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andy_ric
05-15-2011, 05:27 PM
I have a small business of my own currently, but I have a question about an upcoming endeavor.

What is a good way to proceed if you recieve a great business idea from a lazy friend? The friend is great guy but very lazy and unmotivated when it comes to handling business, doing research, etc... It is very clear that I would do all the work and he would only give insight, which is valued as he is apart of the demographic that the product caters to.

I'm thinking of giving him 20% ownership and/or 20% of all profits (after expenses, taxes, etc..) and starting and running the company myself and have him work as a consultant.

Any suggestions will be appreciated, as I want to consider as many alternatives as possible.

Thanks,

Spider
05-15-2011, 05:54 PM
Andy,

It rather depends on the circumstances of his suggestion. If you specificlly asked him for a business idea regarding something about which he is particularly familiar, then I think you owe him something. If it was a casual conversation, or a joke, or a 'throw-away' remark - "Why doesn't someone make ......" then I think you owe him nothing. But that doesn't mean you shouldn't give him anything or involve him in some way - you said he is a friend, and it's good to help a friend, isn't it?

Just because you think your friend is lazy today, doesn't mean he will be lazy tomorrow. Just by taking up something he said could turn him on and bring about an inspirational change. You said he was part of the target demographic, and that might ignite is passion for the subject - and for the business.

Depending on the above, you might say that you liked his idea and you are going to create a business around it. Because of his familiarity with the industry, you would like to hire him as a consultant or some one to test the product, once the business gets under way and starts making some money. Feel him out and see what he says. ask him what he thinks would be a fair way of dealing with it. He might say to go ahead and he doesn't want anything. Helping a friend goes both ways.

I think the point is to be generous. There is a whole philosophy around generosity in business bringing more prosperity. Generosity creates friends and you will need all the friends you can get when starting a business. You certainly don't need any enemies at that point in time!

DJ2121
05-15-2011, 05:57 PM
Sounds like it could be a troublesome partnership. I suggest if you create one you either write out each of your responsibilities in the by-laws just to make it clear how the company will operate, maintain full ownership and pay your friend as a consultant based on his insight and ideas, or pay him an upfront cost for the business model. If you grant him ownership without making his partnership contributions clear (in writing) you may to obligated to continue to pay him down the road long after hes created any further value.

Most importantly, I suggest you communicate your concerns to your attorney become incorporating to protect yourself.

andy_ric
05-15-2011, 08:08 PM
Thanks for the replies. I will definitely include the responsibilities in the by-laws and refer to a lawyer for incorporation. In regards to the idea origin, it was all his. He brought it up a year or two ago. He may become inspired later on, but only after I've cleared the way; however, I will most likely be generous.

greenoak
05-15-2011, 08:40 PM
it sounds so smart of you to realize his limitations right f rom the start and it might really work if you both agree to the idea that he is just getting money if it comes in enough to produce a profit and isnt expected or supposed to do anything but talk to you a bit....
troubles might be ...what does it mean by profit? how will you get paid before him? does he understand this? .
and is it clear that you can over rule any idea of his since he only owns 20%%?
it m ust be a heck of a g ood idea for you to want to include him in it..... easier might be a promise to reward him when it gets profitable....does he want to be a partner?
partnerships are so hard...ask anyone in one..... so i would probably try and find another way to reward him...ive been in 2 partnerships and wouldnt go there again.... ..

Spider
05-15-2011, 09:37 PM
I would never accept payment as a percentage of profit, nor would I recommend anyone accept payment in that fashion. It leaves all parties open to disagreement and distrust. A percentage of sales is clear, precise, easily determined and certain.

Don't be afraid of partnerships - they are a wonderful way to conduct business and are a successful way of growing a business. Many businesses started as partnerships - Microsoft, Cisco, Apple, HP, Sears, Ford, Merck, Johnson & Johnson, Aflac, General Electric, General Motors, Kellog, Disney... the list is endless.

Steve B
05-16-2011, 07:03 AM
I think you're giving him 20% too much.

Parnerships are a horrible way to start a business - full of nothing but trouble. For every successful partnership, there are probably 10,000 nightmares. Even the success stories often were nightmares. They may be commercially successful but they often ruined families and friendships along the way.

An idea is practically worthless - it's the person that can put it into action and takes the risk that makes it successful. I would suggest you that you tell him you like the idea and that he should turn it into a business. Tell him you would never do a partnership because you wouldn't want it to jeopardize your friendship. You might even offer to help him with your business knowledge while he gets it going. If/when he declines to move forward with the business, then you can go forward. If you need his input at certain points, you can hire him as a consultant (but, that's probably not going to be a great thing for your friendship either).

Spider
05-16-2011, 09:07 AM
I say again, partnerships are a very well-proven successful way to start a business. Two heads are better than one. You have proven the fact in your own case, Andy - you are the practical one, your friend is the thinking one, a great combination - right-brain + left-brain.

10,000 nightmare partnerships for every successful partnership? Some people forget that business is only another relationship between human beings. Friendships are formed and die, marriages are made and die. Will you not make any friends becaise someone else was unable to make friends or fell out with their friends? Will you never consider marriage because someone else's mariage failed? Will you never start your own business because someone else couldn't succeed at theirs? If you live your life by the failures of others, you may as well dig your own grave and die right now! There are plenty of people who have failed at every human endeavor you can think of. That would not stop me from trying my hand at something in which many, many people have been successful - outrageously successful - and successful to an extent that is almost beyond imagination.

An idea being worthless? That is the most bizarre thing I have ever heard on a business forum. Why, an idea is worth everything! Without ideas, us practical folk have nothing to work on, we have nothing to be practical with! Do you think automobiles didn't start as an idea? Did personal computers come into existence without being an idea? Everything began as an idea. Ideas are the lifeblood of business. Andy, if your friend has the ability to create a stream of ideas, you'd better grab him, sign him up in some fashion that ties him in to your business. Hiring him intermittently, with no tangible stake in the company, leaves him free to go work with someone else who would treat him better. Just look at the recent history of Apple for a clear example of the need for ideas. Apple went into serious decline after Steve Jobs resigned. When he came back, innovation returned and Apple is now just shy of being the most valuable company in the world, with new product after new product coming to a seemngly insatiable market.

greenoak
05-16-2011, 02:42 PM
i had a retiring banker tell me once that he had seen one partnership work in his 40 yrs of banking..... AND his experience was with small partnerships not big time ones..... i would never do one...i woiuld do deals and consignment and real specific connections but not a real partnership....
what steve said is what i hear over and over!!!
and what spider said about profit is probably soo true too....

Spider
05-16-2011, 05:35 PM
i had a retiring banker tell me once that he had seen one partnership work in his 40 yrs of banking..... AND his experience was with small partnerships not big time ones.....I find that implausible. Of course, he probably saw many sole proprietorships fail, too, and incorporated companies. But one successful partnership in 40 years. I believe he was lying or blind, or just trying to make a point.

Big partnerships start as small partnerships. And big partnerships don't borrow from bankers that only deal with small businesses.

From a banker, too? Banking is an industry that started largely by partnerships. J.P. Morgan and Company started as a partnership, Dabney, Morgan, and Company, and is now JP Morgan Chase. Henry Wells, William Fargo and John Butterfield created American Express. Wells and Fargo later went into business as Wells Fargo. Charles Merrill and Edmund Lynch partnered to form Merrilll Lynch & Co. The partnership, Burrill & Housman, was founded by William Burrill and Arthur Housman, as dry goods merchants, who later took over the brokering business of Merrill Lynch after the 1929 stock market crash. I believe Citibank, initially City Bank of New York, began as a partnership but I have been unable to discover the names of the partners. The only present day major bank that did not start as a partnership appears to be Bank of America, which began as a small one-person bank for Italian immigrants.

greenoak
05-16-2011, 05:49 PM
;maybe.... but the conversation was about 10 yrs ago and he was a small town banker in a local bank....he really did say that..... maybe he excluded families but he would have known the local business history very well...he was right on main street all those years... he might have meant he only saw one successful partnership....
ive hardly ever seen one...on the small business level..

Spider
05-16-2011, 05:59 PM
Well you can double your list by adding me.

greenoak
05-16-2011, 06:09 PM
good for you.i never heard you talk about being a partner...
...we had one and had a great exit agreement .... thanks to dh....we got out of a bad situation.....
we had another one decades ago and the partner got out about 6 months before we went under....and he got money when the store was in dire straits.... leaving us to pay the debts a few months later... ..the other 2 remaining partners didnt pay a dime.... it wasnt m uch but we did pay it off...
and its so dang cumbersome....

Spider
05-16-2011, 06:38 PM
My plumbing business was a partnership. It was formalized as a private stock company. I took the lead role and made the greater investment, my principle partner had the technical knowledge and qualifications, and I later married the other partner. It was successful on more than one level!

Spider
05-16-2011, 09:41 PM
we are a partnership...me and dh.... So, now you know two successful partnerships.

greenoak
05-16-2011, 10:59 PM
sweet.....it totally multiplied the possibilities...plus some nice finge benefits....and wierd pillow talk...

tylerhutchinson
05-20-2011, 10:08 PM
There are pros and cons to partnerships. Two minds are better then one, but it can also be double the nightmare. I would ask him to not be part of it and simply give him a small royalty for the idea and just take ownership and run it. That way he gets a little for the idea, and you get the payment you deserve for running the whole thing. Add a stipulation where if he wants to be part of it in the future he can then buy in and give up royalties for salary.

You have to make sure going into something like this is worth ruining the relationship. Usually if it ends on bad terms the relationship is over both professionally and personally.

Spider
05-20-2011, 10:56 PM
I don't understand why everyone keeps equating partnerships with nightmares. It's quite likely that all the supposed 'nightmare' reports are from people who have never entered into a partnership.

In any case, a failed partnership is indicative of poor business acumen. If I had been in a failed partnership, I wouldn't brag about it, that's for sure! It's not always "the other guy!" Sometimes we are our own worst enemy!

tylerhutchinson
05-20-2011, 11:11 PM
I was brought on board for a consulting job and as a means of payment he offered me part of the company with the ability to make decisions. After many discussions we became partners. When I first met him he had one idea but quickly wanted to change it. He would also go weeks without working on getting the company going.

Long story short, he brought me on board to consult. I did the business plan, all the behind the scenes operating procedures, and he could not even call a realtor to find a location. After about 3 months of him dragging his feet I gave him all the work I did for the company (including a lot of advertisements and marketing plans) and told him I was out. I know partnership nightmares are exaggerated, but I have started/helped start 5 companies in the past year. I was brought on as a partner and helped a partnership and those two failed due to internal reasons. The three sole proprietors were successful (and still up and running). It can just be for so many reasons, conflict, one person not being motivated, or someone not pulling their weight. Realistically it all depends on people involved and all types fail. I am just saying to be careful before you get into partnerships.

Spider
05-21-2011, 09:21 AM
I think one should be careful before you get into anything. I would still not brag about being party to a failed partnership, had that happened to me (which, I'm proud to say, has not happened.)

huggytree
05-21-2011, 05:20 PM
from my experience its very rare to have a successful partnership

it will effect your friendship when money is involved...if the idea is more important than your friendship then take it and give him nothing......

if you pay him 20 percent to keep him as a friend how will you feel when he says 20 percent isnt enough....anything less than 50/50 and he may feel you cheated him

then if you give him 50/50 you may feel cheated when you do more than 50 percent of the work...

partnerships often fail because each partner thinks they work harder and should get more of the reward...

the only partnerships i know of that succeed (2 of them) have 1 thing in common....extremely easy going personality's and not alot of drive....they all sit back and are happy with whatever happens....if your a driven person you wont like a partnership....

take the idea and give your friend a steak dinner when you succeed.......if he is lazy he may not care

huggytree
05-21-2011, 05:25 PM
My plumbing business was a partnership. It was formalized as a private stock company. I took the lead role and made the greater investment, my principle partner had the technical knowledge and qualifications, and I later married the other partner. It was successful on more than one level!

was the plumbing technical person a man or woman?

the only women plumbers ive known looked like men....they belch, fart and tell dirty jokes better than i can....

Spider
05-22-2011, 12:43 AM
There was me - construction management, a male mechanical engineer and a female former bank audit supervisor. I married the pretty one!

huggytree
05-23-2011, 07:14 PM
There was me - construction management, a male mechanical engineer and a female former bank audit supervisor. I married the pretty one!


so you had 2 partners....

didnt you worry about dating a partner??? if you were the primary owner then there's the employer/employee thing....she could have sued you if you broke up...

ive never been one to have work rules when it comes to dating, but i would probably think twice about dating a partner....i would have stuck with getting physical a few times and then acting like nothing ever happened

good for you though!

Spider
05-24-2011, 09:28 AM
No, there was never any concern about getting sued. My philosophy is that all of life is a series of partnerships. A partnerhsip is where all partners work for the good of the other partners. If I can help my partner get more from the relationship, they help me get more in return and I benefit, anyway. If a breakup ensues, there is really nothing to fight about. An amicable settlement is most likely.

greenoak
05-24-2011, 05:27 PM
i married my partner too.... spider i like the idea of life being a series of partnerships...we have had s everal wonderful long term relationships with other businesses over the years.... ..and for the store, when my son got out of the navy and wanted to join us....it made a great new partnership that has benefitted us all ...still i wouldnt go into a full partnership with anyone...i would gladly make project deals or other connections....but probably not a full partenership.... its bad enough with dh!!!lol...

Spider
05-24-2011, 09:49 PM
The thing I like about partnerships, Ann, is this -- if you have chosen your partner well, you are a member of a team, you have someone to stand in for you, support you, encourage you, console you, assist you, guide you and root for you. Of equal or greater value is having someone you can stand in for, support, encourage, console, assist, guide and root for. It gives you that comradery you will sometimes find in a congenial band of fellow employees, but which is rare in management.

I find it much more satisfying to progress and succeed with a fellow-traveller than to progress and succeed alone. It is far more fulfilling to have someone pat you on the back, hug you or shake your hand (depending on your social norm!) when something great happens instead of celebrating alone. Checking your bank balance is all very well, but a celebratory beer with a partner is so much more rewarding.

andy_ric
05-25-2011, 03:54 PM
it sounds so smart of you to realize his limitations right f rom the start
It was easy to spot. I invited him to town to view some competitors and to brainstorm and research. "We" visited about 8 stores, he only went into two or three of them. In one store he spent the entire time flirting with a sales lady, it was like a sitcom.:):)


There are pros and cons to partnerships. Two minds are better then one, but it can also be double the nightmare. I would ask him to not be part of it and simply give him a small royalty for the idea and just take ownership and run it. That way he gets a little for the idea, and you get the payment you deserve for running the whole thing. Add a stipulation where if he wants to be part of it in the future he can then buy in and give up royalties for salary.

I am headed along this line. As I will be putting up all the money, giving approximately 20% is fair.

bizmultiplier
06-16-2011, 12:24 AM
I actually also thing 20% is too much. I would also ask yourself if this is a friend you would be willing to walk away from. I would start at like 5% maybe, and get him to sign something. Then maybe put a clause in where his percentage goes up in the product/idea meets certain financial goals. That may motivate him more to make it successful. This is a tough one really. It's one of those situations where there's a fine line between doing right thing and the smart thing.

I would definitely do what was recommended above and make sure you write up what each person's responsibilities are. This is a MUST.