Partnerships: How do I negotiate smart percentages?

[hgrell]

Hi guys,

I have a question about partnerships. I have a business that I'm probably retiring (not important but you can read more in this post) and I'm already working on a new idea. I'm developing ideas with FRIEND1 and am trying to get FRIEND2 and maybe FRIEND3 to join as developers.

1. FRIEND1 would like to get on the "Fastlane", but is currently a well-paid "SIDEWALK" stroller. He's not a developer but has a leading role (about 10 people) in a public sector tech firm. He's rather charismatic and a people's person. Probably good to have as a figurehead and for negatiations and high value customer or partner relations care.
2. FRIEND2 is single (important later) and a loyal developer who worked with me on the previous project. He was very "cheap", because he did it for idealism. There's still loyalty left. But he probably wouldn't work under the same conditions as before.
3. FRIEND3 has a family and needs to bring home money - at least half of the year as a freelancer. He's smart and a bit in the middle between FRIEND1 AND FRIEND2 regarding people skills. His performance might be as good as FRIEND2 but I haven't worked with him directly yet.

My question: What kind of reward do I offer each of those guys? I think I will have about $2000 dollars to spend every month after my own living costs and some savety money for my family

1. FRIEND1 does not provide development value. But he has good ideas and is people smart which I am not as much. I'm highly intelligent and more "disconnected" from the average Joe. He might also be a charismatic figurehead in case we need a CEO to present to the public. And we've been friends since elementary school and I trust him. However I'd also willing to risk this friendship - just to say it won't cloud my judgement if he's risking the business. Is his contributions necessary? - No, I can probably create this business without him. But I think he can be valuable. And he doesn't need payment as he has a job right now. So I could offer him a part of the business. But if so how much?
2. FRIEND2: I already have an idea for him. I would offer him $1000 dollars a month and 3-5% of the company. He's a working horse and really smart and helped me with my previous project. Very loyal and very frugal.
3. FRIEND3: I would offer him $1000 for a testing period in his "free" (from freelance) months. And if he's as engaged as FRIEND2 maybe the same deal for him. If he's not as engaged maybe a bit less.

What do you think? Is this a smart way to approach this?

 

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[Hong_Kong]

What do you think? Is this a smart way to approach this?

I don't think so. I think it is a waste of time, or action fake that takes away from building your real business. Get in business, help one person, make some amount of profit, then create the team to add people and pay people. Otherwise you spend so much time arranging partership agreements, and spend time managing people instead of making money.

 

[hgrell]

I don't think so. I think it is a waste of time, or action fake that takes away from building your real business. Get in business, help one person, make some amount of profit, then create the team to add people and pay people. Otherwise you spend so much time arranging partership agreements, and spend time managing people instead of making money.

Thank you.
Well it's pretty difficult to run a whole platform on your own. Especially FRIEND1 has half of the knowledge regarding our first project which we could recycle here. I would at least need HIM to realize the project which I have in mind.

Maybe I'm thinking a bit too complicated that might also be the case. But in today's environment I have the feeling that the "lone entrepreneur" stereotype might not be possible for my kind of project.

 

[Hong_Kong]

Thank you.
Well it's pretty difficult to run a whole platform on your own. Especially FRIEND1 has half of the knowledge regarding our first project which we could recycle here. I would at least need HIM to realize the project which I have in mind.

Maybe I'm thinking a bit too complicated that might also be the case. But in today's environment I have the feeling that the "lone entrepreneur" stereotype might not be possible for my kind of project.

Most likely if you go with your plan you end up with a business owned by three people that produces nothing. I have made this mistake before on some of my earlier ventures.

If your business idea is so complicated that you can't get to revenue its probably better to pick another idea.

 

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[hgrell]

Most likely if you go with your plan you end up with a business owned by three people that produces nothing. I have made this mistake before on some of my earlier ventures.

If your business idea is so complicated that you can't get to revenue its probably better to pick another idea.

Thanks again, good advice!

A little clarification first however, I would always keep more than 51% to myself. There's no "splitting decisions" and stuff. I've learnt in a lot of contexts that this basically never works. I thought about splitting 10 non-veto percent among these three and give a direct cash incentive to 2 of them.

The thing is some businesses you can't run on your own. And as I don't have the cash reserves to pay them (yet) I have to offer stake. But of course non-decision stake. Ok, so maybe you wouldn't call it partnership, true.

 

[Hong_Kong]

A little clarification first however, I would always keep more than 51% to myself. There's no "splitting decisions" and stuff. I've learnt in a lot of contexts that this basically never works. I thought about splitting 10 non-veto percent among these three and give a direct cash incentive to 2 of them.

This makes sense. But the way you described both of them as not being really interested means yes you will own more of the company than them, but they will own a share of a company for doing nothing. Then they won't really work, you do all the work anyway for less percentage.
Try it and let me know how it goes, but I would bet money on this outcome.

 

[hgrell]

This makes sense. But the way you described both of them as not being really interested means yes you will own more of the company than them, but they will own a share of a company for doing nothing. Then they won't really work, you do all the work anyway for less percentage.
Try it and let me know how it goes, but I would bet money on this outcome.

Valuable warning. Thank you. Reminds me of old school days when you have people in "group work" solely relying on others to do the work. Of course I was always the work horse. FRIEND2 will definitely contribute a lot. He deserves it without a doubt. And as he worked underpaid for almost 3 years on the other project I need something to motivate him here. But with the other two guys you might be right - especially with FRIEND1

 

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