Business owners sometimes remain in partnerships much longer than they should. Over the last few years, I often get asked the question “Should I dissolve a business partnership, or not?”
Before I respond to this question, I usually probe with additional questions to find out more about the owner's specific situation. Because the owner has typically grappled with the question for some time, he or she will probably have a good sense of the situation, yet needs help in getting to a decision.
For clarity, I define “business partnership" as a partnership that is external to the company. I do not mean a partnership with another founder or other “partner" who works internally to the company. While there are sometimes overlapping elements between a decision to dissolve an internal or external partner, I view the evaluation differently because internal partners typically have a higher level of responsibility and accountability than external partners, and thus you are dealing with a whole set of other issues.
That said, external partnership take many forms and are very meaningful to a company's growth and/or sustainability. Examples of business partnerships as we will use them here include strategic partners to help generate sales, referral partners to drive customers or service provider partners such as accounting or marketing firms.
Any external business partnership takes time, energy and possibly money to set up. As such, any decision to dissolve a business partnership will also take time, energy and possibly money to wind down. By asking yourself the following four questions, and understanding the rationale behind the questions, you may be able evaluate your own situation in a holistic and objective manner and hopefully help you make a sound decision.
1. What were your expectations of the business partnership at the beginning?
Getting into a business partnership is usually built on mutual trust and respect. Thus, both sides usually have very strong reasons and goals for entering into the partnership.
Since strong partnership agreements outline the desired outcomes, time duration, as well as the specific roles and responsibilities of each partner, revisiting each partner's original expectations is key. When you revisit these expectations, be careful to not only examine what's written in the agreement contract (if you have one), but also to revisit the intent and spirit of the partnership. They can help you decide whether or not to dissolve a business partnership.
2. Are the terms of the business partnership still valid?
Once you revisit the original expectations, honestly ask yourself whether the terms of the partnership are still valid. Specifically, are new market dynamics—or a change in either organization's structure or priorities—dampening the partnership's desired outcomes? Or, is your side of the partnership not reaping the benefits, albeit in fees or intangible value, that you believe the partnership should provide above the original terms?
Write down your answers and digest before you decide to dissolve a business partnership.
3. Is the partnership creating a valuable and measurable win-win for both sides?
The best partnerships create value for both sides. If you feel that the partnership is not creating enough value for you, then it may be problematic. Furthermore, if you cannot quantify how much value the partnership brings to you, then it may be the wrong partnership.
Determine the tangible benefit (e.g. revenues, cost savings, etc.) that you receive from the partnership. While there are surely intangible benefits (e.g. brand recognition) as a result of some partnerships, these intangible benefits should still translate into some tangible benefit. Otherwise, you might find yourself chasing logos without results to show for it.
One of the worst things that can happen is that you find yourself in a partnership that does not result in a tangible win-win for both sides. If you are winning and the other side is losing, then the other organization will probably want to end the partnership with you sometime in the future.
4. Is the business partnership creating more costs than benefits?
Maintaining any partnership can often be time consuming. Thus, there are at times significant real and opportunity costs for a business to simply maintain the partnership. Similar to determining the tangible benefit, you may also want to calculate the cost of fulfilling your role in the partnership, which usually is a percentage of your salary worked and/or a cash payment to deliver the partnership.
You can then estimate your opportunity cost, or the amount of money that you could have generated if you spent your time focused on a revenue-generating activity. Finally, compare the total costs (real plus opportunity costs) to the benefits you calculated in the previous question, and determination if the benefits exceed the costs. If not, then you have a good case for dissolving the partnership.
Let's be honest: Deciding whether or not to dissolve a business partnership is typically wrought with emotion. The decision is hardly ever easy. These questions, however, can help provide an objective way to consider many of the components of such an important decision. I recommend talking through your answers with an advisor and/or your legal counsel. Stress testing your responses to these questions with someone you trust can help guide you through a difficult process.
Whatever the result, feel confident that you went through a thorough process that provides you with clarity on how to move forward.
Read more articles on partnerships.