This is a guest article from Rachel Walker, a FastUpFront Blog contributor and business author.
As the Internet and ecommerce continue to evolve, the topic of online business partnerships has been getting an increasing amount of airtime among entrepreneurs. But, it seems that much of this emphasis is being put in the wrong places, and it is setting the stage for some high stakes online business failures.
When I hear colleagues talking about partnering with other people in an online venture, the discussion usually revolves around a lot of the basics, like how they are going to find the right people to join up with, how they should divide up the money, and how they should share the day-to-day responsibilities.
While all of these things are certainly important, at the same time there seems to be a kind of superficiality to it all. Online entrepreneurs are often disconnected from the fact that an Internet business partnership is much like its brick-and-mortar counterpart, and thus requires a formal process of establishment. Moreover, when issues like global ecommerce law and taxation are involved and the partners are from different countries, an online business partnership can in several ways be even more complicated to set up than a brick and mortar one.
Why Promising Online Business Partnerships Fail
There are several qualities inherent to doing business online which require that special care be taken when establishing an online business partnership. If any of these areas are overlooked, then even the most promising partnerships can crumble, taking all that was invested with them:
A false sense of informality. Even where there is the potential earn some serious money, the circumstances of an online business can make the whole affair seem casual. The founders may be working out of their homes, the start up overhead could be relatively small, and the initial risks in general could be limited. Moreover, since online businesses tend to have a lower barrier to entry, the founders can easily get caught up in their ideas and forget that they are dealing with a real business. This is no doubt part of the reason why the vast majority of online start ups won’t last more than three months- whether or not they involved a partnership.
The potential for explosive income generation. With brick and mortar businesses, pace of sales growth is often limited to the local market, and is therefore somewhat steady and predictable. When it comes to online business, however, sales growth can be much quicker- especially if the business has a national or global customer-base. Sales can also suddenly skyrocket, and the income can far exceed the original inputs. All of this has to be considered when deciding how each partner in the online business will be compensated.
The intangibles. All businesses are built with some soft assets. But, when a venture is online, those soft assets and inputs can take up a much larger part of the business. There are things like content, software, the URL of the site, even the site’s online reputation and social following are real assets that should be considered in any serious partnership.
Rapid change. The pace of change online is very quick. While early stage and high growth companies can experience a similar rate of change, with anything online, it’s just the norm. Ecommerce in particular has been front and center in this sea of change. Things like personalize shopping experiences, social media integration, mobile support, and customer relationship management, are only a few years old, and they continue to evolve. What this means for online business partnerships is that the partners need to constantly be re-evaluating and updating their agreements to reflect any fundamental changes made to the business’ model or operations.
International challenges. As I hinted to above, where partners are connecting across international borders, there may be a whole host of legal issues to consider, and that comes on top of the logistical challenges of working with someone from another country. While the Internet makes it easy for such a partnership to happen, all partners need to exercise their full due diligence and consult with a qualified professional so that they don’t run into debilitating legal or logistical problems later on.
In short, the Internet may open the door for many aspiring entrepreneurs because it lowers the barriers to entry and it has the power to bring people together who wouldn’t be otherwise. But an online business is still a business and needs to be treated like one. When it comes to online business partnerships in particular, a great deal of care and effort has to be made to give the venture the best chance for success.
About Rachel Walker: Rachel is a FastUpFront Blog contributor and business author. Finance your small business with a business loan from Fastupfront: http://www.fastupfront.com