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

by kyleb
10 replies
If anyone has any experience in partnerships or insights into them I would greatly appreciate your thoguhts on this...

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 with my Marketing company. 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 because 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 would 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 your response and helping others on here as well.

- Kyle
#form #money #partnership #skills
  • Profile picture of the author rosetrees
    These are just my initial thoughts. Is it fair to ask for a 50/50 split? Yes. However, it's his business (or business idea) and he has every right to call the tune at this stage. If he isn't willing to offer that, it's your decision to make as to whether you accept something else, or not.

    As I've long since learnt in business, no-one is indispensible even if we like to think we are. He can and will find someone else if you don't go ahead.

    What rings the alarm bells for me is the last part where you say you don't know him very well. Take a step back and ask yourself if this is a person you think you can work with long term. The path that your negotiations have taken should tell you something about that.
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  • Profile picture of the author wushumaro
    I had a partnership deal similar to this several years ago, and I can tell you that dealing with offline business partners who don't understand how the internet works or how to do internet marketing can be a real drag at times. Especially when it comes to decision making and trying new techniques online. At the time I had 25% share, my brother had 25%, and the two business partners each had 25%. The problem became that their initial investment was very small in comparison to the amount of work we put in (for 3 years), with no salary.

    What I would do if I was in your case, I would try to figure out realistic goals, and amount of effort required to get this thing profitable. If he's putting up the cash up front, establish the amount required to get this project off the ground, and setup a repayment as soon as profits start coming in.

    I would also show that your time is valuable at $X dollars per hour, and thus your sweat equity is worth $Y dollars for Z years. If he is willing to invest that much, then you're willing to put in the time and do a split 50/50 afterwards with conditions that would show him that you have as much incentive as him to make the company succeed.

    The reason 50/50 would be best for both, is because it would force both of you to always come to an agreement, and not having any one side overrule the other through sheer "control force," which could diminish motivation to any party. Also, YOU are the expert online, not him. So sometimes he might not know what direction to take the company towards, and if he takes it in a direction that you disagree in, or which would be "stupid" to anyone who understands the internet, then you don't want to be in a sinking ship. You know what i mean?

    Also, put an exit clause that would specify if there is ever a disagreement that can't be agreed upon, the business would be dissolved, amount of hours put in from sweat equity will match the investment. The business will be sold on flippa, or sitepoint, and the investor will take the difference of your work equity and his investment. Any leftover will be divided 50/50. This will ensure that you guys always try to reach an agreement or risk having to close down.

    Obviously you'd have to polish the idea a bit more, but that's the gist of the concept.

    What niche is this in? I'm curious as to what this idea is :-)
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  • Profile picture of the author eugenedm
    No one should get into anything without understanding it. For me, the investor needs to have an idea about the business. Naturally, the manager must know how to run the business. In other words, both the manager and the investor should understand the business.
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  • Profile picture of the author marketwarrior06
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    That's an interesting article. Thanks for sharing.
    But remember that Partners in business is kind Snakes. if you keep milk in your home the snake will take it definitely.
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  • Profile picture of the author Woodward82
    Just to note a couple of things. When forming a partnership you accept the risk and liability of the company and any of it's debt. There are a also a lot of things that must be figured out when setting the partnership up. What happens if something happens to him down the road? Do you get his share or will it go to his kids or spouse? Also not sure of the business or it's idea but there is always the possibility of lawsuits. A partnership would mean in terms that you will carry in part of this burden.

    If you do not know this person very well and aren't 100 percent sure if you two can come to a conclusion during disagreements then I wouldn't go the partnership route. This is one of those things that cause hundreds of business's to fail each year.

    I'm not sure how technical or big this venture is, so it's hard for me to say or touch on certain things. Maybe setting up some type of corporation with a board of directors would be a better idea, maybe it wouldn't.

    Also another thing to take into consideration if you dont go the partnership route, are you going to be an employee or a contractor. There can be a fine line between the two but could greatly change a lot of things on the back-end if certain situations would arise.

    As far as the question about asking if 50/50 is to much to ask for I would have to agree with Big Mike.
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  • In this situation, considering it's his idea and his capital, if I was you I'd accept a 51/49 deal.
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  • Profile picture of the author Silas Hart
    My basic reading of this is that you probably shouldn't approach this as a "joint venture" or a partnership. You will work for him because he has financial control and all you are investing is, is time, not even sweat equity because you are asking that he pay you for your time. Even if you were to invest your sweat equity, it isn't worth much when its his idea, and his money. There is no such thing as a 50-50 share when one person is investing money and the initial idea. The truth is that he could probably find someone much like yourself, and might be able to do so with less money.

    If he offers you 49%, take it. Chances are he's going to offer much less. In my experience as an investor, when I try to bring in talent (which was recently a video game designer whom is working on a project for me currently) I understand that he can't reasonably survive without his full time job. So what I did was I offered him a loan to be paid back with profits accrued by the project over a period of time so that he could leave his job or go to being part time so his main focus on the project. To do this you need to set a time in which you expect to reach a major milestone within the project where profit is expected. Say you expect to make a profit in 6 months, so you would configure your personal expenses to be $1600 a month, so you would ask for $9600, which would come from your share of the profit of the project.
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  • Profile picture of the author Thomas W
    what ever you do,, first get in writing. Make sure it's signed and notorized
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  • Profile picture of the author TryBPO
    Hey Kyle,

    Asking to get paid for your time, taking 100% of the profits until it matches your salary, and then splitting it 50/50 above/beyond that point is a sweetheart deal for you...and pretty unrealistic, IMO. If I were giving advice to the other guy, I would definitely tell him that was not a good idea.

    You're asking him to take on all the risk (paying you a salary on an unknown) and then splitting all the upside with you as well. I'm assuming that you're leveraging his offline business, inventory, contacts, etc. to build up the online portion. He's bringing a ton of value to the table and your value, to be blunt, is replaceable and can be found elsewhere.

    If I were you, I'd either be willing to give in on the salary (From what I read, it seems like that's not a possibility as you'd have to quite your job to work on this full-time) or be willing to take a significantly lower percentage. If I were him, I'd come back with a salary + profit share or limited buy-in equity over time. You'll have a little upside, but you'll have a much more secure position when it comes to paying your bills.

    Getting past the money/equity - Would this be a great learning experience for you? Could you leverage the skills/techniques you learn here and apply them easily elsewhere? I'd bring those types of value into the equation to determine whether this is something you should get involved with.

    For more information on partnerships, here are a few podcasts I'd recommend listening to:
    My biz partner and I discussing partnerships:
    Episode 6 AdSense Flippers Podcast: Getting Down And Dirty On Partnerships | AdSense Flippers

    Us teaming up with the Lifestyle Business Podcast guys to discuss partnerships:
    Episode #89 – The Institutions of Marriage and Business Partnerships

    Best of luck...
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    • Profile picture of the author kyleb
      Thanks for all the great responses everyone. I am just now waiting on hearing back from him with the decision, I did change it from my original proposal. There is a lot more to the story than I can really lead on about.

      Originally Posted by TryBPO View Post

      Hey Kyle,

      You're asking him to take on all the risk (paying you a salary on an unknown) and then splitting all the upside with you as well. I'm assuming that you're leveraging his offline business, inventory, contacts, etc. to build up the online portion. He's bringing a ton of value to the table and your value, to be blunt, is replaceable and can be found elsewhere.

      If I were you, I'd either be willing to give in on the salary (From what I read, it seems like that's not a possibility as you'd have to quite your job to work on this full-time) or be willing to take a significantly lower percentage. If I were him, I'd come back with a salary + profit share or limited buy-in equity over time. You'll have a little upside, but you'll have a much more secure position when it comes to paying your bills.

      Getting past the money/equity - Would this be a great learning experience for you? Could you leverage the skills/techniques you learn here and apply them easily elsewhere? I'd bring those types of value into the equation to determine whether this is something you should get involved with.

      For more information on partnerships, here are a few podcasts I'd recommend listening to:
      My biz partner and I discussing partnerships:
      Episode 6 AdSense Flippers Podcast: Getting Down And Dirty On Partnerships | AdSense Flippers

      Us teaming up with the Lifestyle Business Podcast guys to discuss partnerships:
      Episode #89 - The Institutions of Marriage and Business Partnerships

      Best of luck...
      Thanks for the insights.

      Actually we are not leveraging his offline business in any way shape or form. This is a completely separate business from his offline business and neither has anything to do with the other. Are my skills replaceable, sure, not a dime a dozen but I am sure if he knew where to look (which he doesn't) he could possibly find someone.

      Basically he is just knowledgeable in the niche, but so am I as well. Anyhow, just waiting now on working out the final details. Should be awesome once we hash it all out.

      Thanks again for the great tips everyone!

      - Kyle
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