How Much Equity Should I Give Up? *URGENT!*

21 replies
Alright, so I have a bit of a dilemma. A co-worker from my last job has been working closely with me on my business. I made him an affiliate/brand ambassador, giving him 25% for each sale he makes. Here is the problem:

He managed to get a large corporate client for us through his brother, a top-level executive of a rental properties company. His brother wanted a surveillance camera for a rental property. Since processing this order, there has been nothing but trouble the entire way, due to some mistakes I have made (in sourcing the product, shipping problems, etc.). For each resolution we try to bring, another problem comes up. Just about every conversation he's had he has been frustrated with me and yelled, each time a new problem comes up.

He called me last night and flat out told me that "this isn't working." He's arguing that he needs to become a business partner (at 50/50), because he sees me as being incapable of carrying out tasks on my end (ordering product, communications with client, etc.). So instead of 25% commission on sales, he wants a 50% stake in the business.

The other issue that ties into this is that his brother has been looking at doing a $20,000 deal with us, to purchase promotional products for new tenants. Being very hesitant, I said that I didn't feel comfortable giving up equity (especially that amount). Ultimately, I gave in to the 50/50 deal because he said he would break off all ties (which also meant that he would source and get that $20,000 sale himself). I agreed, saying that things would work better if he were on the front-end doing sales, calling potential clients and doing customer service (which I can't do because I currently have a job working 30hrs a week, 8am-2pm M-F) while I sit in the back-end working the website, doing social media, ordering products and doing the finances (which is pretty much all I've been doing the entire time).

I tell my girlfriend and some friends about this and they yell at me for doing it (I knew it probably wasn't a good idea). I've already committed in word to this agreement, but nothing has been written in stone (legally). I am thinking of calling him up and doing 51/49 instead, MAINLY because I started this business up myself and invested roughly $5600 in capital and a great deal of sweat equity into it.

What would you suggest I do? My girlfriend and her dad (who is an business person, day-trader, econ. guy) suggested that I let him "buy into" the business, which at 49% of my overall investment would be about $2600 and do 51/49. Any thoughts on that?

In all honesty, I would prefer 51/49 because we would be partners but I would keep control. He provides value in being an aggressive salesman and doing the public relations, something that I can't do with my current job.

Thank you!!
#equity #give #urgent
  • Profile picture of the author bullfrog
    51/49 is better, but don't rush into having a business partner. It's like getting married ...

    If it were me (and I don't know your whole situation) I would be willing to walk away from the deal ... don't give away half of your company just to get one deal done.

    Learn from your mistakes with this deal and do better on the next one. If he's trying to bully his way into equity, he'll bully you on other things too. Doesn't sound good to me.
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  • Profile picture of the author Rbtmarshall
    tell him thanks for the sale and cut him his 25% after the deal is closed, then terminate the agreement.

    Him and his brother may be planning a takeover...

    You are valuing your business at $5,200. you have 20,000 sale in process, what is your net going to be off that sale before you pay him his 25% commission?
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    • Profile picture of the author srselfdefense
      Thanks for the advice everyone. I ultimately decided to tell him that I based on the advice I got from others, in addition to my own reservations, I was uncomfortable doing a partnership. He accepted it and wished me luck.

      Originally Posted by Rbtmarshall View Post

      tell him thanks for the sale and cut him his 25% after the deal is closed, then terminate the agreement.

      Him and his brother may be planning a takeover...

      You are valuing your business at $5,200. you have 20,000 sale in process, what is your net going to be off that sale before you pay him his 25% commission?
      The $20,000 sale could have happened, but it wasn't a definite. He wanted 50% of the profits...now if he decides to push forward himself and is successful, he can get all of the profits. The net gain was about $16,000 (minus $600? in shipping costs). A huge loss for me, but only one in the short-term. I'm more concerned about the future, rather than cutting corners to get one huge sale.

      As for my associate, I wouldn't call him a "friend." We weren't close at all. I've only known him as a former co-worker and as a [now defunct] business associate.

      Though I am saddened by the result, I think I made the right decision. I avoided a lot of potential pitfalls. Plus, I don't think I'm ready for large accounts right now anyway...especially with my current job.
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    • Profile picture of the author Malcolm Thomas
      Originally Posted by Rbtmarshall View Post

      tell him thanks for the sale and cut him his 25% after the deal is closed, then terminate the agreement.

      Him and his brother may be planning a takeover...

      You are valuing your business at $5,200. you have 20,000 sale in process, what is your net going to be off that sale before you pay him his 25% commission?
      This is exactly what I would recommend also.

      The worse thing that can kill a business is a terrible partnership.
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  • Profile picture of the author WarrenPeterson
    As mentioned, close the deal, and then terminate the relationship.

    If you do become partners 50/50 is never a good idea, checkmate is often the outcome.

    If you do want to keep him, I would offer a profit sharing deal before offering equity. Profit sharing is safer for both of you. He does not incur any of the legal and financial liabilities of ownership, and you do not incur the reduced equity position.
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  • Profile picture of the author salegurus
    I assume your business is important to you, right?
    So why are you asking for legal advice on a forum where all you are going to get are educated guesses for the most part?


    http://www.warriorforum.com/main-int...vice-here.html
    http://www.warriorforum.com/main-int...al-advice.html
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    • Profile picture of the author Rbtmarshall
      Originally Posted by salegurus View Post

      I assume your business is important to you, right?
      So why are you asking for legal advice on a forum where all you are going to get are educated guesses for the most part?


      http://www.warriorforum.com/main-int...vice-here.html
      http://www.warriorforum.com/main-int...al-advice.html

      this isn't really legal advice. It's common business sense... He's potentially going to get screwed over by his so called friend
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      • Profile picture of the author salegurus
        Originally Posted by Rbtmarshall View Post

        this isn't really legal advice. It's common business sense... He's potentially going to get screwed over by his so called friend
        Well, maybe i misread his post.
        All i'm saying is that iv'e seen good friendships being ruined by business partnerships.
        And if something goes wrong and his friend gets a lawyer (This is America after all) and all he is armed with is advice he got from people on a IM forum he is coming off second best...
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  • Profile picture of the author Curtis2011
    A 50/50 deal is a bad plan.

    Why?

    Because a business (or anything else for that matter) needs a competent leader who has absolute authority to implement the things that need to get done in order to be successful.

    If you have a 50% partnership, every decision you make will lead to potential drama with the partner. It's a bad idea all over.
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  • Profile picture of the author Alex Blades
    A catering business pays me $1000 for each sale I send to them, maybe I should ask them for 50% of the business? That is nonsense, pay him his commission and wish him luck on his future endeavors.

    If he wants 50% of the business, then he needs to buy in.
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    • Profile picture of the author Kay King
      You solved it - but I don't necessarily agree with the advice you are getting.

      nothing but trouble the entire way, due to some mistakes I have made (in sourcing the product, shipping problems, etc.)
      The salesman was doing his job - selling the products. You were not properly sourcing or weren't shipping correctly, etc. That means the sales weren't smooth, the customer wasn't happy and the salesman was losing commissions.
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      • Profile picture of the author srselfdefense
        Originally Posted by Kay King View Post

        You solved it - but I don't necessarily agree with the advice you are getting.



        The salesman was doing his job - selling the products. You were not properly sourcing or weren't shipping correctly, etc. That means the sales weren't smooth, the customer wasn't happy and the salesman was losing commissions.
        There was more to it than that. Sure, I messed up a couple times, but the entire transaction began because he bullied me into it. It was "my brother needs this and he needs it now" attitude, despite the fact that it was no longer in stock with my main supplier. So what happens? He pressures me to do whatever necessary to get it, so I go to another supplier overseas in China instead. That's when shit started hitting the fan.

        The shipping wasn't my fault, however. I ordered DHL Express, but they delivered almost a week later than expected. As for sourcing, you know that part already.

        The guy is very bossy, very aggressive. He will talk down to you out of frustration, even though he doesn't see it that way. That's just how he plays the game. His problem is that whenever someone needs something, he rushes to find a solution to it (which is great and all, but...), even to the point where he doesn't think things through fully. For example, at the beginning I told him I wasn't comfortable with sourcing overseas (even though it is cheaper), because I had no experience and had heard about all the horror stories revolving around scams in China.

        But I digress. It's over now, so I no longer have to worry about any of that stress. I can find opportunities elsewhere for making sales. That's what internet marketing is for, right?
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        • Profile picture of the author Kim Standerline
          wow, looks as though you did the right thing getting out of it all

          Kim

          Originally Posted by srselfdefense View Post

          There was more to it than that. Sure, I messed up a couple times, but the entire transaction began because he bullied me into it. It was "my brother needs this and he needs it now" attitude, despite the fact that it was no longer in stock with my main supplier. So what happens? He pressures me to do whatever necessary to get it, so I go to another supplier overseas in China instead. That's when shit started hitting the fan.

          The shipping wasn't my fault, however. I ordered DHL Express, but they delivered almost a week later than expected. As for sourcing, you know that part already.

          The guy is very bossy, very aggressive. He will talk down to you out of frustration, even though he doesn't see it that way. That's just how he plays the game. His problem is that whenever someone needs something, he rushes to find a solution to it (which is great and all, but...), even to the point where he doesn't think things through fully. For example, at the beginning I told him I wasn't comfortable with sourcing overseas (even though it is cheaper), because I had no experience and had heard about all the horror stories revolving around scams in China.

          But I digress. It's over now, so I no longer have to worry about any of that stress. I can find opportunities elsewhere for making sales. That's what internet marketing is for, right?
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  • Profile picture of the author Alex Blades
    but the entire transaction began because he bullied me into it
    That right there is enough to kick him to the curve, you don't need a partner like that, it will just be more trouble than it's worth. You should have took one of your own products and tazed his behind when he tried to yell at you

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  • Profile picture of the author LilBlackDress
    Originally Posted by srselfdefense View Post

    Alright, so I have a bit of a dilemma. A co-worker from my last job has been working closely with me on my business. I made him an affiliate/brand ambassador, giving him 25% for each sale he makes. Here is the problem:

    He managed to get a large corporate client for us through his brother, a top-level executive of a rental properties company. His brother wanted a surveillance camera for a rental property. Since processing this order, there has been nothing but trouble the entire way, due to some mistakes I have made (in sourcing the product, shipping problems, etc.). For each resolution we try to bring, another problem comes up. Just about every conversation he's had he has been frustrated with me and yelled, each time a new problem comes up.

    He called me last night and flat out told me that "this isn't working." He's arguing that he needs to become a business partner (at 50/50), because he sees me as being incapable of carrying out tasks on my end (ordering product, communications with client, etc.). So instead of 25% commission on sales, he wants a 50% stake in the business.

    The other issue that ties into this is that his brother has been looking at doing a $20,000 deal with us, to purchase promotional products for new tenants. Being very hesitant, I said that I didn't feel comfortable giving up equity (especially that amount). Ultimately, I gave in to the 50/50 deal because he said he would break off all ties (which also meant that he would source and get that $20,000 sale himself). I agreed, saying that things would work better if he were on the front-end doing sales, calling potential clients and doing customer service (which I can't do because I currently have a job working 30hrs a week, 8am-2pm M-F) while I sit in the back-end working the website, doing social media, ordering products and doing the finances (which is pretty much all I've been doing the entire time).

    I tell my girlfriend and some friends about this and they yell at me for doing it (I knew it probably wasn't a good idea). I've already committed in word to this agreement, but nothing has been written in stone (legally). I am thinking of calling him up and doing 51/49 instead, MAINLY because I started this business up myself and invested roughly $5600 in capital and a great deal of sweat equity into it.

    What would you suggest I do? My girlfriend and her dad (who is an business person, day-trader, econ. guy) suggested that I let him "buy into" the business, which at 49% of my overall investment would be about $2600 and do 51/49. Any thoughts on that?

    In all honesty, I would prefer 51/49 because we would be partners but I would keep control. He provides value in being an aggressive salesman and doing the public relations, something that I can't do with my current job.

    Thank you!!
    I would not give equity to someone I had a yelling relationship with. Always try to pay your way and not give up equity in your company.
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    • Profile picture of the author Kay King
      Definitely sounds like you are better off moving on without him.

      He pressures me to do whatever necessary to get it, so I go to another supplier overseas in China instead.
      Lesson learned there - or should be. You own the company - you make the rules - you don't fold because someone badgers you. If you know you don't have the product to sell, stand firm and don't let anyone bully you into doing something that can hurt YOUR brand.
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      • Profile picture of the author sbucciarel
        Banned
        Originally Posted by Kay King View Post

        Definitely sounds like you are better off moving on without him.

        Lesson learned there - or should be. You own the company - you make the rules - you don't fold because someone badgers you. If you know you don't have the product to sell, stand firm and don't let anyone bully you into doing something that can hurt YOUR brand.
        ^^^^^^^^
        This. You created the company. I'd stick to my original deal of 25% (no partnership) and tell him if he don't like it, go somewhere else.
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  • Profile picture of the author JasonBennet
    Since you are the one that started this business, you will want to make sure that you are the majority shareholder of the company. Yeah I agree that you should let him pay to get his share of the company ownership and he should not have any problem if he is serious about it.

    There are many other big deals around and I am sure that you have learn good experience from this. If I feel that my partner is trying to take advantage of me, I will only endure to a certain level until I will tell that partner to get out from my company.

    Business is business and there are times when you will need to make tough decision and take action on it.
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  • Profile picture of the author aerm85
    50/50 is a bad idea... If right now you are the leader, when 50/50 comes every decision that you will put in the air your partner could be make a dramma... Close the 20000 deal and look for other person to work.
    Best regards
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  • Profile picture of the author Jason Kanigan
    Giving up equity at the start of a business is a bad idea. You have no understanding of what that business is worth. Let's say your first year sales are $100,000. A generally accepted way of valuing businesses is the "times earnings" method, and for your niche let's say it's x4. So your business at the end of year 1 is worth $400,000. 50% = $200K. There's your buy-out.

    Now let's say you hold on and continue to the end of a second year. Year Two was much better: you grossed $400,000. Now look: x4, your business is valued at $1.6 MILLION at this point! 50% buyout: $800,000.

    Which would you rather have, $200K or $800K?

    Giving away equity early on is handing off for pennies on the dollar. It is NEVER a good idea.

    Now about choosing your business partners. FIT is important here. Personality fit is probably the most important component of overall fit, since you will have to deal with them often. Someone who yells at you isn't a good personality fit, are they?

    I see a lot of talk about partnerships on other forums, the kind of talk that says, "You should find someone who is good at the things you aren't". Well I think that's nonsense. Outsource it. Keep control. Keep ownership. Two visions of one company is not going to work.
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  • Profile picture of the author yakim1
    You need to treat this guy like a broker and not a partner. Just pay commission on the sales he brings in. All other sales you keep 100%. You can pay a 50/50 commission but keep 100% control over the business.

    If things get bad you can fire him and not go through any leagal battle.

    Best regards,
    Steve Yakim
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