Have You Worked With A Business Partner? Options

[Respree]

I know most of you are on your own, but I was curious...

Have any of you ever worked with a business partner. They say two heads are better than one. There's no doubt about that.

I'm considering an idea that may involve another person. I would need this person for a portion of content that is outside the scope of my abilities and foresee them doing half the work. Accordingly, it would be fair to share half the profits rewards (and risks) of the collective effort.

I don't have any experience working with a partner, but want to assess the possibility considering all the potential issues.

Of course, you want to hook up with someone you've known for a while, whose skills you are confident with and philosophies are aligned with your own. But of course, no two people think exactly alike. I'm concerned about how problems get resolved? What if, at some point after blood, sweat and tears have been poured into the effort, you don't agree and are at an impasse in terms of strategy or direction? Is it likely the effort will disintegrate or, in your experience, do these things eventually work themselves out.

Would love to hear any thoughts and experiences.

[DCrx]

Have you considered more of a joint venture, rather than formal business partner. If I were on a business partner hunt, I would start with a number of joint ventures -- then use this as a "farm system."

Identify the person, maybe persons, you'd like to partner with then.

From experience what I can tell you is most people will not even make it through a joint venture, so I would consider that a good indicator if I were looking for business partners.

Most people can't even hold up their end of an email correspondence. I'd think twice about the idea of business partners.

[bwelford]

Having a partner is like getting married. In some ways it's even tougher. So you should really put some effort into your due diligence.

I spent some years in a two-man partnership, which eventually foundered given different strategic views when things began falling apart. I think a key activity is to frankly discuss what you both feel you would do in tough situations. They will always arise, so it's best to have predictable outcomes. In some ways, you will learn more about each other by doing this, than by discussing how well your skill sets and experience complement each other.

[Ron Carnell]

Once. In 1975.

Never again.

[cre8pc]

I've often wanted a partner myself. Reason being that I have strengths and weaknesses and felt that a partner that was stronger, where I was weakest in skills or interest, would be a great balance. I still think about it.

For all the reasons stated, however, I've not taken the leap.

I do have Partners. Lots of them. Some are silent subcontractors and some are public about working with me. They all subcontract me for usability services for their clients because they have no one to do the work. We work out arrangements that satisfy both sides. Some send a regular flow of work and some I won't hear from except once or twice a year. Not enough to thrive financially or count on.

You're asking good questions. I hope we hear more experiences and perhaps steps to do it right, if there is such a thing

[rynert]

I set up a business with 2 friends, it worked well as we all knew each other as people, and our strengths and weaknesses, that came to an end but not due to disagreements with each other.

We set up a Limited Company and split the shares equally, so we all had equal say, it is also meant that having 3 of us that 2 v 1 votes would carry the motion.

I currently have people that work on certain sites, or parts of sites, and then share the profits. They don't own equity though, so can't put a spanner in the works.

With that said, I don't do that anymore, preferring to keep things simple by simply paying them for their work, rather than revenue share.

That's most ways covered - at the end of the day you have to ask yourself whether you can afford to buy in the skills / knowledge and keep control / profits yourself, or if you can't do that is it worth taking a chance building something and sharing control, or doing nothing and letting the opportunity pass.

If you do go official and set up a company it's often a good idea to work the risk/responsibilities so that you can split the ownership 50/50 - that way you both have the same incentive to make it work.

This post has been edited by rynert: May 9 2008, 01:55 PM

[EGOL]

All partnerships end eventually, most quickly. Its best to avoid them if you are a strong person with great dedication to your ideas. Its great to get into them if you are a moocher.

If you can possibly afford it just hire the person, buy their work, or make some other arrangement where you have control and ownership over every important element of the project. They get paid for every contribution.

That can still be win-win. If you don't believe in this project enough to buy everybody's work then maybe this project is not such a great idea.

[Respree]

That's what I thought. That concensus is good enough for me.

True, there are other compensation structures besides equity. Equity, seemed the most motivational (vested interest) and risk spreading structure, but clearly, is not without its potential catastrophic issues.

Thanks for sharing your thoughts, guys.

[EGOL]

We always have opinions...

.... and sometimes they are correct!

[projectphp]

Voices of dissent: me and Paul Graham, a kinda startup cult figure.

I'll quote the FAQ here:

Most successful startups have more than one founder, and usually the founders seem to have been friends for at least a year before starting the company.

The 18 Mistakes That Kill Startups:

1. Single Founder

Have you ever noticed how few successful startups were founded by just one person? Even companies you think of as having one founder, like Oracle, usually turn out to have more. It seems unlikely this is a coincidence.

In my case, my business partner was my boss at a former workplace. He does things I don't enjoy (like sales and, most importantly, chasing payment) and I do things he doesn't enjoy (like maintaining the products we sell and educating myself). With a good mix of skills, we both end up benefitting, and also have a better time, as you get to focus more on what you enjoy. We also get to play good cop bad cop, and use each other as a buffer zone in situations we struggle with, which in business is inevitable.

The partner you choose is clearly key, but unless you have the confidence to run everything, and many times there is an area you may not feel you can get the best results mrunning, partnerships can be a great way to do things.

I guess it really depends upon the idea. Some ideas you don't need anyone as you can oversee most things, but some ideas may have a key area so out of your comfort zone that a vested interest partner mkes more sense, as that commits them to being involved, especially early when cashflow is tight, and the rewards a long way away.

YMMV, but a partner has worked out well for me.

[Feydakin]

I have run two businesses with partners.. Both ended badly.. The list of ways a partnership can crash is nearly endless, but it almost always seems to end with one partner thinking that the other is not contributing his fair share..

In the first the partner worked for me in a previous business and I thought, based on working together for 2 years) that he would make a good partner.. It turned out that making him an "owner" meant to him that he no longer had to work and could just sit around and tell others what to do.. My fault for not training him better when he was an employee..

The second ended over accounting practices.. I thought he knew what he was doing.. He didn't.. An "accounting" error in the last year could have cost me $14,000.. He didn't think it was a big deal..

I work with a few different people on different projects not.. We split the money 50/50 (or whatever) on them.. But I do the books and pay them on a 1099.. So I guess they have to trust me

[projectphp]

It all comes down to the partner you choose, and mnore importantly, the mix between you accounting for about 400 differnt variables. That makes partners harder to find, harder to create a productive working realationsip, but also, given we all have weak spots, potentially the best thing you can do if you get it right.

It is practically alchemy, wih the "magic" formula hard to replicate, and requiring weird and rare ingredients.

Risk/reward are both EXTREMELY high, far higher in both directions than going it solo.

As I said, YMMV, but if you are comfort witha person, and have clearly defined roles, expectations and paperwork, there is good potential.

[A.N.Onym]

Some time ago, I partnered with a software developer. Each of us was an even-headed professional and we have agreed on many things before. It didn't work out without immediate returning cash flow (for me, at least). Maybe I should've pushed on, but it seemed like a good idea [to end it] then.

Maybe motivation plays a huge role, because if you do something you don't believe in, such as promoting a product someone else developed, it won't last long.

If I were in need of a partner, I'd consider whether I can do the stuff myself (always preferrable) or buy the missing parts or even outsource the routine stuff to someone else (accounting, for example).

However, as I am writing this, I am now considering a partnership on some webby stuff that would involve me somehow. The intoxicating spirit of a startup is mind-blowing, I guess.

This post has been edited by A.N.Onym: May 11 2008, 10:18 PM

[whitemark]

Here's the advice Seth Godin gave on "Business Partners" in his ebook "the Bootstrapper's Bible" (the ebook is now free under a creative commons license):

BEWARE OF SHARED OWNERSHIP (OR, WHY RINGO WAS THE LUCKIEST BEATLE)

This section might save you a fortune. It can certainly save your business. The medicine in it may seem hard to swallow, but I’ve been there, and so have a lot of other entrepreneurs. In Bargaining Games, J. Keith Murnighan takes us through a very neat thought experiment:

Imagine receiving a phone call from a respected attorney. She tells you, “I’m sending you a ticket to France on the Concorde. Next week, on Thursday, at 5 PM, you’re to meet someone somewhere in Paris. You don’t know who that person is. You don’t know where to meet them. You can’t advertise in advance to find them. He is looking for you as well. If you meet, I’ll pay you $20 million.”

So the question is, Where would you go?

More than two-thirds of the people who answer this question give the same answer: the Eiffel Tower. It’s an obvious landmark that someone searching for a noticeable meeting place might choose.

This insightful experiment shows us the way we often negotiate. In deal making, a 50/50 split is like the Eiffel Tower. It’s an easy mutual agreement spot, a spot that seems fair.

Well, a 50/50 split is almost never fair. It’s almost impossible to find a situation in which two people contribute equal amounts, have equal needs, have mutually consistent expectations, and will stay with the business the same amount of time.

Inevitably, someone feels cheated. And someone goes for the ride.

After Pete Best dropped out of the Beatles (okay, he was fired), John, Paul and George needed a drummer. And Ringo was in the right place at the right time. Now, I have no idea if the Fab 4 had a four way split, but they probably did. And Ringo, a mediocre drummer by any measure, had a great ride on the backs of three musical geniuses.

Fair? Hard to imagine that any analysis would demonstrate that Ringo deserved the same share of the Beatles as John Lennon.

Paul Allen, the cofounder of Microsoft, was probably a critical factor in that company’s early success. Bill Gates certainly needed his skills during the earliest days. But today, Gates continues his monomaniacal quest for world domination, and Paul is lucky enough to watch his stock rise and rise in value while he doesn’t even have to lift a finger.

Remember, the number one thing you have to invest is your time. And it’s almost impossible to guarantee that a partner is going to invest her time in the same way or with the same impact as you. At the early stages of starting your business, it’s tempting to undervalue the company, to let the experts have a big piece of the pie in exchange for getting you in the door.

One entrepreneur I know was enamored with a well-connected expert who offered to get him in the door, giving him the audience he needed with all the right clients. And the expert wanted only 20 percent of the company profits, no upfront money. Six years later, the entrepreneur is still sweating, still working to keep the company going. And by now, the company is doing $10 million a year in sales. And that first consultant, who stopped contributing more than five years ago, still owns 20 percent of the company.

Of course, the insights and productivity that come from productive collaboration are irreplaceable. So what should you do? Doing everything yourself is counterproductive. And being fair to the people who contribute to your business is essential. Here are five principles to consider when you sit down and start talking about shared ownership:

1. Plan for success. Sure, giving away stock in a failed venture costs you nothing. But imagine that your venture is going to be worth $100 million. This attitude will help you in every aspect of the business. And it especially helps focus your attention when you start taking in partners.

2. Ideas aren’t worth much. It’s so easy (and fun) to go to a bar with a friend or two and dream up a new business. And at the time, it seems only fair to be even partners. But usually, only one of you does all the work. And then resentment builds, and the partnership falls apart. Sometimes the whole company folds. Sometimes the arrangement is just expensive.

It’s not the idea that’s going to make you money. It’s the sweat and the effort and the execution. If you want to brainstorm with people, that’s great. But make it clear up front that the pay is the pizza on the table or a flat fee or whatever else, so long as you don’t give up a piece of your company.

Here’s one way to do it: “Help me dream this up. If it works, and xxx happens, I’ll give you a check for $50,000 in cash, for you two hours (or two days or two weeks) of work. If it doesn’t work, we both lose.” More often than not, the party who doesn’t really want to be an entrepreneur anyway will be happy to focus on the fixed number. By the way, don’t forget to put your terms in writing.

When Phil Knight needed a logo for his new sneaker company, he paid a woman $35 for the design. Good for Phil that he didn’t pay her with stock or just license the design!

Never give someone a big chunk of a business just because he had a great idea. There are plenty of good ideas around—free. The exception to this rule is if this person with the idea has a patent or a reputation that will dramatically expand the value of your business.

3. Always leave both sides an out. Nothing lasts forever, especially business partnerships. A dear friend of mine spent two years wrestling with a former partner when he left in a huff. In the end, everyone loses. Make sure you have a well-defined clause that lets either party leave without wrecking the business.

One common approach is a shotgun clause. It says that at any point, Person A can offer to buy out Person B. Person B then has a few days either to take the money or to turn around and pay Person A exactly the amount proposed. It’s guaranteed to be fair, and it’s quick.

4. Match compensation with performance. An approach that’s worked for a lot of bootstrappers is a performance-based split. Imagine that two partners start a business. They each own 5 percent with 90 percent in a mutually owned pool. Every six months, the 90 percent is allocated by a predetermined formula for hours invested in the business or sales made,or products developed.

Two years later, all 90 percent is allocated, and the partner who made the biggest contribution clearly ends up with the biggest share.

5. Never, confuse profit participation with governance. The biggest problem with a 50/50 split is that no one is in charge. Someone has to be in charge. So divide control of the company differently than profit participation. Make sure that, especially in the early days, one person makes decisions.

If you can’t trust your partner enough to cede this to him, or vice versa, time to find another partner or try another business.

[earlpearl]

I've been in partnerships. They can work. They are also difficult for many of the reasons described above.

Good partnerships arise out of spreading responsabilities. People's skills should be complementary.

I'm in business partnerships now.

It takes extra work. It has to have a higher level of payoff...which is that 2 heads are better than one and ones are capable of covering more ground by having 2 or more major responsible people taking appropriate actions.

On the other hand if you are in charge of everything and you have a lot of employees and contractors doing work for you....it goes back to what Mel Brooks said in one of his movies......"Its great to be the king!!!!"

[jedz]

Every situation has its advantages and disadvantages. Having a business partner or working to your business alone will definitely give you some problems however; working with a partner is something risky. You should have a partner whom you trusted best, remember that business involves money, time and effort. If you don't trust your partner that's the beginning of the problem.

[Chruch]

Nothing wrong with a business partner as long as one of you is in charge and has 51% of the company. It is very difficult to run with a business partner who is equally share and say of a company. You cant have 2 people in charge. If you have a clear 51% you can fire him if need be. He will still retain his 49% and you will be able to run the company as you see fit.

[Vilice]

My company works with many business partners .I think highly of this form .for both can make profit