Why Business Partnerships Fail.

The three root causes of business partnership failure – loss of trust, respect, and alignment – and how to prevent them.

Business partnerships can accelerate success or destroy a business faster than almost anything else.

In this episode, Henry Lopez breaks down the three primary reasons partnerships fail: loss of trust, loss of respect, and loss of alignment. Drawing from his own experiences and years of coaching small business owners, he explains why most partnerships don’t fail because of the business itself but because of the breakdown in the relationship between partners.

Henry explores how issues like lack of financial transparency, unequal contribution, poor communication, and misaligned long-term goals quietly erode partnerships over time. He also highlights the role money plays in amplifying tensions, whether the business is thriving or struggling.

“Partnerships fail gradually. First trust breaks, then respect erodes, and eventually alignment disappears.”

You’ll also learn practical ways to prevent these issues, including defining roles clearly, maintaining full financial visibility, documenting agreements, and committing to regular communication. Henry emphasizes that communication is the foundation that holds everything together, and without it, even strong partnerships will fail.

This episode is essential listening for anyone considering a small business partnership or currently navigating one.

Henry Lopez  00:12

Welcome to the how of business podcast. This is Henry Lopez on this episode. I share the potentially negative side of business partnerships. What are the real root causes of partnership failure? And I think by understanding these causes, we can learn what we can do to avoid them and build a stronger partnership and a successful business. Most of my business ventures have been partnerships. Some of them have been great, and others have ended badly. I think you can summarize it into three reasons why business partnerships fail, and that’s what I’ll share on this episode. You can find all of the how of business resources, including the show notes page for this episode, and learn more about my one on one and group coaching programs at the Howard business comm. I also invite you to join the how of business community on Patreon, and please subscribe wherever you might be listening so you don’t miss any new episodes. Partnerships can lead to great success in small business, and when it works, well, I think that collaboration can help us achieve more together than we may have been able to achieve on our own, but they can also be the fastest way to destroy a business. And when I’m referring to partnerships on this episode, I’m talking about when two or more people share equity, invest in a small business together and own and operate it together. Most partnerships, though, I have found don’t fail because of the performance of the business necessarily, although that certainly can be a factor, partnerships fail because of the relationship between the partners. I have a free download that you can get on this episode called the three pillars of successful partnerships, and it goes into more details on what I think are the three root causes of a lot of business partnership failures. You can download it at the show notes page for this episode at the Howard business.com I’ve spoken a lot about partnerships on the Howard business podcast because it’s so common, including for myself, and I’ve seen it so often be one of the problems, one of the challenges, one of the things that can kill a small business is when the partnership doesn’t go well. Episode 465, is another episode I released called Preparing for a business partnership. And if you are thinking of starting a new business with a partner, I encourage you to listen to that episode as well. But today, on this episode, I’m looking at the potentially negative side of business partnerships. What are the principal root causes of partnership failure? And I think that by being aware of these potential threats to a successful partnership, we can avoid them. And so what actually breaks up partnerships? Well, I think again, there are three primary root causes, a loss of trust, a loss of respect, and a loss of alignment. And underlying all three of those is poor communication. Partnerships are also, of course, heavily impacted by money, whether we have it or don’t, when things are going well or poorly, that tends to amplify existing issues. But I do believe it comes down to one or more of those three root cause reasons, trust, respect and alignment. And if you can recognize these early or plan for them and talk about them ahead of time, then you cannot, then you can often either fix or avoid them before they destroy your relationships, the partnership. And of course, the business partnership killer number one is loss of trust. And what does this mean in a business partnership, trust is confidence that your partner does what they say they will do, acts in the best interest of the business. Looks out for your best interest as well, and is transparent, especially when we’re talking about the financials. Without trust, everything slows down, decisions, execution, growth, and the business can be paralyzed. The late Stephen Covey, author of The Seven Habits of Highly Effective People, said this about trust. Quote, trust is the glue of life. It’s the most essential ingredient in effective communication. It’s the foundational principle that holds all relationships. End. Quote, and I think his point about communication works both ways. Trust is the most essential ingredient in effective communication, but I think effective communication also builds trust. So here are some of the common causes that I see that lead to a loss of trust in a relationship. Lack of financial transparency has got to be towards the top of the list. So in one way or another, not sharing the numbers, not sharing the financials, being unclear about compensation, anything related to the money of a business, we have to be exceptionally transparent with each other as partners, one partner now pulling their weight. Now this could be real or perceived, and the perceived part often is related to a lack of communication, a lack of understanding, broken commitments, side deals or hidden decisions. This can tie back to the financial side of things, misuse of company funds. That’s, of course, a big one in breaking trust, failing business model, of course, can lead to, then the blame game, who’s responsible, who’s not carrying their weight, who made a mistake. And so that can lead to an erosion of trust. But. Money related tensions are so important in trust. When the business is going well, one partner might feel like they deserve more. When the business is struggling, we tend to blame each other. And then something I’ve seen often, it’s happened to me, is bringing in someone else into the business that we didn’t agree to beforehand, so a spouse, a family member, and if you do that without really having spoken about it or having agreed upon it with your partner, you create issues of trust. Most trust issues don’t start out big, although there could be a big issue, a big blow up, a big confrontation, a big argument, but usually they start small and then compound over time or get exacerbated, depending on how the business is performing, but I want you to look for those early warning signs. Maybe you start double checking everything, or you’re less open about sharing of information, or you feel the need to watch your partner. It’s important to look for those signs that could indicate that you’re beginning to have a trust problem and you need to address it before it compounds. So how do we prevent or fix these issues? One component that I think is critical is to define roles and responsibilities very clearly, upfront, but then redefine them or revisit them over time, because things change, the partners should have full financial visibility, no secrets when it comes to the money. You have regular check ins between each other at least weekly. Maybe as you become more mature in your business, it doesn’t need to be as frequent, but this is that key component of communication. You have to document your agreements. If you’re getting started in a business and a partnership and you’re not going to have an operating or a partnership agreement drafted, that’s a huge mistake that you’re going to pay for later, and it will become difficult, if not impossible, to go to a written agreement or even to amend a poor or lax agreement once things go badly. So in partnerships, you must always have a well drafted partnership or operating agreement drafted together and then have an attorney review it and help you finalize it. And a key component of that operating or partnership agreement is what’s called a Buy, Sell provision, some level of agreement as to what happens and how do we exit from this business if one of us no longer want to be in the business together. That is, again, one of the key things that can destroy a partnership. But coming back to trust, if trust breaks in a partnership relationship, it’s critical that you address it immediately. Time does not fix trust issues. I’ll say that again. Time does not fix trust issues. I emphasize that because often we certainly have the tendency, or it may work in other situations, to just let something go or give it some time to work it out. Usually it makes it worse. When we’re talking about trust, if you see these types of issues start to emerge, or you have that feeling either at the receiving end, or maybe you catch yourself behaving in certain ways, talk about it now. Don’t wait, because it typically only gets worse. So address these issues or concerns of trust up front, make sure you have a solid agreement in place before you go into the partnership and then communicate so that you can remain trustworthy of each other.

Henry Lopez  08:14

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Henry Lopez  09:49

partnership killer number two is loss of respect. And what does respect mean in a partnership? I think it means that you respect and value your partner’s skills, contributions, their. Role, their decision making abilities, and in turn, your partner respects you for the same reasons. You don’t have to necessarily agree, but you have to respect how they think and decide. You have to respect each other’s decision making. You have to respect each other’s skills, and ideally, you combined skills, you combined strengths, and you delineated your roles, so you’re leveraging each other’s strengths. Respect is what allows healthy disagreement. Without it, it really turns into a conflict and it becomes personal. So some common causes I see that can lead to a loss of respect in a partnership includes unequal effort, again, whether it’s perceived or real, a skills gap that now becomes obvious. Let’s say you decided you’re going to handle the financials, and it turns out that now the business has gotten a bit more complicated than what you can manage, but you’re not reaching out for help, or you’re not developing your skills in that area, or you’re not willing to give up that function. Another cause of loss respect can be poor decision making or a lack of follow through, not on the decision making. I’m talking about consistently poor decision making, or another loss of respect. Issue is undermining each other, especially in front of your team. Also roles not evolving as the business grows, as I just mentioned with the example of being in charge of the finances, ideally, you had alignment upfront on what roles you are each going to play. But over time, things change. The business changes. The business grows more complex. You evolve. You have different desires, you have different needs, you have different things you want to focus on, and so you got to make sure you communicate and remain in alignment on these roles. So think about those issues when it relates to respect for each other in the business, early stage partnerships often work because of hustle. You’re all working in it together. Everybody’s enthused. You’re in again, as I call it, the honeymoon phase. But later, as you get tired and as things perhaps get more difficult or more complex, and your roles never evolved, that’s what creates a lot of loss of respect. So some early warning signs, some things to look for, are dismissing ideas quickly of each other. So it used to be that we would have discussions about ideas, and it was healthy, and sometimes it could be a strong discussions, but we were listening to each other. Now one or the other, or both, are dismissive of each other’s ideas. That’s a clue. Another early sign is frustration that’s building or resentment that’s building for whatever reason, it might be with your partner or they are with you and then talking to your partner instead of with them. So these are communication issues, again, that underlie this reason why business partnerships fail. You have to communicate, and you have to communicate respectfully, because when we’re in the heat of running a business, when we’re busy running a business, we can often feel like, well, that’s not important. I can talk about that later. Or let’s just get this done so we can keep moving the business forward, or close this deal or get this project completed. We’ll talk about this later. Well, that later never comes, because you never find or create space to have those conversations. And so that’s a critical thing. If you find yourself in a partnership where you no longer talk about the relationship, your partnership relationship, that’s often a red flag. And partnership killer number three is a loss of Alignment. Alignment is that shared vision that you have you and your partner or partners. Where’s the business going? How fast do you want to grow? What’s your risk tolerance? What are the lifestyle goals for each of you? What’s the exit strategy? What do you intend to do with this business? All of those are things that you must remain in alignment on, and it’s important to get that alignment at the start. Often, again, we get busy and excited with starting the business. We look at just getting through that startup stage, getting to profitability, and we don’t talk about, well, where do we want to go next? Where do we want to go with this business? What do you want to get out of the business? What do I want to get out of the business? And being clear that is critical is amazing to me. How many people go into it blindly, and then they’re surprised when the two partners have divergent ideas as to where they want to go next, when the business that disconnect there, that lack of alignment, can lead to major disagreements that can kill a business, that can kill the partnership. You don’t need to have identical goals, but they must be compatible. They must be in alignment. And of course, I’ll mention it here, but it applies everywhere. I’m so against 5050 partnerships. I’m against them, and they often become a major issue when partners become misaligned, the two of you now don’t have a tie breaker, and if you get into a major disagreement, it’ll paralyze and kill the business. So if it’s two people, avoid 5050, partnerships, if at all possible. Even if it’s 4951

Henry Lopez  14:47

someone should be the majority owner. But misalignment often shows up later. Of course, after the business starts, perhaps after it starts to succeed. Hopefully, that’s the case, and things get more complicated. We might be in alignment early on, because we’re only thinking of that initial stage. We’re thinking about the idea, how excited we are about it. Perhaps we collaborated in developing the idea. We wrote the business plan together. We worked with and fought through and struggled through the startup stage, and now we’ve got a business, and maybe now we’ve had a life event or two, and we are out of alignment. And this has happened to me several times, and it is the hardest thing, I think, because how do you plan for that? I don’t know that you completely can plan for that, but what you can do is make sure that you continue communicating and try best that you can to compromise to some extent, but also to realize that this is a relationship that has two or more sides to it, and the more that you talk about it and think about it and plan for it, the more likely you’ll remain in alignment. If you’re having now constant debates about which direction the business is going or decision gridlock. You want it one way, your partner wants it another way, and there’s no decision made. Or you think, this isn’t what I signed up for. This isn’t what I envisioned. Those are warning signs. Maybe not so early, maybe more than warning signs. Maybe it’s too late, but hopefully it’s not. If you can identify those, then perhaps you can fix the alignment issue so upfront to try to avoid some of these alignment issues. It goes back to that agreement of how we’re going to operate this business and how we’re going to separate if we can’t come to an agreement anymore. You want that agreement and that thought to be longer term. So in our business plan, we’ve done a good job of what is the idea, what is the business model, how we’re going to get past break even, how we’re going to scale, how we’re going to be profitable, but I want you to think longer term. What are we going to do three, 510, years from now? What is our exit strategy? If you get to a point where things go badly in a partnership, either because of a lack of trust, respect or alignment, it’ll be very difficult, if not impossible, to reach an agreement. Then on making a change to your operating or partnership agreement, you want to have a solid agreement that covers most of the known scenarios, but then provisions that handle those unexpected or unknown situations and then revisit on a regular basis, and if you have trust and respect and you don’t let things get too far out of hand, then I think you can come back into alignment, or come to some sort of agreement. Alignment is not a one time conversation, is my point. It’s an ongoing thing, and that’s why I said at the beginning that communication underlies all three of these reasons why partnerships fail. It’s really hard to consistently and continuously operate a business successfully if you’re out of alignment, or you don’t respect each other, or you don’t trust each other, communication is the key. Communication breakdown is what allows trust to erode, respect to decline, and alignment to drift. I find that most partnerships don’t communicate too much. They avoid the hard conversations about the partnership, we’re probably really good about having hard conversations about the business or a problem that we’re having in the business, but not about our partnerships, and that’s critical that we have time and space to have those conversations. So what does that look like? Well, weekly, or at least monthly partner meetings. This is non negotiable. You’ve got to create space to talk about your partnership relationships and be direct. Don’t keep pushing it out, and we’ll talk about it later. Type of approach you’ve got to address it. And the earlier you do, the less resentment builds up, the less of that anger starts to build up. If you only talk once, there’s a big problem, it’s probably already too late. I have found that partnerships fail gradually. First trust breaks, then respect begins to erode. And maybe it’s because we’re out of alignment, but the alignment disappears. What we thought we were doing together and jointly no longer makes sense, and by the time it’s obvious to everybody, it’s often been happening for far too long. So keep all of these points in mind, is what I want to challenge you with. Discuss them early. If you see them emerging, use them as a compass for yourself to guide your decisions, your behaviors and your role as a partner. Partnerships require intentional management, just like the finances or the operations or the marketing of your business, you have to manage this part of the business. George Bernard Shaw, the Irish playwright and critic, is known for his insights on communication and human behavior, and this quote of his, I think, applies here. Quote, The single biggest problem in communication is the illusion that it has taken place. End. Quote, I love that in so many ways. I find it early on, we make assumptions about where we want to go with the business. We make assumptions about what we want to get out of the business, and so we just don’t talk about it often. We don’t talk about it because it could lead to a disconnect, or it could lead to maybe even an argument or a heated discussion, and we want to avoid that, especially early. On in that honeymoon phase, but you’re going to pay the price for that later. I always say that when you’re discussing a partnership, before you start the business, before anybody signs anything, is that you have conversations that are deep enough and meaningful enough that they should get a little strained or heated, not in a bad way, necessarily, but if you don’t push enough, if you don’t have a deep enough conversation to explore, or get to a point where somebody says, I hadn’t thought about that, or no, that’s not the way I see it at all. Then you haven’t talked about it deep enough. And then if you don’t, on an ongoing basis, communicate so that you can stay in alignment, that leads to problems as well. So I want to challenge you to ask yourself, Where are you strong in your partnership? Where are you at risk if you’re just getting started, make sure you have these conversations now. Don’t assume or wait for later, and make sure that everything gets spelled out in a comprehensive partnership or operating agreement. And if you’re not talking now, get back to talking one way or another. You want to reinvigorate that dialog, because that’s the key to staying in alignment and partnership, and hopefully you can avoid these three reasons why business partnerships fail, a lack of trust, a lack of respect and a lack of alignment. This is Henry Lopez, and thanks for joining me on this episode of the how of business. I wish you the best as you start and grow your successful and profitable small business. I release new episodes every Monday morning, and you can find the show anywhere you listen to podcasts, including the how of business YouTube channel and at my website, the how of business.com thanks for listening.