Should I take on a business partner?
I am debating on whether to take on a new business partner. She has been in the industry for double the time I have. She has 19 years of experience and can bring all of that to the table. The issue is she cannot contribute financially at this time. She doesn't want to just be an employee. I am an S Corp and I would love to have a business partner but I am very nervous to take this new step as I had a previous business partner and it back fire. Now I am not sure if I should do it and how it would work if I did. Thoughts?
Well this is important. First you need to find out what it is that she would solve that you can't get done yourself and/or an employee.
Secondly, is it worth taking someone without any investment/payment for the stake being offered? It may be possible that the partner may not take it seriously if he/she is not motivated as nothing much is on stake from their side.
Take a partner only if you need one. One that can contribute as much as you, otherwise they are not partner but employee. No matter how you look at it.
Let that partner buy or earn stakes in the company. It should cost a price, nothing is totally free. What will it cost , if it fails, you lose it all and the partner just walks. Think of that for a moment.
You will need a coach to sit with, spend some time to collect your and your potential partners thoughts to make crystal clear decisions.
Obviously there are a lot that we don't know here in regards to your situation (ie. industry, both your talents, size of your business, stage of your business etc.) However, the one very good advice I heard is that founders and partners primary role is about making sure there's enough cash in the bank to keep things running smoothly. Every business needs it, and it is absolute paramount.
Based on your brief description, my gut is to say no to the partnership. Reason being, she isn't taking anywhere near as much risk as you by not contributing financially. Like an athlete that is past his/her prime, yet still demands a fat contract. You are not paying for her past performance (19 yrs of experience), but her future value to your business. Unless she has the skill set to leverage her 19 yrs of contacts and increase your gross revenue on a consistent basis, then you are essentially taking on greater and unnecessary risk on your end.
Now, as you replied to someone else, you mentioned that you don't want to go at it alone. That's a different motivation and you have to understand psychologically why you feel that way as I understand it's a grind mentally being a founder. If your business is already profitable/cash flow positive, then you might be able to "afford" more risk. However, if you are still in the early stages, then there's no reason to give equity away unless she can dramatically impact your business–on a consistent level–starting in the near immediate future. Otherwise, you are simply partnering for the company and not necessarily what's best for the future of the business.
Ka Pang / Principal & Creative Director / volumesquared.com
What have you learned from the last partner experience? Was it the other person's "fault" in your opinion? If so, you will be destined to live that dynamic out again. The reality is that we are always experiencing the results of our own consciousness. What isn't in harmony in our life is a reflection of our beliefs, mental associations (neural nets) and the energy these create in our energy field. I'm a business energy coach who helps bring my clients into harmony with their purpose, passions, and the business that expresses them. If you want to bring your partnering energy back into harmony I'd be happy to help with that.
The best answer is no. If you really need her to make the business work, you must retain 51%ownership or higher, the higher the better. Why should she own part of something you paid for????? If you need her, have a legally binding contract that she obtain like 3% or 5% ownership per year - perhaps based on billable work she brings in???? or sales or profits or?? until a maximum of 25% or ??? but never to exceed 49% ownership.
She tells you she doesn't want to be an employee? Does she not want a boss or wants to cash under the table? Since Partnerships usually end with problems exploding - you must control everything. Your company might hire her as a contract hire - all clearly documented and signed by her that she is not an employee, she is responsible for taxes, etc., she will get a 1099 from your business. But, ck irs.gov for rules - as a contract will be over turned by irs and possibly state unemployment rules if she is an employee disguised as independent.
Good Luck, Charlene Finerty
AS long as EXPECTATIONS are understood by both parties, you have a basis to build TRUST the most important ingredient in developing a partnership..... The worst that can happen is that "you fail forward fast." Review with a post mortem what happened the last time and be open with your new partner about your EXPECTATIONS you are the Leader in this case...
If she has value then she can become a minority partner. I would insist on some financial investment however, even if it is $500, and then award her shares as part of compensation. With partners you want to have buy-sell agreements in place but in this case you might also want to have a one-way buyout clause after a "trial" period.
There are really two things here, how much do you want and need a partner and second is under what terms. A good business coach/strategist can help you come to an honest answer for the first question, you need a good small business lawyer to help you with the second.
Don't settle for free advice you find here, no matter how sound it seems. This is your business, this site is a guide and possibly a resource for paid professionals. When you get a sense of what you want get the paid professionals involved. The money you spend will be insignificant compared to mitigating the risk with professional strategy and legal guidance.
An ideal business partner brings skills and assets that supplement your own. If you're the marketing person, she should be an operations. What do you need for the business that you don't have and she does?
For an equity stake, she should take the same risk that you're taking. If she just wants a paycheck, then she's an employee. In any case, you should think long and hard about whether her skills and experience are critical to your company's success.
If you do this you need to have a clear agreement/contract on (1) exactly what her contribution will be to grow the business, and (2) how that can be converted to a small equity position in the business, and by when. Most importantly is to develop specific "measurable" key performance indicators associated with achieving the equity position. And, if they are not all met - how will impact the share of equity? If her contribution achieves the KPI's then giving the equity will be worth it, and the basis for a longer term relationship.
Hi Eloise, full disclosure: I brought on a partner and it totally backfired on me as well. Since that experience, I've told the story several times and a few bits of wisdom shone through the conversation. First, if the straight "employee" thing is not going to work, try offering a trial time-based approach and give the potential partners the parameters of what will be grounds for moving ahead, or dismissal. Next, depending upon what the person will be doing, try a commission-based 1099 solution that leads to a partnership. I would also be clear on one particular point of contention: as he/she may be an entrepreneur "virgin" (did they always have a J-O-B?) the new partner will be responsible for sales. No wiggle room here. How many sales, what type of sales is up to you. There's no sense in hiding that from a potential partner - not that you're doing it - but if it's an assumption they realize that, I would just drag it out onto the table and share your expectations. What usually gets us in trouble are unstated expectations (yours or theirs) - try and share with each other the vision for what it might look like to be partners and see what you get. Best of luck!
Hi Eloise. It seems that you are having a hard time at making a decision. One of the factors that keeps you from not deciding yet is about, the experience you had in the past. I have only two questions for you. 1. Do you really trust this prospect to be your business partner? 2. Are you willing to take a risk?
Hi Eloise, I have written often (here and elsewhere) about my thoughts on partnerships and on balance I'm not an advocate. That does not mean they cannot work out but in your case you have raised two very bright red flags: 1) your past history with a partner and 2) that this highly experienced prospective partner cannot contribute financially. Having said that, let me ask you, what do YOU think about this prospect?