While a 50/50 equity partnership might seem appealing initially, the potential drawbacks often outweigh the advantages. When forming a partnership, the initial focus is typically on complementary skill sets, individual contributions, and the long-term exit strategy. However, these are just the starting points.
As the business evolves, external factors like economic shifts and industry changes inevitably arise, influencing each partner’s vision for the company’s future. Disagreements can emerge regarding product and service offerings, entering new markets, or streamlining existing operations. Should the business prioritize high volume with lower margins, or a more focused, high-margin approach? What if a capital-intensive model becomes necessary? Furthermore, the involvement of angel investors or venture capitalists requires unanimous agreement on investment proposals.
Consider a scenario where one partner acquires or contributes a significant asset, such as land, a data center, or intellectual property. Determining the asset’s value during a company sale can create significant conflict. Potential buyers often undervalue individual assets, leading to disputes and potentially jeopardizing the entire transaction.
The partners’ personal financial situations will also inevitably diverge over time. When selling the company, the consideration might involve cash, stock, or a combination of both. Each option carries different tax implications for each partner, potentially leading to disagreements. I’ve witnessed numerous deals collapse because partners couldn’t agree on the timing, the buyer, or the price.
Years of building a business can be undone by fundamental disagreements during the exit process. Ultimately, business success hinges on return on equity, not idealistic notions of unity. The most effective structure often involves clear leadership and decision-making authority. One ship, one captain.