Before I wind things up on the subject of partnerships, I just want to summarize my position:
– Having no partners is better than having partners [AJC: I covered my reasoning in this post and in this follow-up post],
but
– Sometimes, having a partner is the only way that you will get a business off the ground [AJC: as I discussed in this post].
Now, my reasoning on this subject is clouded by my own experience with partnerships – in fact, it’s how I got started in business: a family business.
The arguments that my father and I had were legendary, and the business eventually failed.
Yet, it was the business idea that my father passed on to me (which I was able to resurrect, like a phoenix rises from its ashes) that ultimately lead to my success … because that little ‘reinvented’ business eventually funded my next little business (which WAS my idea) which became a multi-national-much-bigger business which I eventually sold => phew! => still leaving me with my original little business π
Now, I have a number of other little businesses in the works – and, I am ‘working’ almost all of these ones with partners; here’s my somewhat revised reasoning:
1. Three of the businesses are my idea, but my partners are the developers (they are all web 2.0 sites): I am taking a Venture Capital view to these, where I direct the strategy of the companies but others do the work; the idea of taking these partners on is to eliminate a major start-up cost – hence risk – and to retain the IP ‘in house’ without having a huge staff cost. I would hate to lose one of the key developers!
2. One of the businesses that I am negotiating to buy into is also a web startup – not currently very ‘web 2.0’ but I intend to take it in that direction – and, the guy that I am hoping to partner with is the developer. If the partnership or site doesn’t work, I am hoping to ‘blow’ only $50k or so. For me, this is really pocket change [AJC: but, who wants to blow $50k every time they want to ‘play’ with a new idea? I sure don’t! So, I AM taking this semi-seriously π ]
3. The other business that I am negotiating to purchase is major: it will cost me $700k up front and another $800k over the next few years to buy out the current owner, who has successfully destroyed his current business: taking it from $2 mill. annual net profit to break/even or a small loss in just 3 or 4 years through divorce, and pure mismanagement. I am hoping that I can reverse this trend … we shall see. Naturally, I don’t want this guy around!
It’s this last one that I mentioned in my post about bonusing the existing key staff to keep them on, rather than taking them on as partners.
But, the key question is: how do you reward and keep good staff?
The common way is to make them equity partners: give them skin in the business … but, I don’t think you really need to do that, if it’s purely a ‘staff retention’ issue …
In my last business, I had a key employee who moved to the USA with me to help me establish my operations over there … I actually transferred 10 of my best Aussie staff for periods of 6 weeks to 6 months, but three stayed on. And, one of them became more and more key to the success of the US operation.
His salary in Australia was $70,000 (Australian dollars, which was about $55,000 US) but I put him on a ‘bonus payment’ while he was in the US of a GUARANTEED $160,000 (US dollars) total PER YEAR while he remained working for me in the USA.
That was a $100k+ pay rise … he was THAT important!
Not to say that he wasn’t operationally replaceable [AJC: I made sure of that π ], but that he just could take care of a lot of stuff for me that others would struggle with … less stress on me at that time was worth $100k.
Then, when I was approached to sell the US operation, I took even more dramatic steps to make sure that he stuck it out:
Even though a $160k pay packet should have been plenty, you can never be sure how people think …. so, I offered him another $100k as a one-off ‘retention bonus’ i.e. if he stayed on until the sale closed and my final payout was delivered.
Was it worth it?
For him, absolutely … and, for me, you betch’a π
In fact, my accountant in Australia also got a bonus – $250k (Australian dollars) – just for helping me keep my businesses alive in the early days (remember when the original business went belly-up, leaving me $30k in debt? He was there to help me negotiate with the banks and turn things around) … and, you should NEVER forget those who were there when YOU were the one who needed help!
Adrian.
PS My ‘$160k + $100k Man’ finally did come back to Australia, and he now works for me in my original little business, which can only afford to pay him $55,000 (Australian dollars) per year; he is happy and I am happy … I told you that you can never be sure how people think!
I am curious how you make money at your web 2.0 businesses?
Adrian,
You mind telling any more about the distressed business you’re working on buying? I’d love to hear more about that.
@ Chris / Brandon – I have posts planned on each of the above in the next few weeks:
– Web 2.0 some subscription, some advertising, and some surprises (for me!)
– Distressed business – just waiting for things to sort themselves out before I put pen to paper, here … right now, I may not be the front-runner, but I am not sure how ‘genuine’ the other offer (which predates my cash offer by some weeks/months) really is.
Stay tuned for more π
I can definitely attest to the power of bonuses. I use them extensively in my office for my staff and they stay motivated to win as much as I do now and my former employer used them wisely to keep me around running his office perhaps FAR longer than I should have π
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