I was asked this question not long ago: Why do partnerships, particularly joint ventures, frequently fail? Your first thought when reading this may be, “OK, is Jeff equating a joint venture to a partnership?” Yes, I am. A joint venture is a limited duration partnership in which two separate entities or persons agree to work together toward a common interest or goal. Here are what I believe are some important reasons why we see so many joint ventures fall apart.
Guest Blog Post from Attorney Jeff Watson. Jeffery S. Watson is an attorney who has had an active trial and hearing practice for more than 25 years. As a contingent fee trial lawyer, he has a unique perspective on investing and wealth protection. He has tried over 20 civil jury trials and has handled thousands of contested hearings. Jeff has changed the law in Ohio four times via litigation. Read more of his viewpoints at WatsonInvested.com.
Improper or incomplete expectations.
People love to fantasize about how much money they are going to make and how much fun a joint venture will be or how easy it is. Then, reality sets in when hard work must be done! This leads to problems if there has been a failure on the part of the parties to communicate their expectations. Who is responsible for what and over what timeframe?
If someone going into a joint venture relationship is unable to communicate and document their expectations or have mature, adult conversations about what happens when things go wrong, it’s a clear sign that the joint venture is doomed from the start. I’ve seen very few deals or joint venture arrangements in which Murphy’s Law did not apply. If something can go wrong, it will, so you need to have those conversations and be prepared for it.
Lack of experience
No matter what we do, there is always a first time for doing it, whether it’s learning to walk as a toddler, drive a car as an adolescent, rehab a property as an investor, or negotiate with tenants as a landlord. The good news is that we don’t have to have personal experience the first time we do these things. We can learn from others who already have that experience.
One of the worst mistakes I made in my first ten years as a real estate investor was the arrogant assumption that I could figure it out all by myself without collaborating or networking with others. Then, in my quest to gain experience, I made another fundamental mistake. I thought that people who had fantastic marketing and could tell a good story must be telling me the truth and must have real-world, hands-on experience. That isn’t always the case.
Eventually, I stopped paying attention to the people with the shiny objects and slick marketing funnels and went toward the people who had significant transaction and investing experience. What I learned from their experience, I incorporated into my own experience, and I became a wiser and better investor, advisor and lawyer.
A lack of experience is one of the easiest things to correct when it comes to a joint venture that is struggling or on the verge of failing. If each participant in the joint venture agrees to hit the pause button temporarily and seek wise experience and counsel as to the best way to correct what has been done wrong so they can move forward, that joint venture can often be saved.
Lack of character and poor communication
I’m putting these two things together because I find that they often go hand in hand. When someone refuses to acknowledge and correct their poor communication skills, it’s usually because they lack character. I will acknowledge that just because someone is a good communicator, it doesn’t mean they have great character. I personally know people who are incredibly gifted speakers but have horrible character.
Joint ventures will fail if one or all of the parties lack character because when the going gets tough, the person with poor character will give up. They lack the necessary resolve to say, “OK, things aren’t going well. What do I need to do to fix this?” Many of the problems that arise in a joint venture can be seen from afar and can be prevented when there is ongoing, good communication among the participants.
Lack of accountability
Having accurate books and records (accounting) is a key component of accountability, but accountability includes much more than just being accurate with your numbers. Lack of accountability will destroy a joint venture relationship if there is no preset standard for performance, objectives, milestones, etc., that need to be accomplished by the members of the joint venture. If there is no preset standard for these things, then no one is holding the other members (including you) accountable for getting them done.
In a basic joint venture agreement where two people come together to buy and fix up a house, for example, there needs to be preset, agreed-upon milestones and deadlines as to what will happen and by when. One party may be free-spirited, and the other may be more responsible, but even responsible parties need to be held accountable.
Accountability is so important because other people are depending on you to deliver on time and perform as promised. When you fail to timely complete the tasks or responsibilities required of you in a joint venture, you are hurting other people and potentially creating collateral damage.
Lack of focus
We laugh at the phrases “squirrel syndrome” or “shiny object syndrome”, but we really do have a culture of distracted people who become entrepreneurs because “traditional or mainstream jobs” aren’t suitable for them. I understand that, but a lack of consistent and persistent focus will lead to a joint venture failing.
I love Aesop’s fable “The Tortoise and the Hare”. It’s a classic tale that shows what happens when one lacks focus. The hare may have suffered from shiny object syndrome, but the tortoise stayed focused. While the hare went off in haste and got distracted with taking a nap, the tortoise steadily plodded along, on a mission, keeping his consistent and persistent focus. At the end of the day, the reptile beat the fluffy, cute bunny.
Staying focused is key to maintaining accountability, having consistent communication about what is going on, and meeting the preset expectations and deadlines that the joint venture relationship requires.
Hubris
Hubris (excessive pride or self-confidence) is a death sentence to a joint venture or partnership. A self-aggrandizing person who thinks their knowledge, experience or accomplishments are greater than they are, or someone who believes their own efforts and talents are somehow worth more than someone else, is toxic in a joint venture relationship.
The opposite of hubris is humility or meekness. Do not mistake humility and meekness for weakness. Rather, humility and meekness are about carefully restrained strength. A humble person is capable of getting things accomplished but also has the self-control needed to do it in the most polite and professional manner possible.
I hope this article will be a help to you if or when you next enter some type of joint venture or partnership. These are things you not only need to look for in those you are considering partnering with, but you need to make sure you aren’t exhibiting any of these causes of failure yourself.
