The Australian Small Business Blog

Thursday, August 16, 2018

Professional Business Partnerships – Are Your Partners just there for the ride?

by Dr Greg Chapman

Partnerships are an effective business model for professionals such as lawyers and accountants. It is a great way of raising capital and provides an exit strategy for older partners as new partners buy in to the business. While partnerships can be a highly profitable, with partner turnover, the entrepreneurial spark can be diluted or even lost.

Consider how partnerships are founded. Usually 2 or 3 professionals get together to establish the firm. The early years are often a challenge while the business is building its reputation. Getting new clients is the focus of the business. The founding partners either are, or become effective sales people. This is critical to their survival.

As their partnership grows, the next stage is to hire young professionals so that the partners can leverage their time, and make sure that the business does not depend so much on themselves. So far, so good.

For the professional employees who have been with the firm a number of years, there is the opportunity to reward good performance by allowing them to become partners, and buy into the business. Again, so far, so good.

As the business grows, it is common to see that the growth in new clients is not matching the growth in employees and partners and the amount of profit per partner starts to decline, as it is shared with a larger number.

While the new partners may be working hard, it is often not on the critical success factors for the business. The new partners are more likely to be technicians. They don’t have the entrepreneurial spark of the founders. After all they joined the firm as employees with great technical skills. They may be good at company tax, auditing or dispute resolution, but they aren’t good at the one thing the business needs from its owners- the ability to generate new business.

Over time, the partnership can fill with technicians. Technicians make great employees, but poor entrepreneurs. Technicians on the board may not just ride on the backs of the founding entrepreneurs, being risk adverse they may also hinder their efforts. For example, they may not want to spend money on marketing, as they see it as a cost with uncertain rewards, and being board members, their views must now be taken into account.

The technicians may continue to focus on their craft, which is their natural preference, leaving business development to the remaining founders on the board. To become marketers and sales people is outside their experience and comfort zone.

As entrepreneurial dilution occurs, such a business will inevitably decline unless the technicians can be convinced that while their expertise is important, business development and sales are the critical skills for partners.

The technicians on the board may believe that their expertise is enough to justify their position, and it is up to others to bring in the business. The challenge for the technicians is to answer the question: “How are you going to use your expertise to attract new clients?”

May Your Business this Year be - As You Plan It.

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Dr Greg Chapman is the Director of Empower Business Solutions and is Australia's Lea ding Advisor on Emerging Businesses and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems. He is also the author of The Five Pillars of Guaranteed Business Success and Price: How You Can Charge More Without Losing Sales.

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