New LLC - Should I Bring in a Partner?

[bacterozoid]

I have some software I'll be interested in selling very soon and need to get the business stuff out of the way. I'll be forming an LLC and have read that having a partner is a good idea both logically and legally.

I understand the logical part (most successful small businesses are partnerships), but is there any legal advantage when forming an LLC?

All of the software and ideas are currently my own. I'm good at what I do but I'm not a salesman. I know a guy who's great at selling things and he could get into tons of local businesses and talk up my software better than I ever could. I see the advantages here but have a hard time saying "Hey, here's x% of my business, now go sell it", when I think I could manage myself.

Thoughts?

[huggytree]

where did you read that most successful businesses are partnerships?

did Sam Walton have a partner?

my opinion on partnerships is that you cant make a worse decision

from my experience most partnerships fail

[bacterozoid]

Can you explain where you're coming from?

[Spider]

...most successful small businesses are partnerships...Absolutely true! (Although many people will not admit it.) Actually, it's more correct to say that most successful businesses start as partnerships. Later, they form other entities, but starting as a partnership in one form or another is a good strategic business decision.

Of course, like anything else in business, there are right ways and wrong ways of going about it. But the list of great companies that started as partnerships is very long indeed - from today's Microsoft, Apple, Cisco, Google, to yesterday's successes (but still great companies today) like McDonalds, Disney, Sears, Abercromby, and so on. Considering that franchising is a form of partnership, even Walmart began as a partnership - it was a franchise of the Ben Franklin Stores.

[Steve B]

I think it's one of the biggest mistakes you could possibly make in business. The horror stories seem to outnumber the success stories significantly. We've debated this a number of times - so feel free to do a search on this topic.

[Spider]

Horror stories appear to outnumber success stories because success stories are so commonplace, they hardly seem worth mentioning. We are told that most small businesses fail in their first year, but that doesn't stop people starting small businesses. A few highly exaggerated partnership failures shouldn't be used to try to deter people from using this form of organization to better themselves. Plain logic will tell anyone that two (or three or four) heads are better than one when starting a business.

[bacterozoid]

Thanks guys. I've done a lot more reading on the topic...I'm still debating what do do but I'm much more informed. Has anyone been in a similar situation as mine that can offer their perspective?

I'm a programmer - I'll sit down and write code and pound it out. I'm friendly, but not that outgoing or great at making a sales pitch. I think most of my early business is going to come from walking into a business and getting owners to try my software, so I want to make sure it's done right. The guy I'm thinking about bringing in is good at sales, finances, taxes, and has a head for business. Those aren't my strengths.

I could probably make it all work, but doing that stuff takes me away from the keyboard. Plus, I work full-time to keep the lights on. In my situation, does it make sense to offer equity to someone to help make this work? I've also considered hiring him as an employee. In that case, I keep 100% ownership. I can't pay a salary right now, but I could offer commission.

I know this is all highly situational, but I appreciate the insight of people who have been down this road before. I've spent the last two days online researching this and other things, so I'll keep looking. Thanks!

[Spider]

... I know this is all highly situational, but I appreciate the insight of people who have been down this road before...I started a plumbing company and within five years had grown it to over 30 employees and several million per year in income. I was the 'management' guy but not a plumber. Like you, I acknowledged my strengths and recognized my weaknesses, and I filled the gap by partnering with two people who were strong in what I lacked.

It sounds to me, from what you have explained (and assuming you have chosen your propsective partner well) that the disciplines required for such a business as yours will only be partially covered by the pair of you. Perhaps you need a third partner, who can take command of office administration.

I set up my company by inviting my two partners to invest in the business (give them some skin in the game!) Their investment then determined their percentage of the partnership. In my case, I had 45% and the other partners had something like 30% and 15% respectively (with the remainder owned by some "duty" partners.) We were all paid a salary commensurate with our positions in the company and shared profits proportionately.

That proved an excellent balance and I can recommend that sort of arrangement for you.

[vangogh]

I acknowledged my strengths and recognized my weaknesses, and I filled the gap by partnering with two people who were strong in what I lacked.

And that's exactly how you should find a business parter.

I think people generally run into problems because they don't choose partners based on business skills. People partner with a friend because they're friends or they partner with someone who's skills exactly match their own. You should be looking for partners who's skills complement your own.

[alphadore]

In addition to the benefits listed above, it is also good to have someone constantly pushing you to deliver better results. When you are have you run a start up, you give your 110% at all times. This sometimes makes you feel exhausted and unmotivated if you dont see results. A partner can help you stabilize the mood swings as well.

[erichtoll]

Read the E-Myth by Michael Gerber. That will answer most of your questions.

In any event, and contractor or employee is better. Advocate for self. Why give away part of brainchild?

[Spider]

...In any event, and contractor or employee is better. Advocate for self. Why give away part of brainchild?This is sound advice if one only wants a solo business (aka self-employment or freelancing.) If you want a business that is substantial, that is horrible advice.

If you dream of a business that benefits your community, that provides work for many people and helps them satisfy their dreams and desires; if you want your business to be meaningful for your district, your city, your country; if you want a business that makes millions, then know that it is impossible to do this alone. You can only do it through and with other people. You must partner with others, in one form or another, to make a difference.

[vangogh]

The guy I'm thinking about bringing in is good at sales, finances, taxes, and has a head for business. Those aren't my strengths.

You just answered your own question. You should be looking for someone who's strengths complement yours. Look for someone who's strong where you're weak. Naturally your strengths would also be this other person's weaknesses. That way your combined strengths cover more and overall you're weaker in less areas.


if you want a business that makes millions, then know that it is impossible to do this alone…You must partner with others, in one form or another, to make a difference.

You should tell that to the following people.


Jeff Bezos founder of Amazon
Craig Newmark founder of Craig's List
Pierre Morad Omidyar founder of eBay
Aaron Patzer founder of Mint.com
Andrew Mason founder of Groupon


I think all of the above have created businesses that make millions (Groupon in terms of revenue only I think). The first 3 names on the list above have certainly made a difference in the lives of many people. The latter 2 have also made a difference, though not to the extent of the first 3.

Difficult perhaps, but impossible no.

I'm also sure contractors and employees count as other people. It is possible to not take on a partner and still have the help of others.

[Spider]

...I think all of the above have created businesses that make millions...I'm not going to research all seven of them, but a brief read on Jeff Bezos reveals that his wife was pretty smart and clearly helped Jeff develop the business plan for Amazon. I don't know to what extent she helped after that, but it's certainly a partnership that flourished. Besides, Jeff Bezos was no ordinary fellow, earning a million dollar salary in the job he had before starting Amazon. No "ordinary person" earns a million dollar salary in a company that he doesn't own, at age 23!

Still, we will each believe what we want to believe. I believe that creating a big business cannot be done without partnering and you believe it can.

[vangogh]

So now you're redefining what a partnership is? Helping someone develop a business plan doesn't mean you're a partner in the business. If all you meant above is that we need the help of others to be successful then just say that instead of insisting a business needs to be a partnership as a legal entity. I think everyone would agree that we all need help getting through life and that help is good in business. That's not the same as saying we have to form partnerships.


I believe that creating a big business cannot be done without partnering

And yet the list I provided above has examples of people who did not start their businesses as partnerships and are successful so it can be done. I'm not saying going it your own is better than forming a partnership. There are more examples of large successful companies that did start as a partnership than as sole proprietorships. Just pointing out there's more than one road to success.

[Spider]

VG, I do not wish to argue about it.

[LFinkle]

Partnerships can be wonderful and be a huge headache. A partnership agreement needs to be in place regardless of what avenue you take. I wouldn't be hastey to give up a percentage of your business without knowing you are getting something concrete in return. You may let this sales person buy in after a while. Maybe he could get a percentage IF he closes a certain amount of sales within a specific time frame. But again I'd think twice about giving too much away too soon.

[Justreal]

What if you offer a small % of net sales for initial work and no money investment? How could that work