I love joint ventures. They are a great way to combine the strengths and resources of two or more entrepreneurs to create a business or project that is meaningful and profitable and satisfying.
I’ve been in some successful joint ventures and I’ve been in some unsuccessful ones. What was the difference between the two? There are several things that can make a difference but they can be boiled down to the answers to these 4 questions, and when I think back to many of the joint venture projects I’ve worked on that failed, the reason was related to one of these 4 issues.
1. What will it take for this project to become successful and does that effort fit in my current schedule?
It’s easy to look at a project before it gets started and to get starry-eyed about the opportunity… only to overlook the sheer volume of work required for the project to succeed. When you’re thinking about the anticipated effort, generously double what you expect to do on the project. It always takes long.
In JVs that I’ve worked on that have succeeded, they only succeeded because we worked through regardless of the effort. In the JVs that I’ve worked on that have failed, they failed because we didn’t accurately anticipate the workload ahead of time.
2. Are all parties likely going to deliver what they promised?
This is a big frustration in joint ventures. Make sure that all parties are going to deliver on what they promised. In many JVs I’ve participated it or observed, some of the parties are wholehearted while other parties are half-assed. Try to assess the likelihood that all parties will continue to participate once the going gets tough. In particular, consider whether the incentive or remuneration plan rewards people proportionally to their contribution or they will be quick to disappear. In one joint venture I did a ton of work in the beginning to write an ebook and then the person responsible for marketing just disappeared. Not cool.
And related to this concept: Figure out what happens if the joint venture fails. What do you end up with? Can you use it elsewhere?
3. Once successful, will my workload decrease while profits increase?
This is another huge one. I’ve been in a couple of failed joint ventures that only failed because my workload INCREASED (or at least stayed the same) after the project became successful. In other words, the deal should have been carefully structured to ensure that success rewarded us rather than punished us. I’m okay with putting in a bit more time at the beginning but I don’t want that excess effort to continue into infinity.
4. What’s missing and how critical is it?
Every joint venture is like a machine, and each person is responsible for some of the moving parts. But a machine won’t work the way it’s supposed to if parts are missing. As you think about your joint ventures, consider what parts are missing from the existing relationship… and how you’ll have to address those parts. For example, a joint venture might be made up of two people who are each making a key contribution but no one is marketing the project. Those things need to be addressed early on or else the project will stumble as each party realizes there is still more that needs to be done or invested in.
Joint ventures are fun and profitable. But not every JV is right to participate in. Use these four questions to help you evaluate joint ventures before you participate in them.