October 30, 2020

How To Avoid A Bad Partnership In Business

Edmund Lowman is CEO of Slumber Hostel Group, a youth travel accommodation and tour experience provider in Southeast Asia.

A few years ago, I entered into what would turn out to be the worst business deal of my life. But along the way, I learned many valuable lessons on how to avoid bad partnerships.

Below are my tips for navigating business partnerships, as well what to do if you see your deal is starting to go south:

Negotiate.

The old saying, “Hindsight is 20/20,” is absolutely true. Looking back on this, we made so many mistakes that it is no surprise to me the deal went south. A few lessons to keep in mind include:

• Don’t argue with your future partners. Remember, these people aren’t your enemies. They are people you are going to presumably be doing business with for a long time. If you’re arguing and can’t find a resolution, either take a step back or put someone else in. If it persists, think about whether you should really be doing this deal in the first place.

• Sit in the balcony. It’s easy to get caught up in the “us vs. them” mentality and focus only on what you want. You can get so locked in that you get tunnel vision and lose sight of the big picture. My advice is to stop for a moment and take a seat in the balcony. In other words, step back and take an unbiased view of what a third party looking in on this might think or say. 

• Be creative. There are a million ways to negotiate things: Give more equity, take less voting rights, etc. The point is not to get stuck on a number. Figure out what they care more about that you might care less about, and go from there.

Relationships are everything. 

It was clear from the beginning that we were two very different companies, from the way we looked and spoke to the way we ran our businesses. I quickly learned just how important relationships are. Remember:

• Don’t go into business with someone you would not go on vacation with. I mean this literally. If you are going into business with someone you don’t like as a person and can’t imagine spending time with outside of business, you probably shouldn’t be entering a partnership.

• What’s your ‘why?’ Different people get into business for different reasons. Some people want to grow an empire, while others want to make enough money to survive while working as little as possible. 

• Meet face-to-face instead of by phone or text. We really messed up here. Our counterparts were always asking us to meet face-to-face, and we kept pushing for phone calls. In retrospect, I think it might have been the downfall of the deal and the relationship. In my experience, meeting face-to-face almost always decreases the level of animosity and tension. 

Don’t start until you are finished. 

Without a doubt, the single biggest mistake we made when pursuing our deal was charging forward at 1,000 miles per hour before the contract was even signed. I quickly learned a few don’ts:

• Don’t start work until the ink is dried.

• It’s never too late to pause or pull out. Don’t get caught in the sunk-cost fallacy. If it is going wrong and you know it, stop.

• Don’t get consumed by what other people think. If you know the partnership isn’t working, I believe it’s better to have a public mergers-and-acquisitions failure than a public legal war. 

• Never share your IP until you know the deal is done. Ensure there are very clear expectations and safety measures around this in your contract in case the deal does fall apart. 

Plan for challenges.

Things won’t always be unicorns and rainbows. There will be disagreements, and it’s best to decide the arena, format and process for settling such disputes when you are not in a disagreement. I recommend the following:

• Clarify voting rights. Who has the power to do what, when and how? The more clearly this is stated, the better. To me, if you get to the point that you have to go back and look at the contract, then things have already gone wrong.

• Ensure you have a ripcord: Make sure there is a mechanism in your contract for getting out of your contract. The last thing you want to be doing when things have totally broken down is start negotiating over how to get out of the agreement and valuation models.

• Choose mediation. I strongly recommend working with a mediator to help you resolve conflicts and settling disputes. If things do go south, the first step isn’t to end up in a courtroom. 

If necessary, end things nicely.

If your deal does start to fall apart and you decide it’s time to call it quits, end the partnership nicely. If you have already gotten to the point where things aren’t working, the worst thing you can do is make it worse. Keep the big picture in mind, and don’t get caught up in arguing and winning small battles. My advice:

• Don’t get sucked into the drama. Remember the end goal. Focus on attacking the problem and not the people. 

• Don’t make emotional decisions. You’ve likely never heard someone say, “I’m so glad I made these incredibly important decisions when I was angry!” You are at your worst during these moments, so it’s important to take some time to cool down and regroup before making a choice that could greatly impact your business and partnership.

In the end, partnerships are incredibly complex, and often, you’ll find that the old adage, “You get what you give,” is true. If you have good intentions, share positive energy, and offer forgiveness and understanding, it is likely you’ll receive the same in return. One of the biggest lessons I’ve learned in life and business is that your partners and the world are a mirror reflecting yourself; if you do not like what you see, focus on changing yourself, not them.


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