Common Issues in Joint Ventures

3 Most Common Issues in Joint Ventures

Many assume a joint venture ensures automatic success. Two companies teaming up to leverage complementary skills and assets in order to tackle strategic needs looks like a recipe for productive work. However, many joint ventures are far from perfect and failure does occur. To avoid such outcomes, discussing the issues in joint ventures with an experienced business law lawyer before you make any important decisions.

During a series of interviews with McKinsey in 2014, top joint venture practitioners said about 40-60% of their completed ventures either failed altogether or massively underperformed. Managing a joint venture is usually a complicated and complex task, especially if employees are having to collaborate with counterparts in foreign jurisdictions. There is a host of issues people in a joint venture can face, but many of the same problems manifest themselves no matter the industry two companies are in.

  1. Trying to Finish Deals Quickly: Many joint ventures run into problems once the pressure to close deals catches up with senior executives. Speed can make a big different in cutting edge industries, but it is important for businesses to be methodical at every stage of the deal making process. Business that try to cut corners or draft up a rudimentary business plan usually face major headaches down the road once they are forced to ‘catch up’ due to their mistakes.
  2. Lack of Strong Leadership: Many businesses succeed in competitive industries due to a clear vision that translates into defined and stable operating procedures. Leadership problems can be tricky to navigate if those involved have little experience with joint ventures, if people have conflicts of interest, or if team members are jumping in and out of company projects at different stages. Disjointed leadership often results in priorities that are vague or uncertain, which can cause big problems once it comes time to settle a deal, lead a team, or resolve a dispute in a fair manner. Good leadership is important in a joint venture to make sure that all sides are proactive with each other and are just not focused on their own interests.
  3. Inability to Respond to Risk: Those involved in a joint venture usually steer clear of planning for each other’s risk profiles due to a fear of causing conflict. Since companies in a joint venture usually have different backgrounds, experiences, and risk tolerances, it is very important to set up contingency measures and ensure there are plans in place to mitigate risk before any problems occur. Entities in a joint venture sometimes set up mechanisms like value sharing agreements or service-level agreement release valves in order to maintain stability in the face of issues as they arise.

Joint ventures are a tricky endeavor, and even the most well-thought out plans can quickly falter. Working with a small business lawyer will allow company leadership to get advice about their plans and have an experienced expert help navigate team members through all development stages. If you are considering a joint venture, contact a Texas business attorney at the Law Office of Carey Thompson today.