Forums: Discussions for entrepreneurs and small business.

Fernanda,

Haven`t trolled through any of your prior messages here on this forum, so thought I`d invite myself to respond to this one! First of all, looks like you`ve built yourself a nice business with Playground Earth, and you have some strong industry affiliations. I`m not a travel industry person, but I am an avid traveler, and I`d venture to say that you have the ability right now to build some real value in your business to extend to your potential customers and do some good for the industry (it`s definitely in a sad state of affairs right now). I`ve actually got some ideas that I wouldn`t mind sharing with you in future discussions.

As for inking a partnership deal, things get a bit sticky. First of all, before even considering a partnership deal rather than another working arrangement, you should do a solid valuation of your business. If you`ve already done this, then the next step would be to do a realistic and honest forecast. I`ve been through about 4 separate partnership deals with my own businesses and I`ve found that a 5 year projection serves best for this purpose. With the travel industry as fickle as it is, I assume this will pose a slight challenge, but nothing you can`t handle.

Then, you`ll really need to analyze the capacity and extent of the partnership. Countless times I`ve reached this point in my stepped plan only to realize that a partnership wasn`t in my best interest, or that of my potential partner. You may come to this realization as well. If not, then forge on!

I`ll use your 40% share with no investment as a baseline for my next rabid assumptions about your situation . I`d never even entertain this option to an uninitiated partner with no sweat equity interest in the company. I work on trust and instinct...and I need information to develop both of those. Work with the person first...then offer.

The second option in your post is more plausible by leaps and bounds, and would be in your most prudent interest. If you are sole principal/owner right now, I don`t think it would be a stretch to offer 10%-15% upfront (depending on what valuation numbers you come up with for your company) and set milestones based on a formula that accounts for sweat equity, completed projects, and time. This formula is entirely intangible by most accounts, and is generally an inherent feeling within yourself of how much you value and trust your partner. However, allowing yourself set times as boundaries, and creating milestone projects allows you a tangible barometer to judge your partner`s worthiness.

This is really a very general guideline of basic rules to follow. E-mail me at andrew.shcs@gmail.com and I`ll be glad to discuss more about this with you. Inking a partnership deal can be, at once, one of the greatest and worst things you do for yourself and your potential partner.

P.S. I am not a pessimist by trade!!

Best Regards!

Hi Fernanda -

First of all I would like to say that you need to hold on to as much equity in your business as you can.  NEVER give it away or sell it cheap.  Having said that, if you do find a responsible, entrepreneurial, risk sharing, fair and reliable partner - they you should make them a true partner in exchange for something.

You are at an early stage in the business with many moving parts and considerations.  You have to consider company structures, exit plan (always have an exit plan!), alliances, competitive threats, industry trends, etc.  When you have a partner that is a good fit - life can be balanced and great.  You guys can take a load off each other and be complimentary.   If you select a poor partner or i fa good partner turns out to be a bad one - big trouble and threat to your business and livelyhood.

Choose a partner without making promises.  Choose a partner that you reserve the right to reward with equity IF YOU WISH AFTER A SET PERIOD OF AT LEAST 2 YEARS. Choose a partner that is different from you, who has a different temprament, different skills and talents but the same overall goal to be their own boss and run a business profitably.  A partner will allow a busy business person to balance their life - take vacations with the phone off, have time with family and friends.  Sole proprietors on the other hand can be on their way to an early death from stress and lack of balance.

Choose your business structure carefully considering future tax considerations (S-Corp vs. C-Corp or LLC or LLP, etc.) and diluting your shareholding in future to a suitable partner.

If equity is going to be given out - you can ask that person to reduce their salary - which effectively makes them take some risk.  You as the owner are in control of how to negotiate such deals - be fair and firm, know what you want before you go into anything - so you do not end up out-negotiated or out maneuvered.

My last words after being in business with partners of difference calibre over the years if BE CAREFUL and never rush into a decision.

Chris

40% seem a lot to give away. Why do you need the partner? I guess depending upon the importance of the partner in business growth and other aspects of the business, percentage equity can be decided.