable considerations for a successful partnership
“With increasing numbers of business partnerships, the issue of failed partnerships is more consequential: in 2020, partnership businesses filed 4 million returns, representing 28 million partners, a 12% increase from the previous year,” highlights the Harvard Business Review. The post goes on to highlight the value in gaining perspective regarding a potential partnership as well as various considerations for those who aspire to go about the matter successfully. Understanding how conflict and difficult decisions will be navigated within the partnership, for instance, can determine the health of the relationship and the business itself in moments of uncertainty. By ensuring that one another is on the same page, plans for the future can be made with better certainty. With that in mind, determining whether one another wants the same things, work ethic, and how each other will value contributions are a few among many deliberations.
A 2016 CNBC article showcased the consulting firm Family Business USA, which labeled business/marital partners as “co-preneurs,” and highlighted various suggestions for maintaining a successful working relationship. This included not competing with each other, not being afraid to disagree, and taking time away from one another. Telltale signs that indicate trouble in a partnership, according to Marcus Lemonis of “The Profit,” include poor communication, collaboration, and not wanting each other’s input. “When money’s pouring in and the results are great, everybody’s happy. The minute the business starts to not perform or not deliver the results that are expected, people start to question each other.” By carefully evaluating a potential partner and coming up with a solid plan for what to do when things go awry, such relationships — and the business itself — can have a better chance of preservation.
For those considering taking on a business partner, protecting yourself is imperative in the event that things go awry. Building and maintaining trust should be first and foremost within any prospective business partnership, particularly when considering the fact that failure can result in consequences in the form of brand damage. Carrying out appropriate due diligence regarding potential business partners can help greatly in protecting yourself in the long run. Performing a public background check, for instance, can alert you to prior issues such as a criminal history or financial concerns like bankruptcy. This is important regardless as to whether you’re looking to go into a traditional partnership or if you’re looking for a supply chain distributor, supplier, or consultant due to the risks involved.
While your accountant can request copies of a company’s latest financial statements, looking at the numbers isn’t the only way to protect yourself from potential issues in the future. Choosing the right legal structure for your business can also help in protecting yourself in the event of future lawsuits. Choosing to form a Limited Liability Company (LLC), for example, protects members’ personal assets — including cars, homes, bank accounts, and investments — from creditors seeking to collect from the business. While this works to effectively separate business from personal, it also brings benefits such as management flexibility and easy startup and upkeep. NerdWallet highlights potential disadvantages to this structure, however, noting that a judge can rule that the LLC structure doesn’t protect personal assets. “The action is called “piercing the corporate veil,” and you can be at risk if, for example, you don’t clearly separate business transactions from personal transactions or if you run the business fraudulently in ways that caused losses for others.”
Going into business with a partner can be a great move for both the business and a working relationship. However, recent failed partnerships and those of the past that have resulted in vicious lawsuits have demonstrated the potential downsides involved should the partnership go sour. By considering aspects such as goals, work ethic, and plans for potential conflict and tough decisions (in addition to protecting yourself legally via various preparations), aspiring partners can navigate business with success at the forefront of the relationship.