Hiring our first employee vs bringing on a business partner

[tonyf7]

Wanted to get everyone's opinion on hiring our first employee. My uncle and I own a small appliance repair and sales company.

Business is really starting to pick up, finally, after 5 years.

We're nearing a point where we'll be needing help soon to keep up with demand. There's a guy we met in the field with tons of experience who works as a repair tech for a big name store. His family owned two businesses which sold for a profit. Businesses he both managed. He has a business degree (online) and has expressed interest in coming on as a business partner to help us with growth and development, in addition to working in the field as a repair tech. He's asking for 20% while my uncle and I keep 40/40.

My uncle and I balance each other out. He has over 30 years of experience in appliance repair and has been training me. I take care of everything else on the business side. But I've hit a ceiling. There's a lot I don't know about business and bringing someone on board who does would allow me to leap frog that learning curve.

Employees tend to give a crap about the businesses they work for. But owners take care of and work hard for their business.

Any thoughts or advice on bringing on a business partner?





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[mbRichard]

There will be other guys out there who can give better advice but since I'm in a similar situation in terms of outsourcing certain tasks for my business I'll give my two cents in.

I believe that you should see if you guys are a good match. If you are all in the same page then that's a great start, also what do you need that he can take on and fulfil?

Growing and expanding your own business is a strenuous task, but it's also something that you learn through hard work and failures. I have yet to hire myself, but by just gaining that experience it allows you to add that skill to your repertoire going forward.

Hope I helped in some form haha


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[jon.a]

How will everyone be currently compensated for their work?

 

[ZCP]

A buy in over time may work for your situation. Starts on a lower salary. You see how he works. He has an incentive laden deal where his ownership % comes from new growth that he helps generate.

Spell it all out in an agreement.

Also, does he just want money or to be a part of something. If the former, stick to incentives or profit sharing with no ownership. If the latter, he should be willing to take less guaranteed money for long term benefit.

Everyone is motivated differently, so you need to ask.

 

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[tonyf7]

How will everyone be currently compensated for their work?

We'll pay ourselves a fixed salary. The revenue is there.

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[jon.a]

We'll pay ourselves a fixed salary. The revenue is there.

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Of course you will.
You the amounts a secret?
Are they high, low, what are they?

Where I'm going is that is he being fairly compensated for his contributions?
Does do deserve 20% just for being #3 and the first hire? I doubt it.

 

[jon.a]

Let's go a bit future.
You're forcing us to make assumptions. Stop.

Let's assume that you and partner don't want to give up more than 50%
To give one guy 40% of the remainder he better be pretty special.
Is this guy Marcus Lemonis?

 

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[AdamMaxum]

I wouldn't give up 20% to someone who you don't know personally, even if they had legit experience. I'd give him a percentage of profits for x amount of time until he proves that he's committed to the business and is offering value. At that point, after working with him, I would consider equity.

 

[tonyf7]

A buy in over time may work for your situation. Starts on a lower salary. You see how he works. He has an incentive laden deal where his ownership % comes from new growth that he helps generate.

Spell it all out in an agreement.

Also, does he just want money or to be a part of something. If the former, stick to incentives or profit sharing with no ownership. If the latter, he should be willing to take less guaranteed money for long term benefit.

Everyone is motivated differently, so you need to ask.

I like this idea. I think he needs to prove his worth before we just hand over 20% of the business.

This is my first business and I'm honestly not sure how that kind of arrangement would work or even look like. Any examples you can give me? Would he just be a salaried employee at first and maybe we'll give him 5% equity (up to 20%) for every X amount of revenue he generates for the company?

 

[tonyf7]

Let's go a bit future.
You're forcing us to make assumptions. Stop.

Let's assume that you and partner don't want to give up more than 50%
To give one guy 40% of the remainder he better be pretty special.
Is this guy Marcus Lemonis?

I see your point now. Thank you.

 

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[tonyf7]

I wouldn't give up 20% to someone who you don't know personally, even if they had legit experience. I'd give him a percentage of profits for x amount of time until he proves that he's committed to the business and is offering value. At that point, after working with him, I would consider equity.

So lets say for example, we could give him 10% of profits on the revenue he generates for the first year. After the first year, depending on performance, we can start giving him 5% equity for each revenue milestone he hits. Like, 5% when he brings in 25k, another 5% at 50k and so on up until he reaches that 20% he's asking for.

I that close to what you had in mind?

 

[ZCP]

Not knowing your company or your revenues, hard to say. What you have listed seems like too much equity too fast .... unless this is a <$200k shadetree mechanic business.....

What do you want? Where do you want this company to go? What do you want him to bring to the table? If he did _______ you would feel good about giving him 20% of the company because in your mind he earned it.....

 

[tonyf7]

Not knowing your company or your revenues, hard to say. What you have listed seems like too much equity too fast .... unless this is a <$200k shadetree mechanic business.....

What do you want? Where do you want this company to go? What do you want him to bring to the table? If he did _______ you would feel good about giving him 20% of the company because in your mind he earned it.....

Great questions. Thank you.

Not exactly sure what a shadetree business is but yes, revs are a little under 200k a year.

What I want is this. My uncle is at that age where he should be retiring but he can't. My family wants to move back home to the DC area where we're from to be closer to family we have there.

If I leave now the business will fall apart and uncle will be left out in the cold. What I want is to replace myself so that the business can keep running after I'm gone.

I'd also like to make enough profit to open another location in the DC metro area.

This guy claims that he alone made Sears over 300k in revenue last year. If he can get close to that figure in his first year with us then I'd say he's earned his part of the company and would be a good replacement. I'd even give him more than 20% since he'd be taking over my tasks as well.

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[ZCP]

Get the 3 of you at a table and write it out. Make it a good deal for all 3 of you. Put in a shotgun clause. Then get to work.

 

[minivanman]

Being the devil's advocate as I usually am, why doesn't he just do this himself? Why does he need you? You and I both know that he probably has the tools (doesn't take many) and apparently he has the know-how so why does he need you? I do not want to mention names but is it because the 'people' you have contracts with will not give anyone else in your area work except your company? Do you have the area without competition? Or is there another reason?

I'm just trying to figure out what his reasoning is. He must have an angle because this business can be started with $100 and he could own his own business without partners. And, if he is as good as you say, he could build his own up within a year and keep the profits..... unless the people you work with will not give him any work and even if that is true, he could do what I do on his own. I just started full time last January (same basic thing as you but not repair, I just sell) and it looks like I will be bringing in right at $100,000 profit by the end of the year..... so not sure what his angle is. Do you know?

 

[tonyf7]

Being the devil's advocate as I usually am, why doesn't he just do this himself? Why does he need you? You and I both know that he probably has the tools (doesn't take many) and apparently he has the know-how so why does he need you? I do not want to mention names but is it because the 'people' you have contracts with will not give anyone else in your area work except your company? Do you have the area without competition? Or is there another reason?

I'm just trying to figure out what his reasoning is. He must have an angle because this business can be started with $100 and he could own his own business without partners. And, if he is as good as you say, he could build his own up within a year and keep the profits..... unless the people you work with will not give him any work and even if that is true, he could do what I do on his own. I just started full time last January (same basic thing as you but not repair, I just sell) and it looks like I will be bringing in right at $100,000 profit by the end of the year..... so not sure what his angle is. Do you know?

He doesn't do buy and sell, only repairs. He doesn't have a work vehicle either and joining with us will leapfrog him past the start up phase. It makes sense. We've already done a lot of the heavy lifting. We have the warranty service contracts and a great customer base that brings in plenty of business.

I'm pretty much certain he can't afford to take the pay cut from $22 an hour to the start up pay rates he'd be earning if he went into business for himself. Joining us will allow him to keep supporting his family and to get in on a good business. Which I don't mind so long as he adds plenty of value and revenues to the company.

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[tonyf7]

Get the 3 of you at a table and write it out. Make it a good deal for all 3 of you. Put in a shotgun clause. Then get to work.

What is a shotgun clause? I'm not familiar with the term.

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[minivanman]

I think in the situation you described.... how can you go wrong? You want to move, he can stay there.... if it lasts a week or 20 years, all you can do is give it a shot. Have high hopes it will last long enough for you to get things going in your new city. And in your new city you will be right at wholesale central!! You can forget about having a business where the big guy tells you what to do, you will be able to buy direct wholesale and actually be your own boss. I think your future can be very bright moving to that area.

 

[ZCP]

Shotgun clause - Wikipedia

 

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