It’s no secret that many business relationships among friends or family has a tendency to go sour very quickly. Why does this happen?
When entering into business with people with whom you also have personal relationships, many entrepreneurs (and even experienced business owners) lose sight of the fact that the characteristics of a good personal relationship with a friend or family member, differs vastly from the characteristics that make a successful business relationship.
In many cases the breakdown of the initial relationship (the friendship or the familial relationship) leads to the deterioration of the business relationship – or vice versa. This is especially true in the event of divorce. In most cases, this deterioration will end in litigation.
How to identify a suitable business partner
Identifying a suitable business partner is key to the future success of any business, irrespective of which ownership structure you choose or the effectiveness of your corporate governance structure, Memorandum of Incorporation, or Commercial Agreement.
Potential entrepreneurs should conduct due diligence on their potential “partners” to establish whether any collaboration between them will culminate in a successful business relationship, or end in tragedy.
What characteristics should you look for in your business partner?
The required characteristics of a business partner may vary from person to person and from industry sector to sector, which complicates the compilation of a definitive and comprehensive list of these traits. But, in our experience, there are generally accepted qualities you should expect of a potential business partner.
First and foremost, all business partners should be able to collaborate with a minimal amount of conflict. Personal incompatibility between business partners will destroy any hopes of achieving any synergy among the “partners” notwithstanding the fact that each of them may possess the traits listed below.
All potential business “partners” should check at least the following boxes:
- Share your passion for the products or services you intend to deliver and not just necessarily for material gain.
- Be open and direct about his/her opinions, feedback, etc.
- Already possess the required industry knowledge and experience.
- Have the required licenses, concessions, or be otherwise compliant with industry requirements e.g., registration at PSIRA when competing in the Private Security Industry.
- Have a strong or compatible work ethic and be reliable and honest in his/her dealings with you and clients/customers.
- Share your level of work stamina or willingness to work long hours.
- Possess diversified business skills.
- Be willing to subject himself/herself to existing policies, practices, and decisions.
- Share your appetite for growth.
If you can honestly answer that your potential business partner check each of these boxes, you may have a higher than average chance of maintaining a long term successful business relationship with your new partner – regardless of your initial relationship.
Many divorce or business attorneys will be quick to warn people against entering into a business relationship with friends and family, because they regularly deal with the fall out of these relationships where one or the other relationship breaks down. Having sound partnership agreements in place that protect both parties, and hold parties accountable for their responsibilities is one way of mitigating possible future risk in business with friends and family. This is often overlooked by spouses due to the intimate nature of the initial relationship. However, it is in the interest of all parties and possible future parties to ensure that the legal agreements are in place long before they are needed in litigation procedures.
Bèan du Plessis (B-Proc) is a founding partner of Baartman & Du Plessis Attorneys and Admitted Attorney in the High Court of South Africa with over 17 years experience in various fields of the law including criminal and civil litigation, commercial transactions, and the regulation of the Private Security Industry in South Africa.
