Is your partner worth $5 million?

picture-12I guess by now you know my true feelings about partnerships, but you may have other ideas …

… after all, your intended partner may be the Yin to your Yang … she may be the finance whiz while you run rings around operations … or he may just be your buddy since you shared a dorm together.

All I can say is: I hope that whatever your partner brings to the table, that they are also bringing The Big Idea.

You see, if you are the one with The Big Idea and you choose to share it with a partner because you [insert too scared to go it alone reason of choice: need more capital; need finance/operations/marketing skills; need somebody with a level head; need somebody to burn the midnight oil with; need somebody to hold hands with; etc.; etc.], then you are effectively paying your partner $5 million for the privilege!

By now you’re thinking that I’ve gone entirely off my rocker, so let me explain:

Let’s say that you have worked your way through all of the exercises and you believe your Number to be, say, $10 Million in just 10 years … where are you going to get it from?

Well, The Big Idea of course!

You’ve had this great idea and you will build a business around it and you will sell it for $10,000,000 in 10 years and …

… ooops!

You forgot that you invited a partner to join you … and when you sell, they are going to get half: $5,000,000.

That’s $500k a year for 10 years PLUS whatever salary that they took for those 10 years PLUS whatever perks that they got (e.g. trips, cars, laptops, phones, etc., etc.) PLUS 50% of any profits.

And, now you’re only half-way towards your Number!

Was your partnership worth it? Or, could you have hired people when you needed them for far less cost? I’m venturing that the answer is ‘yes’.

Another way to look at it is: will I be able to sell my business in 10 years for $20 million, so that my half still gets me to my $10 million 10 years Number? Or $30 million, if I decide to have 2 partners πŸ˜‰

So, the question that you need to ask before considering going into business with somebody else is: am I more likely to get to my Number with or without this person?

And, I’m guessing that unless you’re a total doofus who just happens to have The Big Idea and not much else going for them, the answer will be “NO, I can get to 100% of my goal without this person, MUCH easier than getting to 200% of that same goal with them”.

So, what if you don’t have The Big Idea, but the guy who happens to have it asks you to go into business with him?

That, my friend, also depends on whether you are more likely to get to your Number with or without this person … and, their Big Idea?!

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14 thoughts on “Is your partner worth $5 million?

  1. I appreciate the insight but most people will never have a workable $10M business in 10 years. Plus there are many intangibles of having a (business) partner.

  2. @ Money Blog – True, but if my readers thought like “most people”:

    1. They wouldn’t be reading a blog called “How I made $7 million in 7 years … and how you can too!”

    2. And, if they did, it would have been called “How I made $3.5 million …”

    BTW: I decided that the ‘intangibles’ were NOT worth $3.5 million πŸ˜‰

  3. I agree, there are no ‘intangibles’ worth half my future net worth. At least for me, the hassles of having to deal with a partner’s nuances and different ideals and purpose are simply more than I care to deal with(especially after having dealt with this in personal experience in great deal up to now) and kind of negates my goal of ‘financial freedom’ or ‘independence’. If you want others to share the workload, they are called employees and they work for far less than half of your companies value!

    Not to mention, being a business partner, much like the situation i’m in now, kind of destroys or gets in the way of a great possible true friendship.

    I wish I could just be good friends and a colleague with my business partner as we could have many things in common and I think could be terrific friends and even train together, etc..

    But the whole business partner thing just sours the deal for me as i’ve read it has done for countless others because there is always your partners ‘other agenda’ you have to have on your BS detection radar. πŸ™

  4. For me, the answer is Yes! Without my partner I would be much worse off, and (I’m sure that she would too).

    She is certainly my business partner and thanks to our joint income, we can start to leverage our additional cash flow into other investments and projects. Both of us have supported the other in getting new positions (and raises), and are working on holding each other accountable for the big picture (“The Number”). We have doubled our income, and quadrupled our net worth in four years.*

    Sure we have made a lot of mistakes along the road (moving too much, over-improving our home), but we’ve learned from them and moved on. Our skills are complementary – I’m much more about the numbers and details, and I support my wife as she has a larger work commitment. We could certainly live off a single income, but it would make reaching the number much harder.

    I hope that money issues are reported to be one of the largest causes for divorce, and I’m guessing that is something that Scott mentioned about partners – you have to have the same saving/spending patterns, expectations, goals, and level of commitment.

    Oh, and yes, our combined number is basically double what it would probably be for just one of us. I’m not questioning that.


    PS – I met my wife 6 years ago yesterday (we’ve been married for just under 4)

    (*) I know the income growth will not continue unless we start a business. That’s one of my goals this year, and why I”ve been excited to find 7 million in 7 years.

  5. I was actually referring to a ‘business’ partner, not a life partner, but you most certainly have to make sure that your life or relationship partner is on board with you financially as well πŸ˜‰

  6. @Scott

    Yep, but I just saw an interesting parallel with life partners after reading your comment.

    Back in the early 90s I was in Grad school working on start-up, and my partners ended up getting comfortable jobs (they weren’t in school). As a result, their commitment to the startup faded and with it went the company. I didn’t have their hardware skills, and since I didn’t have a job, I couldn’t go on alone.

    All I have left from those days are memories and a few lessons learned. Hmmm…. and I repeated that a few more times to really learn it.

    I’m not completely against partnerships if that partner brings something to the table that you need, but most of my experience was on non-profit/hobby ventures. However, I’m really only going to so that for a side business.

  7. As you know AJC I am a huge fan of this site, and your message, but most of your posts are positive as the situation worked out for you (luckily for us readers).

    That being said, but one about the huge benefit of hedging your bet on a business. If you venture costs 30K, 60K, 100K, or even a million. What about the benefit of only losing half if it doesn’t work out?

    Not sure where I stand on it, but just some thoughts…

  8. @ Neil – As Scott picked up, I was talking about Business Partners. But now that you mention it, my Life Partner (i.e. wife) was my ‘business enabler’ and without her we would never have succeeded in business or investing … on the investing side, primarily RE because she is not QUITE so supportive on stock investing πŸ˜›

    @ myjourneytomillions – … a partner as a ‘hedging strategy’ hmmmm I think that there are other – less costly – ways to reduce business risks, but if you partner brings skills that you don’t have you may decide that the 50% ‘hit’ is worth it?

  9. Well my problem is that I got stuck with a business partner. He started off as a lender. Then as we needed more and more capital to prop up parts of the business that were losing money he was there. Then the industry we were in fell apart. We did things better than the rest so we lasted longer, but during this time he kept dumping cash in the business. Then the business started to die and we both focused on other things. Now his cash is gone, and I am rebuilding the business with almost no effort for him but he wants half of my efforts. I also get half of his efforts on the things he is working on. But really he is not worth the price. So I have restructured it. I get paid a salary and then we split half of what is left after that, works for now, but when the company gets huge I don’t know where we will stand.

  10. @ Jason – Unfortunately, an all-too-common story; I have friends who invited a partner in. He promised the world and seemed “so generous”; not even a few weeks – maybe a month – later and they are already regretting their decision to invite him into the business: Jekyll has turned to Hyde πŸ™

    @ Money Blog – As Jason and my story shows, maybe there are ‘intangibles’ on both sides of the partnership ledger? πŸ™‚

    The bottom line: weigh up the pro’s & con’s of any partnership decision VERY carefully – perhaps with the aid of an impartial third party – to sort the rational wheat from the emotional chaff

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