If having one partner is good, is two better? Will you continue to gain exponential benefits as partners are added?
While there may not be an ideal number of partners in an investment advisory firm, we’ve found that partnerships of more than 2 but fewer than 6 partners seem to struggle with the least efficient communication and strategic implementation. They also show the lowest levels of satisfaction among partners.
It’s likely that the reasons have to do with lack of clarity around areas of control and the perceptions of contribution among the partners. Partnerships of this size have often grown opportunistically: they met like-minded people and decided to bring them on, or merged with another small firm that seemed to share their vision. They are not yet big enough to have adopted a more corporate decision-making structure, with a CEO, or at least a managing partner, but are too large for the direct communication and unanimous decision that two-partner firms benefit from. This can make for a very unstable situation where there is significant loss of control and more complex communication but not enough efficiencies to see a significant financial benefits.
Adding a third partner to a two partner firm seems especially problematic. We’ve seen many cases where bringing on a third partner in an established two-partner firm upsets the dynamic in a ways that are very difficult to remedy. It is not always the case that the third partner has trouble gaining a foothold with the existing partners. We’ve seen many situations where the new partner brings a new approaches that are appealing to one of the original partners, but not the other, forcing a founding partner to make changes they are not in agreement with and becoming estranged from the partner with whom they started the firm.
It’s important to objectively assess what a new partner is bringing to a partnership from many angles. Unless there are very distinctive benefits, the added complexity will mean that benefits may take too long to materialize and then no one is happy.
Are you in a partnership with 3 or more partners? We’d love to hear how you manage communication and decision-making.