By Kate Vitasek,Senior Contributor

Copyright forbes

The right business partners drive growth. The wrong ones, however, can damage all you’ve worked tirelessly to build.
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The world of entrepreneurship has never been more rife with opportunity — or competition. From March 2023 to March 2024 (the most recent data), the U.S. Small Business Administration reports that 1,281,290 businesses opened while nearly as many — 1,125,979 — closed.

While technologies and markets change, many of the most important principles for lasting success remain the same, particularly when it comes to partnerships. Savvy leaders understand that the right partnerships are critical for outpacing the competition and making a lasting impression with customers. On the other hand, the wrong partners can cause serious damage to a business’s operational and financial success or worse, its brand and reputation.

Here are some things to watch out for when you are selecting a partner:

1. Make Sure You Outsource To Experts

One of the most common ways leaders use partnerships is to outsource key business tasks to experts. Whether it’s partnering with a marketing firm to oversee your advertising or getting outside IT help for your technology needs, outsourcing these key tasks to other professionals allows your team to focus all of their efforts on their own area of expertise.

Business leaders need to be careful when outsourcing to potential partners. First and foremost, you need to ensure that a prospective partner will actually deliver the type of results you need. It doesn’t do much good to enter a partnership with someone who isn’t actually an expert.

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To ensure you are working with a partner that is a true expert, it is always good to check references and do due diligence to evaluate the partner’s claims that they can (or can’t) do what you need. Be critical in your questions with a “show me” mindset and even consider doing site visits where the partner performs similar work.

2. Be Careful Who You Use For Financial Support

Many businesses use partnerships to get additional financial support or access to other resources (such as production facilities) that are needed to scale their business operations ahead of their competition. Working with a partner can help make this far more cost-effective and help lower risk, as long as you have a trustworthy partner.

In a podcast interview, Kaelyn Query Caldwell, serial entrepreneur and event producer offered a cautionary tale when using strategic alliances for financing. At one point in her career, Caldwell’s company needed financial help to put on a large event, and decided to work with two other partners to scale the festival.

Because she needed to solve the problem quickly, she didn’t vet the individuals as closely as she normally would have. Shortly after the event, the partners took back the funding in a way that disrupted her operations with a drawn-out legal battle. It was a painful lesson, but one that helped Caldwell learn the importance of very carefully vetting all partner contracts when finances are involved — something she advises other business owners to do, as well.

3. Identify Hidden Transaction Costs

All too often, businesses looking at prospective partnerships focus almost entirely on acquisition costs. These are the most immediately apparent expenses, such as research, design, test production and so on. And while these are certainly important, becoming overly focused on this area can cause leaders to overlook the hidden transaction costs associated with a partnership.

I’ve previously described this phenomenon as the “priceberg” — the idea that businesses need to understand all costs of any transaction or partnership beyond the immediate price tag. In a logistics-focused partnership, this could include everything from maintenance and training costs to software expenses and supply support costs. It could also encompass lost opportunity costs from not taking actions that could lead to higher growth.

By focusing on what creates the best value for the company as a whole, rather than who appears to have the lowest price tag, leaders can engage in far more meaningful partnerships.

4. Be Wary Of A Cultural Mismatch

Cultural alignment is one of the most important things to look for when entering a prospective partnership. Even if a partner seems to be a good match skills-wise, if the cultures aren’t in alignment, it will be hard to keep everyone on the same page, especially when it comes to project accountability, KPIs and other areas that are crucial for building trust.

For example, fellow researchers and I shared a good example of a medical device company and its facilities management partner who had vastly different operating cultures in a Harvard Business Review article on how to increase supplier trust. The supplier had an hierarchical and process oriented culture, while the medical device company focused on innovation and flexibility.

The differing values kept them from working as effectively as they could, and ultimately, they parted amicably after recognizing this mismatch. Of course, it would have been more effective to avoid the mismatch in the first place.

A Better Way To Face The Competition

When you stop to realize that the partners you may work with have many other trading partners, getting it right can mean the difference between creating a competitive advantage with that partner or just being another cog in their wheel. The best partnerships help you extend you organization and build a full-powered team your business needs to face the competition.

Understanding the specific needs your business faces while investigating which partners are the best fit can put you a step ahead of the competition.

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