Best Way To Form A Partnership? He Has The Money - I Have The Skills...

[MontanaKyle]

I am new here and this is my very first post. Looking around for Entrepreneur forums this one popped up and it looks good.


I am looking forward to contributing to the forum and helping others out.


Before I ask the question I will give you a little bit of my background in hopes this will help you understand my scenario.


I am 30 years old. I have been self employed since 2006 while going to school full time (graduated 2011 with a Bachelors in Aviation Administration, I have 4 kids and a wife) and actually just this year got a job in an industry I have been wanting to break into 4 months ago. Dealing with Aviation.


Anyhow I have two businesses currently and I am by no means near the level financially that I want to be at. But am on the road to that financial goal...


So that being said here is my big question about a Partnership.


One of my companies I started deals with doing online marketing, web design, that entire side of things.


I met an individual who own and runs a successful business that is completely offline and is not related in any shape or form to an online business.


So he tells me he has been looking for someone/a company to help him implement an idea of his. We have several meetings and subsequently the idea is great but it is going to be much more involved than just setting up a website and being done. There is going to be a lot of ongoing work, building a community, using facebook etc.... All stuff I know how to do and do on a daily basis. Basically everything needing done, I know how to do it or have the means to get it done. Now this individual knows absolutely nothing about online marketing or any side of the things I know. He doesn't understand really how facebook works or how you can advertise on there etc... He basically has the capital to invest in this venture, and some business skills to provide and a knowledge and understanding of the specific niche, which I do as well but not as much as him. Being 100% truthful if I had the time, and money to do this I would not need any sort of partner and could just hire it all out.


So as I looked at what he wants done I decided I want to be a partner in this and build it up, maintain the site, etc... and take this to who knows how far it could go. The market is there, it is a billion dollar market with plenty of room for a site like the one we want to do because currently there really isn't one to the level we want to take it.


My initial offer to him was he pays me X amount of dollars each month to work it full time. Basically a salary then once we become profitable I get paid that Amount up until we go over that amount then we both get paid an amount until we reach the same dollar amount and everything is a 50/50 split.


Well he said he couldn't do the dollar amount becuase it was too high, which it was, but I wanted to see if he could pay it so I asked. And he doesn't want to do a 50/50 split. He wants to hold the majority and be able to make a decision if it comes down to where we cannot agree etc... But he is willing to pay me for a specific period of time or a set dollar amount as well as do a partnership.


So my dillema is, what is the best way to go about this? I truly want a 50/50 partnership because without me he is completely dead in the water, has no idea how to even start this, and even if he hires a company he is going to have to pay thousands to get it to the point where he wants it to be. And vice versa I could not leave my current job unless he is paying me a certain amount each month to do this and then we both reap the profits from my work. So I would basically be doing all the leg work as he has no idea about any of it. he is just providing the funds, a salary to me, and also covering whatever costs are associated with the site.


Would you say it is fair to ask a 50/50 split or becuase he is the one investing the Money he has the right to ask for the majority which if it came down to it I would want it 51/49 split. And not only the right but woudl you say that is the best thing to do as well?


And lastly I do not know him super well and still want to get to know him better before doing any deal. And we both agreed all the paperwork will get done first before we do anything. His lawyer will draft it up then my lawyer can just review it so I don't have to pay as much.


Any guidance, words of wisdom, or anything you can offer on the best way to go about this is highly appreciated.


Thank you for your time in reading my post and I look forward to yoru response and helping others on here as well.


- Kyle

 

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[Rain]

Welcome to the forum.

In a nutshell:

If he has the money, unless you can find other interested investors to leverage against him (in which case, you could also potentially ditch him), the most you can do is negotiate as much as he will allow. I could explain further but this is essentially the bottom line. Money runs the world.

Good luck.

 

[MontanaKyle]

Welcome to the forum.

In a nutshell:

If he has the money, unless you can find other interested investors to leverage against him (in which case, you could also potentially ditch him), the most you can do is negotiate as much as he will allow. I could explain further but this is essentially the bottom line. Money runs the world.

Good luck.

Hi Rain. Thanks, that is the basic conclusion I have, so at this point it is all about my negotiating skills

And I thought Sunlight ran the world ;-)

- Kyle

 

[wade1mil]

Welcome to the forum Kyle!

You want to get paid to build the website and then get 50% of the profits. What exactly are you adding to this deal to earn any of the profits? He could just hire someone else and pay them to do it rather than you and keep 100% of the profits. He has skin in the game and you don't. I'm not sure what the correct split is in terms of percentage, but in order to get a percentage of the business you'd have to handle the web stuff without getting a salary, right? Otherwise you're just an employee and I don't know too many employees that own a percentage of the company they work for.

P.S. Where in Montana do you live?

 

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[MontanaKyle]

Welcome to the forum Kyle!

You want to get paid to build the website and then get 50% of the profits. What exactly are you adding to this deal to earn any of the profits? He could just hire someone else and pay them to do it rather than you and keep 100% of the profits. He has skin in the game and you don't. I'm not sure what the correct split is in terms of percentage, but in order to get a percentage of the business you'd have to handle the web stuff without getting a salary, right? Otherwise you're just an employee and I don't know too many employees that own a percentage of the company they work for.

Thanks for the response!

Essentially the website needs built and configured. If he pays someone else to do it, he has a website and that is all. No one running it. And the level that this site needs ran would be someone very knowledgeable with online marketing and able to navigate everything pertaining to that realm. He would have to pay someone thousands to do what this site is needing. And he doesn't have the skillset to even know where to begin.

I am adding sweat equity as well as working on it beyond what he is only going to pay me. He would need to hire a firm to take care of what needs done and hire out multiple people to make everything work. Basically I am going to get paid to be the Project Manager and get a percentage. And he has a budget as well and he wouldn't be able to get everything done and maintain it on the budget he gave. Hope that gives you a bit more insight.

 

[Felix II]

Sorry, but I think it is kind of uncouth to want both equity and salary when you have no skin in the game. If I was him, I'd find someone who wanted one or the other, but not both. The bottom line is, he could hire somebody to do this, and if it does become a million dollar business, he would save millions of dollars by keeping ownership.


If you really want both, I'd offer him something like this:
1. Start with a basic salary and 5% ownership.
2. Over a certain period of time (say four years), you get the option to trade salary for equity until you own up to 50%.
3. You have a certain vesting period/schedule. If you leave, you lose your unvested equity.

 

[Vigilante]

I'll tell you what this guy is likely to polite to tell you.

Here's where you're trapped. You don't want a salary. You need a salary. There's a huge difference. You're not looking for a partnership. You're looking for a sugar daddy. You don't have the time nor money to do this, and if you did you would hire it out. He should hire it out. He has more expertise in business, and in this niche than you do. To me, you're the expendable part of the plan.

If someone said to me "you put all the money in, and take all the risk. Pay me as an employee with a salary until such time as our mutual cut exceeds my salary, and than we're equal partners..." I'd have you out the revolving door faster than I could say "eLance."

If you have a job you like, that you just spent several years working towards, stay in it. Keep the stability for your family in place that your wife deserves after helping you get through college to finally get into the space you wanted to be in.

Moonlight with this guy for a retainer. If he has more expertise than you in the niche, he could just as easily replace you as hire you. Nobody is indispensable, especially in the capacity you described. There's a million people who have the skill set you outlined in your original post... and once this guy figures that out, you're out.

I would lock him in before he does more research on this, or let the deal pass you by. Nobody should pay you like an employee while treating you like an owner.

 

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[LamboMP]

The market is there, it is a billion dollar market with plenty of room for a site like the one we want to do because currently there really isn't one to the level we want to take it.

How many times have I heard this one before..

My initial offer to him was he pays me X amount of dollars each month to work it full time. Basically a salary then once we become profitable I get paid that Amount up until we go over that amount then we both get paid an amount until we reach the same dollar amount and everything is a 50/50 split.

Are you kidding me? This is employee talk. You want to get a salary before there is any revenue, customers, no proven concept. Your not willing to take the risk.

 

[snowbank]

Any guidance, words of wisdom, or anything you can offer on the best way to go about this is highly appreciated.

if you want to partner with a money guy, get some skills worth partnering with. you don't have any right now.

he is either going to

a. not give you the money

b. give you the money and be really pissed once he learns more about making money online

Being 100% truthful if I had the time, and money to do this I would not need any sort of partner and could just hire it all out.

this right here tells you right away there's no value in partnering with you. you have replaceable skillsets. with rare exceptions, no one smart is going to partner with someone with replaceable skillsets. they will just hire them.

 

[MontanaKyle]

Sorry, but I think it is kind of uncouth to want both equity and salary when you have no skin in the game. If I was him, I'd find someone who wanted one or the other, but not both. The bottom line is, he could hire somebody to do this, and if it does become a million dollar business, he would save millions of dollars by keeping ownership.


If you really want both, I'd offer him something like this:
1. Start with a basic salary and 5% ownership.
2. Over a certain period of time (say four years), you get the option to trade salary for equity until you own up to 50%.
3. You have a certain vesting period/schedule. If you leave, you lose your unvested equity.

Hi Felix,

I appreciate your comments. By uncouth I'll take this definition of uncouth for this situation: archaic: not known or not familiar to one : seldom experienced

Because I am completely unfamiliar with this situation, thus why I am on here as well as other forums and speaking with trusted colleagues.

The bottom line is yes, he could hire someone else, or some other company. Initially the discussion was to pay my company the money to simply produce the website. But then as I talked with him I helped him to understand, having a website means nothing if you are not getting traffic and doing the constant work on it that it takes to get a new website ranking in the search engines and to build a community. And he does not have the money to invest in a lot of ongoing work.

So the risk is basically this, he can pay me X amount of dollars to get a website built, I take my money and move on, now this guy is left with something he has no idea what to do with, nor the funds to keep it going. Versus me partnering up, getting paid to produce the site and having a stake in the success of the website/business. This particular niche is something I am very familiar with and passionate about as well, I just did not have the specific idea to go in the direction he told me about.

This is something I considered as well and I appreciate your insight into it.

If you really want both, I'd offer him something like this:
1. Start with a basic salary and 5% ownership.
2. Over a certain period of time (say four years), you get the option to trade salary for equity until you own up to 50%.
3. You have a certain vesting period/schedule. If you leave, you lose your unvested equity.

I'll tell you what this guy is likely to polite to tell you.

Here's where you're trapped. You don't want a salary. You need a salary. There's a huge difference. You're not looking for a partnership. You're looking for a sugar daddy. You don't have the time nor money to do this, and if you did you would hire it out. He should hire it out. He has more expertise in business, and in this niche than you do. To me, you're the expendable part of the plan.

If someone said to me "you put all the money in, and take all the risk. Pay me as an employee with a salary until such time as our mutual cut exceeds my salary, and than we're equal partners..." I'd have you out the revolving door faster than I could say "eLance."

If you have a job you like, that you just spent several years working towards, stay in it. Keep the stability for your family in place that your wife deserves after helping you get through college to finally get into the space you wanted to be in.

Moonlight with this guy for a retainer. If he has more expertise than you in the niche, he could just as easily replace you as hire you. Nobody is indispensable, especially in the capacity you described. There's a million people who have the skill set you outlined in your original post... and once this guy figures that out, you're out.

I would lock him in before he does more research on this, or let the deal pass you by. Nobody should pay you like an employee while treating you like an owner.

Thanks Vigilante, great ideas!

Salary - Yes needed.

As far as Sugar Daddy, not so much but I appreciate the colorful description Correct I do not have the time nor money to do this because my time and money is tied up in my family a Job, and my business ventures.

As far as him hiring it out, fair enough. But this is what he is lacking, a complete knowledge and understanding of how to even do the most basic stuff online, and time. He has sat on this idea for over a year now not knowing which direction to go or what to do, until he talked to me and we had our initial conversation and I laid it all out in simple layman's terms how this can be done. And sure he can hire a company, pay the money to get it done, but that is all he wants to invest. But it is going to take a helluva lot more time and money than just the initial investment to make this work. So now instead of paying my company or another company a huge upfront fee, now we can spread it out over 6 months as I work on the project full time.

I understand on the revolving door, I literally have ZERO experience with partnerships other than the research I have done, and discussing it with several friends who are currently in partnerships. And this potential partner has no idea what eLance is

As far as him figuring out the skillset, sure lots of people have similar skillsets, but that doesn't mean jack squat. Because timing, location, and chemistry also play a huge part in business and getting involved in opportunities at the right time. This is where we are at. He could have did this over a year ago if he wanted to but didn't know where to start until he met me. I am not by any means saying I know it all, but when you know more than 99% of everyone else in the world about a particular area of knowledge and have the expertise, background and history to back it up, you are an expert and can act as such and command certain things in that particular arena.

And as far as locking him in, a decision is being made Monday. Then it is up to him to counter again and we go from there...

Excellent words of advice, I truly appreciate it!

if you want to partner with a money guy, get some skills worth partnering with. you don't have any right now.

he is either going to

a. not give you the money

b. give you the money and be really pissed once he learns more about making money online

this right here tells you right away there's no value in partnering with you. you have replaceable skillsets. with rare exceptions, no one smart is going to partner with someone with replaceable skillsets. they will just hire them.

Hi Snowbank,

Could you please expound more on the first part... What exactly are the skills you see that I am missing? I appreciate the clarification.

As far as having replaceable skillsets, sure, I sure as hell would hire out as much as I could in my businesses (and do), but you have to put your feet on the pavement and knock down doors initially until you build the capital to hire it all out, or get investors etc... My skillsets are completely suited for this venture, thus why I am pursuing it, and why he talked to me about this and likes the idea of partnering up.

This potential partner is not a computer or internet guy, he can check his email and search the web. That is about his extent of knowledge. Will that change with this venture, sure it may, or it may not. He may just say, you know what to do, we are making money, so keep on keeping on and I'll do XYZ, I don't know... I don't predict the future but as far as him being pissed, I don't see that happening. What is he going to be pissed about when he has no idea about any of this stuff int eh first place? What is easy to some is extremely challenging to others. Thus why he asked me...

Thank for the comments!

I appreciate all the great feedback thus far, it helps me think in different ways and in a new light. Critical feedback is the best kind in my opinion so rain it down. The more it makes me think about it the better and more laser focused I am getting as to my final proposal for this possible business venture.

Take care all!

- Kyle

 

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[Felix II]

Kyle,

I think you should get what you can from this guy (i.e., the best deal possible), and the truth is there is no right way.

Just keep the old saying in mind: "Pigs get fat, hogs get slaughtered".

If this guy really does want to do a deal with you, then that is great. But you should be prepared to act as either a founder (no salary), or as an employee (no equity). Otherwise you are in jeopardy of this guy wising up and just hiring it out.

I know you say it would be hard for him to hire it out. But if he has the money, it wouldn't be.
My current employer is a salesman that know very little about technology, software, and graphic design. So what does he do? He hires programmers, engineers, graphic artists, marketing, etc... By your logic, he should have to partner with us instead of hire us.

 

[MontanaKyle]

Kyle,

I think you should get what you can from this guy (i.e., the best deal possible), and the truth is there is no right way.

Just keep the old saying in mind: "Pigs get fat, hogs get slaughtered".

If this guy really does want to do a deal with you, then that is great. But you should be prepared to act as either a founder (no salary), or as an employee (no equity). Otherwise you are in jeopardy of this guy wising up and just hiring it out.

I know you say it would be hard for him to hire it out. But if he has the money, it wouldn't be.
My current employer is a salesman that know very little about technology, software, and graphic design. So what does he do? He hires programmers, engineers, graphic artists, marketing, etc... By your logic, he should have to partner with us instead of hire us.

Thanks again for the comment.

Yep I am willing to wheel and deal with him on this and he told me he was willing to pay me for my time plus partner up with me, so I already know that is a possibility. Now it is just a matter of how much.

As far as hiring it out, he can hire out the initial part of it. He is willing to invest that amount, but it is the ongoing work and money that he doesn't want to put forth. So at some point if 5 months down the road this is not profitable and he has paid to have this developed, as in he is paying my company or me to develop it, then I have the feeling it is going to come down to solely me to get this profitable which I am prepared to do.

I completely 100% understand and agree on the last part you are talking about, but my logic for this scenario is different than it would be from another scenario. If someone who had the money and the knowledge how to do this, sure they would just hire it out. He has the money, not the knowledge though. Could he gain that knowledge sure, but why hasn't he already I don't know.

Anyhow thanks again for some insight, I will be discussing this with him on Monday and once I get things finalized I will come back here with an update.

Have a great weekend!

- Kyle

 

[HackVenture]

Curious about how this has gone.

By the way I've passed through Montana when I was in the States about
5 years back. Very nice little town!

 

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[MontanaKyle]

Curious about how this has gone.

By the way I've passed through Montana when I was in the States about
5 years back. Very nice little town!

Just a quick update with more to follow once we get this off the ground floor.

Which town did you pass through in Montana?

So after him and I having another discussion we have come to an informal agreement. We are going to meet with his lawyer later on this month to finalize everything, then I am going to sit down with my lawyer and review it with him to get a second opinion and make sure all the paperwork looks good.

Here is what we have informally agreed to

1. He will be paying me a salary each month for a set period of hours of work. Basically 5 hours a day for 5 days each week.
2. He will be covering all expenses needed for the project, which ultimately is going to come down to me figuring out all the expenses and then sitting down with him to go over them.
3. I will be hiring 1-2 outsourcers to implement a lot of the grunt work.
4. He is vested for a minimum of 6 months and then we reevaluate. If things are looking good and we are on our way to profitability which you damn well better believe I am going to do everything in my power to make that happen, then we will continue the project. If at that point the future prospects are looking bleak then we will evaluate where to go from there.
5. We are going into this with an initial 70/30 split. He will get 70% of the profit until his investment is recouped which includes whatever he paid me, plus expenses and a 5% return on his money. (I think this is more than fair in this circumstance)
6. Once he has recouped his investment then we will do a 50/50 split but most likely we are going to work out something where he will essentially be the CEO and can make the final decision and I will be the President/COO or whatever we finally decide. I think I will start another post on this, roles of each and what is best for each person.
7. After that 6 months he also will have more money to invest at that point if we want to move forward as his particular financial situation will be changing for the better in his current business as some loans get paid off.

I am basically going to be manning the entire show on what we do and how we move forward in terms of online and the tech side of things. While my potential partner has a business with multiple employees and two businesses in two different cities, he is lost when it comes to the online side of things and how it all works. So he specifcally told me he will be relying upon my expertise and knowledge to move us forward and he will do whatever is needed. So it will be strange in some ways. Because he is vested in working in this business and doing whatever he can but at the same token most everything will fall upon my shoulders. Anyhow I have never worked in this kind of arrangement before so I have no idea how it will go.

The gist is that this is an idea he has had for a long time now (and funny enough when I had a conversation with a friend of mine he recalled and said "dude we talked about doing just that sort of thing, but we had no money to invest in it" I can't recall that conversation but anyway, I just thought that was funny that a buddy of mine and I had a similar idea. But that is besides the point.

So anyhow he really wants to obviously make this work, as well as I do because it is in a niche I myself am passionate about and involved with as well. And he said that he is essentially relying on me to direct this and implement everything.

After talking with a friend who runs a multi-million dollar business he told me to also get an exit clause. Such as in a specific period of time if the business relationship is not going well what I get to walk away with in terms of monetary figures, and make sure there is also a clause that allows us to either buy the other person out or get the final say in whomever buys into the business so that the other does not get stuck with someone we don't want to work with.

Our ultimate goal with this is to build it into a company that is providing many local jobs and eventually get bought out by another big company in the same industry but not doing what we are doing. We are going pretty specific niche with this. We are filling a void that only one other company at the moment seems to be doing, and they are not even doing it to the extent we want to.

Overall I am excited about the prospects and where we can go from here.

In the end I look at it this way, Nothing Ventured, Nothing gained. I have a huge opportunity to put my skills to great use and build a company that can literally be a leader in a specific niche and overall will help me. Regardless of if we fail or succeed it will be a learning experience and one that I can benefit from. But... it will not fail until I have done everything I can to make it succeed. I also realize that this guy is investing his time, energy and money and I do not want to disappoint. And he is on the same page as me, he wants to do it even if it does not succeed. He has had the idea too long and is committed.

I appreciate the comments made thus far and welcome and further comments, tips, ideas or suggestion on moving forward.

 

[andviv]

This is a very interesting conversation....

I hope you realize you will be working way more than 25 hours a week on this. For the same 'salary'.

And this is perfectly fine.

Your time is what you are bringing to the table.

I wish you the best of luck... and please do keep us posted.